accelerator

Expert Tips on How to Get Into an Accelerator

accelerator

What You Need to Know About Getting Into an Accelerator

Spending a couple of months in an accelerator can be an excellent way for a fledgling startup to make serious headway and begin to consistently grow. Not only do the investors who head accelerators provide access to funding, mentoring and valuable business connections, these programs are located within shared workspaces where founders can network and form long-term relationships with other smart entrepreneurs. There’s one caveat: Some of the best accelerators are tough to get into.

Take some advice on how to do it from Jason van den Brand,co-founder and CEO of online mortgage refinancing startup Lenda, which graduated from one of the planet’s hottest accelerators, Silicon Valley-based 500 Startups last year. Since then the company raised its first round of funding, has been growing 40 percent month over month since December and recently passed the $40 million mark in loans financed through the platform. Here’s how he says you can improve your chances for getting into a hot accelerator, as well as what you need to do if you succeed.

1. Make sure your business idea is a big one.

The bigger the better. Lenda, for example, is attacking a $10 trillion vertical-the kind of number which definitely will turn an investor’s head. “Having that kind of market size behind your idea is really, really helpful, versus having an idea on the back of a napkin,” he says.

2. Have a minimum viable product (MVP) in place.

You need a product that actually works. While it will never be perfect and you’ll always be iterating, what you want to grow in an accelerator should be something customers are touching and giving you feedback about. “You’re out there talking to your customers, trying to find out how to make that product better, and trying to find ultimate product-market fit,” he says.

3. Execute to the point where you’re getting traction.

You prove it with numbers. How many customers have you worked with? How many people are visiting your site? What’s your revenue? Are your numbers growing month over month? “‘Month over month’ is the big hairy metric that all of these incubators, accelerators and VCs are looking for, so the higher that percentage of growth the better,” he says.

4. Build a team.

While exceptions certainly exist, it’s rare to see a solo founder going into an accelerator. At a minimum you’ll need someone on the team who is a domain expert and another with strong technical skills. And it has to be a full-time gig for everyone involved. “You can’t be part-time going into it, so if you have another job you’re going to have to quit,” he says. “If you have multiple ideas and you’re not sure which one to go with, you’re going to have to pick and decide and work on one.”

5. Network heavily.

500 Startups states right on its website that a positive referral from mentors and founders who have already gone through the program is the best way to get noticed. It’s going to be the same thing with any other accelerator out there.

6. Nail your interview.

You have applied to an accelerator and have been offered the opportunity to pitch. The best way to sell your idea is to know your business inside out, including your vision, roadmap and every kind of metric you may be asked about. “How many people have visited your site? What are the conversions through each step of the funnel? What’s the cost to acquire a customer if you are using any kind of paid channels? What is an estimate of the lifetime value of your customer?” he suggests asking yourself. “You need to do a lot of the heavy lifting before you apply.”

7. Once accepted, make friends within the accelerator.

The other founders and team members you will meet are incredibly bright people who possess a wealth of information and experience. Plus, these people understand the difficult and often lonely road of entrepreneurship better than anyone else.

8. Be honest with yourself and everyone else.

When you tell your mentors everything about your business-even what’s going wrong-they can help you fix it.

9. Prioritize growth.

You want more users and revenue every month. When your month-over-month numbers are high you’re in a better position to offer excellent theatre during your demo day at the end of the program.

10. Close your fundraising round as soon as possible.

Van den Brand suggests allotting six months to complete your fundraising, but aim to do it in the first month. “Be ultra-efficient with your time and batch meetings together,” he says. “Start at 9 a.m., finish at 6 p.m. and talk to six people in the same day. The faster you fundraise, the faster you can get back to building and growing.”

11. Transition the CEO role.

Taking money from investors brings with it a huge fiduciary responsibility. It sounds counterintuitive, but at this point you need less hands-on time in the business and more time finding the top talent who can help you deliver.

12. Keep growing.

This is your final-and unending-responsibility. “You have keep the business growing so you can get to your next round, which will be sooner than you think,” he says. “Time flies when you’re building your own company. Those things what you must to know how to get into an accelerator.

Business Incubator

Is Joining a Business Incubator or Accelerator Always a Good Thing?

