One of the reasons that now is the time to be an entrepreneur is the explosion of startup assistance organizations, usually called incubators or accelerators. According to the National Business Incubator Association (NBIA), there are over 7,000 of these locations worldwide, and new online versions springing up all over the place, like Founders Space in Silicon Valley.
Most of these are non-profits, set up by a university to commercialize new technologies, or a municipality to foster business development for the local economy. A few are still trying to make a profitable business out of nurturing startups, but it is a challenge to make money when your customer startups do not have many resources to give.
But there are notable examples of for-profit incubators that are thriving, including YCombinator, led by Paul Graham in Silicon Valley and TechStars, led by David Cohen and located in several key cities around the country, that have an excellent reputation and track record. I believe their competitive advantage is their top on-site leadership, exclusivity, and connections to investors.
Variations on the incubator theme are sometimes called business accelerators, science parks, or the Small Business Administration’s Small Business Development Centers (SBDCs) in almost every state in the US Accelerators generally accept startups at a slightly later stage, and attempt to compress the timeline to commercialization into a few months, instead of a year or more.
Common resources provided by most of the incubators and accelerators today include the following:
-Access to shared office facilities for multiple startup teams at a very low cost.
-Shared business support services, including telephone answering, conference rooms, teleconferencing, administrative support and a business mailing address.
-Mentoring and technical assistance from volunteer or paid experts.
-Direct seed funding, for a share of the equity, and introductions to investors.
-Peer-to-peer networking with other startups and founders in the same stage.
-Health, life and other insurance at group rates.
If you do not need these common resources, but need specialized technology services, you should look for technology parks and research facilities, often sponsored by leading companies in specific technologies, like Intel New Business Initiatives and Google Ventures. As well, these companies usually bring real new venture funding opportunities to the startups they sponsor.
To get started, go to the National Business Incubation Association (NBIA) web site, and use the lookup tool provided to see what is available in your area. This association is definitely one of the world’s leading organizations for advancing business incubation and entrepreneurship. Another good online approach is a simple Internet search for articles like the “The Best Startup Accelerators Of 2016”
But don’t expect incubators to magically convert your pre-hatched idea into a successful company. The good incubators are highly selective, and expect you to demonstrate your commitment and a hard work ethic to meet expected milestones and show continuous progress. According to some recent feedback, YCombinator takes roughly 3 percent of applicants who apply to each batch cycle. Assuming 60 companies are accepted in a specific batch, that would mean around 2000 companies applied. That is about the same ratio that angel investors claim.
I believe the real value of an incubator is in the relationships you can build there, with peers as well as domain experts, investors, and potential strategic partners. An incubator will not help you if the market opportunity is small, the competitors are large or your solution does not address a real need.
As evidence that it does work, VentureBeat calculated in 2015 that YCombinator startups had raised over $7 billion, with a $65 billion total valuation. In fact, 8 were already billion dollar unicorns. That’s over 500 successes in less than 10 years. However, if you are looking to find an incubator like YCombinator for easy money and free services to hatch your startup, it probably will not work.
Growing up and surviving in the entrepreneur world requires a fine balance between an independent determination to be self-sufficient, and a humble willingness and ability to listen to and learn from the best and the brightest startup mother hens out there. Are you and your startup ready to make the cut?
Image credit: CC by Robert Scoble