The Rise & Roles of Incubators in Startup Nation

You can still build a startup in your garage, but today’s entrepreneurs are turning to incubators instead. Incubators provide workspace, resources, and networking to help founders turn ideas into successful businesses. If you’re trying to start a business and haven’t looked into incubators, you need to do it right now.

What is an Incubator?

An incubator provides workspace, but it’s more than a traditional office or coworking space. Incubators are typically tied to experienced entrepreneurs, successful investors, university professors, and others with deep ties to the business community. These people are there specifically to provide mentoring and to help you grow. In addition, you’ll also be able to make connections with other founders.

What’s the Difference Between an Incubator and Accelerator?

Accelerators are similar to incubators with one key difference. Incubators are generally geared towards businesses in the earliest stages — sometimes as early has just having a good idea. An accelerator seeks to boost the growth of businesses that have gotten past the proof of concept stage and are looking to grow their sales.

What Does it Cost to Join an Incubator?

The cost to join an incubator depends on who runs it. Many universities have incubators that they give their students and recent graduates access to at no charge as part of their educational programs and attempts to build the university’s reputation.

State and local governments also sponsor incubators to grow jobs and boost their economies. They may charge rent, or they may be entirely sponsored by grants.

Among commercial incubators, some will simply charge rent while others will take a share in the business. In some cases, a large corporation will sponsor a specialized incubator hoping to gain early access to new ideas in their field.

Does Joining an Incubator Help Me Raise Capital?

The most important thing an incubator will do for you is to help you grow even faster. This will help your business get to an investable stage even faster regardless of whether you’re looking to sell equity or obtain a small business loan.

Many incubators also have investors actively seeking to invest in the companies there. This might be through Shark Tank-style competitions or through more general networking that might help you meet an investor you wouldn’t have otherwise gotten to meet.

Are There Any Downsides to Joining an Incubator?

Other than that each incubator is different so one may be a better fit than you for another, the only real downside is any costs. If you have to pay rent, you need to weigh how you’ll come up with that cash flow, how not spending that cash on something else might slow your growth, and how much the incubator will add to your growth.

If you need to give up shares in your company, you need to consider the long-term implications of what those shares are worth as well as potentially losing ownership control over your company.

What Are Some Successful Companies that Started in an Incubator?

Some of today’s biggest names began in an incubator. These include:

• AirBnb — allowing people to rent out their homes to vacationers via an app.
• Dropbox — popular file storage and sharing platform.
• Redbox — DVD rentals from a vending machine.
• Reddit — one of the biggest social media platforms in the world.
• Stripe — online payment platform that has reduced costs and increased access for small businesses.
• Weebly — point-and-click DIY website builder geared towards small businesses.

Today some of these companies are worth billions and have picked up major investors. They also had help from venture capitalists that would never even look at a business that was currently looking for an incubator. However, they had to start somewhere.

Each company started when someone, or a few people, had an idea. They bootstrapped through the early stages, moved into an incubator, and grew from there. While you may never quite reach that level of success, there are still thousands of small businesses that started in an incubator and provide their founders with a far better life than they would have had working in the corporate world.

What Are Some Popular Incubators?

A small handful of incubators have received national recognition. These are typically located in major metropolitan areas like New York, Chicago, and, of course, Silicon Valley.

• Y Combinator: Y Combinator invests directly in their businesses with a unique twist. Twice per year, they invest a small amount of money in a large number of startups from around the country. The founders move to Silicon Valley for three months for an intense period of growth after which they pitch their ideas to a select group of investors.
• Tech Stars: Tech Stars is a virtual incubator. They provide support to entrepreneurs throughout the world via an online platform with in-person special events that rotate through major cities.
• 500 Startups: 500 Startups is a seed fund investor with global reach. Based in Silicon Valley, they offer a 4-month seed program where selected companies gain access to mentoring, office space, and a $150,000 investment in exchange for 6% of the company.

Not ready for the global stage or an investor? You can ask your local chamber of commerce about incubators in your area or seek out a small business loan to get you started.