Business Incubator

Subtitled: Many Concepts  of Incubators  and  Accelerators  

The  research  methodology  section  describes  the  research steps,  the  sources  of empirical  data and  the  type  of data  analysis  to  be  performed.  The  Results  section summarizes some of the negative experiences of entre-preneurs  who  have  been  part  of  business  incubation programs and provides some reflections about the dif-ferences in these experiences  in incubator-like and ac-celerator-like  environments.  

Finally,  the  Conclusion provides  some final  reflections and  summarizes some of  the most  typical  downsides of  being  part of  an  in-cubator or accelerator. Key Insights from the LiteratureAccording  to  Gunter  (2012),  startups  tend  to  be  the most  rapid  job  creators.  Either  startups  move  up  by rapidly expanding their innovation to become economically successful, or  they  rapidly  go  out  of  business. 

Very  often,  startups  develop  radically  innovative products  and,  eventually,  disrupt  existing  markets. However,  startups  who  seek  to  do  things  differently face  several  challenges  and  uncertainties  associated with  the  shaping of  a viable  business model,  reaching out  to  early  buyers,  setting  up  durable  partnerships and  sustainable  operations,  etc.  

To  deal  with  these challenges  and  uncertainties,  startups  usually  benefit from all available resources including  existing  regional and national business incubation programs. Incubation vs accelerators In order  to establish  a successful  business, entrepren-eurs  are  often  looking  for  business  programs  that could help the growth  of their business. In fact, incubators and accelerators are meant to  boost  the success-ful  development  of  newly  created  firms by  increasing the likelihood  of their  survival and growth.  Incubators and accelerators should  enable a  smooth start  and fu-ture  growth  for  startups. 

 However, many  concepts  of incubators  and  accelerators  have  been  put  forward, which  sometimes  confuses  both  scholars  and  practi-tioners. The  original  concept  of  an  incubator  has  changed since the first private incubator was established in New York  in  1959  (Hausberg  &  Korreck, 2018).  Since  then, many  different  forms  of  entrepreneurship  support have emerged, one of which is the accelerator. The first seed accelerator was  Y Combinator in 2005, which  was followed  by TechStars  in  2006. Many  others  have fol-lowed  their  lead, but  Y Combinator  and  TechStars re-main two of the top accelerators in the world today. Such programs are now commonplace, but there  is  still confusion regarding  the  terms incubator  and accelerat-or.  

For  example,  many  startup  programs  that  describe themselves using  the same  term do not  share common characteristics. Thus, in order to make  a  distinction between  these  two terms, it is necessary to answer the following questions:• What does an incubator or accelerator offer?• Who is an incubator or accelerator targeting? Characteristics of an incubatorThe goal of incubators can differ depending on the type. 

There  is,  therefore,  a  distinction  between  the  classic business incubator and a typical accelerator. “Accelerat-ors  usually  are  fixed-term,  cohort-based  programs providing  education,  monitoring,  and  mentoring  to start-up  teams  (usually  not  single  entrepreneurs)  and connecting them with  experienced entrepreneurs,  ven-ture  capitalists,  angel  investors  and  corporate  execut-ives  and  preparing  them  for  public  pitch  events  in which  graduates  pitch  to  potential  investors”  (Haus-berg & Korreck, 2018).

The risks associated with selecting and joining an incub-ator or acceleratorA critical assessment of  the effectiveness of an incubat-or  or accelerator can  guide entrepreneurs  to make  the right  decisions  about  engaging  with  specific  business support  programs.  Many  entrepreneurs  are  novices who  lack competencies, working  capital, and  potential for  funding.  Entrepreneurs  make  decisions  based  on what  they  perceive,  and  startups  often want  to  be ac-cepted into a well-established program without consid-ering  if  it  is  the  right  program  to  be  in.  According  to Bliemel  and  co-authors  (2016),  entrepreneurs  usually apply  to  join  an  accelerator  because  they  need  seed funding,  incubation  services,  and  partnership  net-works. 

They emphasized that, for example, when entre-preneurs  are  only  seeking  mentorship,  an  accelerator program  could be  detrimental to  them since  there are many  risks  associated  with  an  accelerator.  Miller  & Bound (2011) articulated several criticisms of accelerat-or models:•  After graduating  an accelerator,  startups are  still  fra-gile and in need of support.• The equity taken  by accelerators becomes problemat-ic for further funding. Startups fear “Rich guys launch-ing  ‘startup  accelerators’  so  they  can  rip  off  new start-up founders” (Miller & Bound, 2011).• Because of the increasing number of  accelerators and their  tendency to  invest  in  early-stage  firms,  B-grade companies will not receive investment.• “If  accelerators  continue to  grow and start producing thousands of small  companies, we can expect to  see a bottleneck  developing and  in  the  event  of  a  crash in confidence in the sector” (Miller & Bound, 2011).

