By Weezie Melancon
Startup incubators, also referred to as “startup studios”, have popped up all over the globe with the intention of providing founders and their early-stage companies with an ecosystem of support. Incubator benefits range from office space, peer socializing, and business development to mentorship, legal counsel, and funding opportunities. If you’re an entrepreneur looking to launch, manage, or grow your early-stage startup, then you’re probably ready for a startup incubator.
Before shopping for an incubator program that best serves your needs, here are a few things you should know.
Do incubators take equity?
While all incubators are designed to help startups succeed, some offer services on a fee-basis and take no equity. Others require an equity stake. An incubator’s model usually depends on who owns it. Many incubators are non-profit organizations underwritten by academic institutions such as universities, or government entities. Their mission is usually to bolster economic development by assisting small businesses.
Alternatively, for-profit or business incubators are usually run by veteran entrepreneurs and funded by active investors. They equip their junior founders with services and funding in exchange for ownership. Science Inc. (Dollar Shave Club), Monkey Inferno (Bebo), Expa and the pioneer of online incubators, Idealab are popular startup studios known to invest early stage capital in exchange for large equity positions.
Equity stake is an essential factor in selecting an incubator for your startup. However, there is no set rule book on how much equity an incubator (or accelerator) might take. Before making a decision, founders should consult their capitalization table. This can provide insight on how different business decisions can impact the company’s equity structure.
What is the difference between incubators and accelerators?
When deciding whether to align yourself with an incubator or accelerator, it’s important to understand the difference between the two. Both aim to support startups in their early days and share similar resources vital to a company’s success. Mainly, incubators focus on providing business support at the ground level. Startup accelerators center on rapid growth for companies generally 6-12 months into fruition that have a minimum viable product or MVP.
Incubator programs build out new concepts from outside founders, or sometimes assemble founding teams to develop their own business ideas. Accelerator programs tend to be more intensive with compressed timelines to raise funds and hit growth targets to scale an already established business.
Some firms, like Capital Factory in Austin, Texas function as both. Capital Factory is a venture capital enterprise that defines itself as the “center of gravity for entrepreneurs.” They offer classes, meetups, various business resources, and funding sources for companies at any stage. Another option is FoundersBoost, a program designed to help pre-seed/seed stage startup companies achieve acceleration, investment and/or revenue. Techstars, Y Combinator, and 500 Startups are a few more well-known accelerators.
How do I find investors for my startup?
With the number of tech startups in the millions and growing by the day, standing out and securing capital as an early-stage startup is a challenge for most founders.
Investment capital can seem elusive at the start of any business (and also at the end of any business). Asking friends and family for angel or seed funding is a customary path available for some, but not everyone. Founders with a business idea, but without a business model that validates the mission financially and convinces investors of its viability, are doomed from the start. But if you’ve laid the necessary groundwork, a worthy incubator will provide your startup with the necessary tools to raise capital.
Additionally, increasing exposure to investors and expanding one’s network by attending conferences and events can serve any entrepreneur looking to find capital partners. “Demo day” is a common event organized by various corporations to allow entrepreneurs to pitch their startups to an audience of accredited investors scouting new deals. In addition to in-person events, a variety of online platforms and forums exist to connect entrepreneurs with investors.
Another significant resource for investment capital is solidifying a strong advisory board. This board should not only supply access to funds, but proffer a full scale of services and guidance.
What is the role of an advisor in a startup?
Startup incubators are a great way to connect with startup advisors. When it comes to the role of an advisor, there is no underestimating the importance of selecting the right candidate. First and foremost, advisors must believe in you as a founder and CEO, and be committed to your success. Advisors often invest their own capital and/or introduce you to capital. Advisors should have an extensive network. They should be willing to connect you with strategic partners who serve various purposes, such as investment, credibility, marketing, and scalability.
For founders who may not excel at acquiring their own mentors and advisory counsel, an incubator can help. Additionally, mentorship programs can be found in every major market from Miami to DC to Paris, and beyond.
Incubators, accelerators, and mentorship programs have proven benefits. But above all, they allow founders to recognize shortcomings in order to fill voids. They are also essential to building a support structure, which is the key to executing a vision successfully and sustainably. No entrepreneur can do it alone.
Founded in 2011, Founders Network offers lifelong peer mentorship to over 600 tech startup founders globally. Our platform, programs and high-touch service facilitate authentic experience sharing, warm introductions and long-term professional relationships. Additional benefits include over $1M in startup discounts and mentorship from 50+ Institutional Investors. Members are located in San Francisco, New York City, Los Angeles, Vancouver, Toronto, London and other tech hubs. Each month our Membership Committee admits a new cohort of full-time tech founders who are nominated by an existing member.