•  Accelerators  will  become  “startup  schools”  who  will encourage  learning  through  educational  returns rather than building real businesses.

 •  Accelerators build small  companies that  do not  have quite global  ambitions. These  are  companies that  are building something that will become a feature of a lar-ger service, rather than aiming to become a large com-pany in its own right.

•  Accelerators are  making  entrepreneurship so  access-ible that they start draining talent from larger techno-logy firms. Yu  (2015)  argues  that  founders  with  promising  ideas avoid joining  accelerators and instead  choose different ways  of progressing.  For  most of  them,  an accelerator without  a  well-established  value  ecosystem  and  net-work  is worthless. On  the other  hand, the  best startup exit  for  an  accelerator  or  for-profit  incubator  comes when the startup is acquired. In this sense, an accelerat-or is just another type of incubator, whose goal is to in-crease  the  startups’  survival  chances  (Hausberg  & Korreck,  2018).  

But  there remains  a  lot  of  definitional uncertainty.  As  Mian  and  co-authors  (2016)  emphas-ized,  the  definition  of  accelerators  cannot  be  general-ized due to idiosyncrasies  in their  relations  to political, economic, social, and geographic conditions. The summary of the risks associated with the possibility of  startups  joining  business  incubation  programs demonstrates the  need for  more  systematic studies  fo-cusing  on  the potential  downsides of business  incuba-tion  practices.  The  next  section  describes  the methodology  adopted  to  answer  our  initial  research question,  starting with  the hypothesis  that it  is not  al-ways beneficial for new ventures to join business incub-ation programs. Research MethodologyFor this study, we adopted an explorative qualitative re-search  approach  using  multiple  semi-structured  inter-views  with  startup  founders,  complemented  by informal  discussions  with serial  entrepreneurs. 

We  de-signed  the questions  around  issues  related  to some  of the  negative  experiences  of going  through  specific  in-cubation/acceleration  programs and  how  such experi-ences  affected  the  future  of  specific  ventures. 

Business Incubation

The Importance of Knowing Business Incubators

Business Incubation

Subtitle: What is the Importance of Business Incubation?

Business Incubation is the name given to the process, wherein an individual or an organization supports the establishment and growth of a start-up. Those supporting the start-up or new companies are called business incubators

These business incubators see the growth potential and weigh the opportunity before supporting or funneling funds into any start-up. The selection of a start-up involves a high level of research before any decision is taken to support or fund a start-up. In a nutshell, we can say the goal of incubation is to increase the success chances of business.

Over the years, experts have defined Business Incubation in their own way. The underlying concept, however, remains the same. According to Sherman and Chappel, a business incubator is an “economic development tool primarily designed to help create and new businesses in a community.” Further, Sherman and Chappel note that the business incubator support emerging businesses with several services, such as assistance in building management teams, developing business and marketing plans, funds, professional services, shared equipment and more.

Importance of Business Incubation

There is no dearth of start-ups that work on a brilliant idea with a huge scope of scaling. However, these companies have little knowledge about management, and therefore, burn cash rapidly. Business incubators help the start-ups to manage finances and ensure proper utilization of the money. Managing a business at a very local level play a significant role in making the foundation strong and scale it. Business incubators essentially perform the same function.

There are various business incubators that target businesses that want to establish themselves formally in the market. Such businesses with great growth potential might require various types of support such as planning, training and development, research support and so on.

Stages of Business Incubation

The whole process of business incubation is broadly divided into three categories:

  • Physical Facility Support

This refers to the incubation service provided within the physical facility.

  • Networking Facilities

After the physical facility, business incubators help the start-up with networking facilities so as to grow the business.

  • Support Services

Once the business is up and running, the incubators offer various support services to the businesses in order to run the business smoothly.

Incubators – Who are They?

Incubators are usually a partnership or collaboration between one more pro-business organization. These organizations can be:

  • Economic development organizations
  • Government entities
  • Local colleges and universities
  • For-profit ventures
  • Trade associations
  • Services Offered by Business Incubators

Start-ups usually have a rich idea but lack the resources to execute it. Thus, they require business incubators to perform significant roles or fill the gap. Following are the most common services offered by the business incubators:

  • Help a start-up to start basic operations and financial management.
  • They offer marketing and PR assistance to new companies to set up a brand name.
  • Business incubators have a strong network of influential people, and therefore, they can connect the business with the same to grow.
  • Incubators also provide assistance and resources for conducting market research.
  • They also help the start-ups in sorting their accounting books.
  • Incubators bring credibility to the company. This helps the company to get loans and credit facilities from financial institutions.

Often the start-ups do not know how to create an effective presentation to impress angel investors, venture capital and other investors. Business incubators, with plenty of experience behind them, help these companies with the presentations as well.

Business incubators also act as mentors and advisors and assist the start-ups in all sorts of business-related issues.

Types of Business Incubator

Majorly there are four types of incubators prevailing in the market today. These are:

  1. Corporate Incubators

Objective – to enhance the entrepreneurial spirit and help the start-up to keep up with others in the industry

Targets – usually target internal and external projects related to the activity of the company

Challenges – conflicts between the management regarding the objectives and management-related decisions.

  1. Private Investors’ Incubators

Objective – assist the potential business model and then reap benefits by selling the shares.

Targets – technology-intensive start-ups.

Challenges – quality and durability of the project.

  1. Academic Incubators

Objective – offering new sources of finance, supporting the entrepreneurial spirit and civic responsibility.

Targets – external projects and the projects internal to the institution before the creation of a company.

  1. Local Economic Development Incubators

Objective – economic development, supporting SMEs and specific groups for the overall upliftment of the society.

Targets – small, handicraft, locally sourced business companies.

Challenges – conflicts, governance risk, management quality, red-tapism, long hours of negotiation.

There are other types of incubators as well, including Seed Accelerator (focusing on early startups), Public/Social Incubator (focusing on the public good), Kitchen Incubator (focusing on the food industry), Medical Incubator (focusing on medical devices & biomaterials) and Virtual Business Incubators (online business incubators).

Whether you’re thinking about starting your own business or need to reignite that fire, you’re probably searching for the right advice. You need advice that you are likely to be able to actually incorporate into your schedule.

Get started on the right foot.

Before getting too far ahead of yourself, make sure that you start your small business on the right foot. It won’t guarantee that your business will thrive, but it will reduce the chances of it failing. So, how exactly can you get your business started the right way?

  • Be passionate about what you do. This is going to keep you pushing forward during any rough patches.
  • Start your business while you still have a full-time job so you’ll have money to survive until your business takes off. Set aside some cash so that you don’t have to borrow as much.
  • Don’t go it alone. Entrepreneurs have this mindset that they have to do everything on their own. That’s not the case. You’re going to need support from your friends and family, and advice from mentors.
  • Build traction. Start building a customer base before officially launching.
  • Write your business plan. Your business plan is going to guide you throughout the entire life of your business.
  • Do your homework. Conduct market research to better understand your industry and target audience. Become an expert on your industry, products and services.
  • Bring in the pros. For example, if you’re not an accountant, hire a CPA to handle this area of your business. Don’t waste dollars trying to save pennies doing jobs you aren’t qualified for.
  • Get the money lined up. Start looking for ways to fund your business, such as through peer-to-peer lenders or investors, before you’re in a real cash crunch.
  • Become a professional. Start by getting business cards, a business phone number and an email address. Always treat people in a courteous and professional manner.
  • Get your legal and tax issues in order. You’ll save yourself a ton of time, money and headaches down the road if you get your legal and tax responsibilities right from the get-go. Those things the most importance of knowing business incubators.

Business Incubators Programs Have Different Approches

Subtitle: How Qualified The Program Managers are in Selecting The Right Startups at the Right Stage

Business incubation programs have different approaches to the selection of startup clients. The success or failure of a startup in a business incubation program depends on how qualified the program managers are in selecting the right startups at the right stage. Four out of the eight startups mentioned that their business incubation programs did not perform formal due diligence because of two main reasons: 

They were newly established or the program managers simply believed that the product was in line with the program’s focus and competencies. None of those four startups received feedback or were evaluated by the program. It could be assumed, therefore, that incubation programs acted in their own self-interest when attracting new tenants and raising public awareness of their programs. This is especially applicable to university-based business incubation programs, which are more supportive and more inclusive in nature. SE4, who was co-founder of an incubation program, pointed out that demo days are only for community, to show that the program is still operating. 

Overall, entrepreneurs should be conscious that incubation programs are not always necessarily acting in the best interest of startups. Moreover, an incubation program’s admission process should be seen as an indicator of how seriously managers are taking a startup into consideration. Without due diligence on by both the programs and the startups, startups are at risk of becoming part of a program that is not necessarily valuable to them.

Services and offerings: General workshops, courses, and lectures about entrepreneurship were not found to be valuable

One out of the eight startups mentioned that general workshops and lectures about entrepreneurship were not found to be valuable. Startup B emphasized that it was a waste of time to participate in general workshops when the company needed financial resources to develop a minimum viable product (MVP). Without a functional prototype, startup B was unable to demonstrate their proof-of-concept. Despite spending one year in a university-based incubation program, startup B has not succeeded in developing a functional prototype. Thus, startups who are involved in the program can spend a lot of time working on secondary tasks, instead of focusing on primary ones. According to SE3, business incubation programs “keep startups busy with stuff which they don’t really need to do like presentations, instead of helping them with securing first customers.”

Services and offerings: Startups received low commitment from program mentors and advisors

Four out of the eight startups emphasized that they received low commitment from program mentors and advisors. Startup F gave an example in which the lawyer of their incubation program suggested not to file a patent application in China despite the company’s plans to expand globally and build a pilot plant in Hong Kong. Startup E has not received any support from mentors and advisors and wished there was someone to keep them accountable. Startup D, as with start-up E, has been left on its own. Startup H failed to leverage a sound marketing strategy and expected advisors to help them earlier in the process. SE2, who has also passed through a university-based business incubation program, indicated that some of the mentors were professors and a variety of mentors would have been more appropriate. SE4 mentioned that some entrepreneurs do not get appropriate help from incubation programs because that help is untargeted, as service providers are not interested in startup results.

Services and offerings: The incubation program did not meet the company’s initial expectations

Business incubation programs promise startups a variety of services. However, according to SE1, the quality of these services, and even their availability, might be in doubt. Such a situation happened to startup D and startup B. Startup D complained that the program managers promised to help with further product development, but their company never subsequently received such help. Startup B was totally disappointed with their program, as it provided only physical space and general workshops while the company expected to get help with acceleration, mentoring, legal advice, investors, and networking. Startup B was even willing to pay for services if the program was able to provide what they needed. Accordingly, startups should make sure in advance that business incubation programs will provide what they promised and what was expected from them based on the initial formal or informal agreements.

Services and offerings: Tangible services such as access to manufacturing capabilities were not provided or were limited

One of the reasons why startups join a business incubation program is access to office space. However, other tangible services such as manufacturing and prototyping capabilities are no less important. Startup F joined a program because of the potential access to prototyping labs. They emphasized that renting a lab can cost a fortune. Startup F developed a kit to test marijuana oils, but because they did not have access to a workshop, it became impossible to produce the kits. Startup A emphasized that existing manufacturing firms require a continuous production supply and are not interested in signing contracts with startups. In addition, startup A was not allowed to use the resources of the university incubation program for commercial purposes. Thus, it could not achieve a competitive advantage based on early prototyping. Startup C also noticed that startups who have physical products face difficulties in getting into contact with potential manufacturers. Startup G wished that the program facilities had a workshop, where they could test their product.

Network: Startups did not efficiently use the office space provided by the incubation program

The purpose of startups sharing the same office space is the opportunity to build relationships with peers. Startup H emphasized that sharing an environment with people who are going through the same challenges is very valuable. In fact, startup H established a partnership with another startup that was part of their incubation space – something that would not have been possible if they were not using the same physical space. In addition, startup H mentioned that, at a certain moment of time, the attendance of startup teams in the office space dropped down significantly, which reduced opportunities for collaboration. Startup B felt frustrated that only 2 or 3 startups out of 15 used the office space on a regular basis. Startup E also noticed that attendance of the startup teams diminished over time. After all, the entrepreneurs themselves started to question if there was a difference between using the incubation office space and working at home.

Network: The incubation program’s network was not aligned to the startup’s product

As was emphasized in the literature review, incubation programs provide more generic network resources and offer less idiosyncratic network resources, because it is not practical for a program to even try to address each potential startup’s every need. Accordingly, three out of the eight startups who joined a more general incubation program (i.e., with no specific sector of focus) stated that the program cannot help them with connections to strategic partners. Startup F needed access to pharmaceutical and chemical manufacturing industries in order to secure access to a valuable supply chain. Since the program network was not in line with their product, the startup had to build its own network. Startup A needed access to manufacturers and distributors in order to start commercial production. Since the incubation program did not provide the necessary connections, startup A considered finding a business angel with the right competencies and knowledge in the field. Startup D needed access to the automation industry in order to test a product and meet potential customers. However, the incubation program was more focused on the healthcare industry than automation. Startup D spent 10 months in an incubation space without any luck establishing the necessary partnerships in order to commercialize the product or even test it at a customer’s site. According to Mas-Verdú and co-authors (2015), business incubation environments are insufficient on their own and have to be aligned with other businesses characteristics such as technology, size (number of employees), and sector. In general, generic network resources are valuable only for those startups that do not know how to pursue their business idea. Startups who are looking for strategic partners in order to commercialize their product should join sector-based incubation programs.

Network: Startups were unaware of the business incubation program’s ecosystem

Sa and co-authors (2012) stressed that entrepreneurs cannot fully benefit from an incubator’s resources when those resources are not well coordinated. Two out of the eight startups mentioned that they were unaware of the ecosystem of the business incubation program. Both startups were part of a university-based program. Startup F found out about some of the existing resources, but only by accident. Meanwhile, startup E mentioned that the services provided by the program were not very well advertised. Startups who were unaware of the existing program resources started looking for resources outside of the incubation environment, which is a time-consuming process. Therefore, business incubation programs must make sure that their startups are informed about available resources.

Financial resources: Business incubation programs did not provide direct or indirect access to investment

To cross the valley of death, startups can use the resources of the business incubation environment to secure initial funding. Startup D had a proof-of-concept and was ready for investors. However, none of the investors from the incubation program’s network were willing to invest in it. After a few unsuccessful attempts to find investors, the incubation program stopped trying to help with investment search despite earlier assurances from the incubation program managers that startup D would receive funding from their investor network. Startup B was not ready for initial funding but needed seed money in order to finalize their prototype. The rest of the interviewed startups either were not ready for investors or they succeeded in attracting investors by themselves. According to Rijnsoever and co-authors (2016), non-incubated startups who have access to the same investors raise as much funding as incubated startups. Accordingly, being part of a business incubation space does not necessarily mean that a startup will receive funding or be connected to potential investors.

Equity: Equity taken by the business incubation program made startups unattractive to potential investors

Different business incubation spaces operate under different business models. Most of them are looking to promote regional growth, while others are focusing on generating financial returns from equity. Startup D joined an incubation space with high hopes of securing investors, potential customers, and product development in exchange for 38% equity. The incubation program did not help with product development and customers, but it was ready to charge the startup for other services. Startup D did not use any of the services, because the services were not good enough and were not worth paying for. As it appears, the incubation program adopted a for-profit property development model to charge a fee for services offered. However, the startup did not receive any investment through the program. The program only provided office space and connections to investors. In fact, most of the startups in this program received an investment from other institutions operating in the region and the program managers only advised startup D to approach them directly. On the other hand, the funding institutions were running government-initiated incubation programs that filled the gap of financing when nobody wants to invest in early-stage startups. Those government-initiated programs seemed to provide better, free, or much cheaper, mentoring and consultancy for startups.

On the other hand, SE3, who was involved in a government-led incubation program, mentioned that the program focused on taking startups at the point where they are ready for investment. SE3’s company never needed an investment because they used bootstrapping. According to SE3, the best exit strategy for incubation programs is when their client startups are acquired.

IP Protection: Participation in a business incubation program puts intellectual property at risk

Participating in an incubation program can put a startup’s intellectual property (IP) at risk because multiple entrepreneurs share office space, workshops, laboratories, and mentors. Startup F emphasized that their product and IP can be very easily exposed to third parties as everyone can access the incubation program lab and office facility. Since most incubation programs do not provide legal services and obtaining a patent is expensive, startups bear the risk of IP exposure. On the other hand, it is typically not the responsibility of the incubation program to protect their startup’s intellectual property.

Post-incubation: Following incubation, startups looked to join another business incubation program or sought business angels

Usually, startups go through several incubation programs to build or acquire necessary resources for their businesses. After spending some time at a university-based early stage incubation program in Ontario, Canada, startup E applied to join another one, because they were looking for more dedicated hands-on mentoring and business support focusing on growth. Startup B, in Denmark, applied to join a university-based incubator but the application was rejected because the program was for students only. As a result, startup B applied to a regional investment agency in order to receive funding. Startup A is considering finding a business angel who will help with distributors and manufacturers. Accordingly, when an incubation program provides idiosyncratic resources or limits access to complementary assets, startups start to look for those resources in other programs or try to find business angels. Therefore, startups should understand that graduation from an incubation program does not necessarily mean that they will be ready for the market or able to grow and scale-up.

Conclusion

This section summarizes the key insights gathered from our research and analysis. In addition, it focuses on results that can be used to improve an entrepreneur’s understanding of incubation programs. The analysis of the empirical observations resulted in the articulation of the following downsides of being part of a specific incubation program.

Equity dilution can lead a startup to bankruptcy. Startups who have diluted too much equity to an incubator or accelerator will struggle to convince investors to invest in them later. Every time a startup issues new shares, the existing shareholder’s equity decreases.

Startups can face low commitment from incubation program stakeholders such as business mentors, advisors, and external partners. External service providers are usually not interested in startups’ results.

Putting IP at risk. Startups who join an incubation program are risking exposing their product or idea to third parties that have similar access to the incubation facilities. Half of the interviewed incubation programs do not provide legal advice nor IP consultancy.

Young and inexperienced incubation programs do not do enough due diligence since, most often, their main goal is to fill spots and enhance their regional reputation.

Startups can be unaware of the business and innovation ecosystem of the incubation program. Some programs do not do a good job in advertising the expertise and knowledge of their networks. 

General workshops, lectures, and courses provided by incubation programs are time-consuming and not necessarily useful. Startups spend a lot of time working on secondary tasks instead of focusing on primary ones. For instance, an interviewed startup spent 12 months in an incubator and was not been able to build a functional prototype during that time period.

Incubation program networks may not align with a startup’s product. The majority of the incubation programs provided only general network resources.

Incubation programs do not usually provide seed money, investment, or connections to investors. In fact, being part of an incubation program does not guarantee any investment.

The collaboration opportunities significantly decrease when an incubation space is underutilized and only a few startups use the office facility.

Prior to joining an incubator or accelerator, startups should consider whether or not they would need specialized facilities/equipment. Most of the interviewed founders participated in incubation programs that did not have specialized facilities/equipment.

Startups may go through multiple incubation programs to acquire or build necessary resources. Therefore, startups who have not received necessary help or resources in a specific incubation program consider joining other programs or finding business angels with the right competencies for the startup’s context.

Finally, consider the differences between incubator-like and accelerator-like programs in the way they refer to startups that have used multiple incubation programs. The general tendency for startups using multiple incubation programs is to move from early-stage incubation to more dedicated acceleration programs. As a rule, university-based programs are focusing on early incubation offering young entrepreneurs the opportunity the experience of being an entrepreneur. In this sense, we should be careful when comparing the performance of incubators because their missions could be quite different. On the other hand, acceleration programs tend to focus on growth objectives and stronger investment exposure and opportunities. Even though early-stage incubators also claim to offer funding-related networking opportunities, their focus seems to be on the quality of the entrepreneurial experience and the validation of the viability of the emerging business opportunities.

In conclusion, it is not always a good thing for a startup to join an incubator or accelerator. Or, rather, there are multiple aspects of business incubation practices that could affect negatively early-stage companies, and founders of new ventures should be very careful when selecting a specific incubation program. The answer, of course, cannot be considered in black and white terms since the focus of the selection process should be on the interference of the multiple factors that could potentially affect the future of a startup in terms of operations, market potential, external funding, etc.

We believe that the analysis provided here will enhance the awareness of both researchers and practitioners about the potential negative impact of improperly selected incubation programs. It should enable executive managers of existing incubation programs to refine their startup selection process and better articulate the value propositions of their programs. At the same time, we should point out that our study is based on a limited number of cases. Future studies should build a broader empirical base by selecting a larger number of startups and more sophisticated methodologies, taking into account the distinction between the incubation programs, the stage, and the strategic goals of the new ventures.

Business Incubators: Pros and Cons

Subtitle: For Fledgling Businesses, joining a Business Incubator Can Be a Big Boost 

As you start your business, you might be dealing with limited funds, time or personnel, and you might be wondering how entrepreneurship really works. You might wish you had more resources, a mentor or more education to help you through the process of growing your business so the operation and the finances become more easily sustainable. 

If you’re ready to grow your business, but you’re not sure how to overcome these hurdles, then a business incubator might offer the resources you need to succeed. In this article, we’ll take a look at the benefits and downsides of business incubators so you can decide whether joining one is right for your business. But first, we’ll answer the question: what is a business incubator?

What is a Business Incubator?

An incubator is an organization designed to help startup businesses grow and succeed by providing free or low-cost workspace, mentorship, expertise, access to investors, and in some cases, working capital in the form of a loan. You’ll work around other entrepreneurial businesses, often with a similar focus as yours.

Joining an incubator is almost like joining a college program: You have to apply, be accepted, and then follow a schedule in order to meet benchmarks set by the incubator. You’ll also need to commit to a length of time to be a part of the incubator, typically one to two years.

Incubator Benefits

Based on the definition, you can already see some of the pros an incubator can provide to businesses to get a powerful start. Make sure to research potential incubators carefully to be sure they provide the following benefits:

-Your incubator should provide a free or low-cost workspace that allows you to reduce overhead while you grow.

-Look for an incubator that will give your business access to benefits that can help accelerate your business, including office space and services, mentorship, expertise, influence, and sometimes capital.

-Incubators may also offer business development programming such as workshops and panel discussions.

-Make sure investors trust the incubator to invest in the right startups and groom them into successful businesses. Joining this type of incubator will give you an advantage when seeking funding.

-Businesses in some incubators might have access to office must-haves like internet, administrative support, and production equipment. Office services vary from program to program.

-The structured environment and curriculum of an incubator can help a new business keep focus and grow in the right direction.

-Many incubators target specific industries-such as digital education, green technology, homeland security, fashion and food-and thus offer targeted resources and expertise. It’s important to make sure you have a clear understanding of what an incubator provides before applying.

Incubator Downsides

Not all incubators are equal; some provide more or better benefits than others. Here are some potential downsides:

-The application process can be rigorous and competitive. For most incubators, an applicant is required to submit a detailed business plan and disclose all business activities.

-Many incubators require a time commitment of around one to two years, plus adherence to the schedule set by the incubator, which can include many trainings and workshops. Yes, you will learn a lot, but you’ll also spend a fair amount of time doing it.

-For better or worse, an incubator is a professional environment. You can’t simply come and go as you please, and you’ll be expected to answer to someone other than yourself in regards to your progress. Think of an incubator like a boss who is invested in your success.

-As you can see, the benefits can be great for the right applicant. Make sure you are willing to dedicate yourself and your business to the program in order to reap the rewards.

How to Choose a Business Incubator

Choosing an incubator for your startup business is a big decision, especially if you’ll be giving up a hefty chunk of time and equity for its resources and expertise. Here is what you should look for in a business incubator before you choose a program:

  1. Incubator Perks

Research the incubator’s offerings to see if they match your needs. Learn what resources and services the company provides. Study the incubator’s mentors and advisers to determine if their expertise, skills, and networks match your business’s needs.

  1. Incubator Curriculum

Many incubators require rigorous training and have strict schedules. Assess the curriculum to make sure it teaches what you need to learn in order for your business to succeed. Make sure you can take it all on while still running daily operations.

  1. Incubator Track Record

How have similar businesses performed with the support of the incubator? If possible, contact alumni for their take on the experience. Most incubators list graduate companies on their websites.

  1. Incubator Cost

How much does it cost to use the workspace and the equipment? If applicable, what are the loan terms offered, or what percentage of equity will the incubator take? Make sure the cost fits with the sacrifice you’re willing to make.

  1. Incubator Location

As previously mentioned, joining an incubator is not unlike joining a college program. Because you’ll be going to class several times per week if not every day, you’ll need to be on campus–that is, in close proximity to the incubator. This may mean relocating to be closer to an incubator if you can’t find the right fit close enough to home.