What are startup incubators?
A startup, or start-up, is any company that is undertaken by an entrepreneur, and is first just as idea, that is further developed and made into a workable business. Every year, multiple ideas come up as startup projects, and each year, some fail and few gain the grandeur that the business is initially aiming for. Most of the startups, that seek growth, take help from incubation and business startup incubator services in order to achieve their goals, though, other entrepreneurs only begin the startup on a personal level and thus, are headed towards failure, because they do not get the services and resources that incubators provide their startups.
Now coming on to business incubators, they are organizations that work towards the growth and speeding up of the success of any startup company or idea that comes to them, and this process starts from the very early stages. These incubators are basically designed and existing for the entrepreneurs, to help their in launching their specific businesses. Not only do they launch the business, they also help in gaining the capital requirements of the startup, and chalk out the business path for the startups in the future as well. They are a great way of knowing where your business is headed, and how ready you are to launch your business to the mass market.
Startup incubators are generally organizations that are working not for profit, as they are most likely related or associated with business schools and universities that want their students, alumni and other members of the institutes to take initiatives and start their own businesses, and thus, are there to provide such ideas the necessary resources to startup a proper company or business. Some incubator programs that are popular today are TechStars, Y Combinator and Excelerate Labs, that have proved to be success incubators starting successful business ventures around the world.
Business incubators are usually companies that have a physical location, and exist in a certain area, so that startup companies can go to them before their launch. They are highly effective at the early stages of the business, so it is best to bring in an incubator at the idea phase of your business. It is not necessary that every time any entrepreneur goes to an incubator, their business will flourish and be a hit, but it is most likely that the business will be launched in the best possible ways if they do go to one. This is because, the resources and funding that an incubator has access to, personally people do not have the access to them, so it gives them an edge to be working with and under an incubator service.
Some services that the incubators offer their potential entrepreneurial ventures are:
- Workspace provision – Incubators help their entrepreneurs and potential companies find the best working spaces around, that are within the budget of their business, because they understand that a startup company does not have a flushing pool of funds and resources. The best workspace areas that these incubators provide the startup are co-working spaces, where many different smaller companies can operate together, as one company cannot afford a large space, and working together helps the people get a pot full of new ideas as well. In addition, if different entrepreneurs are working together under one roof, they would support each other, and can help each other in times of need, helping entrepreneurs build lasting friendships.
- Seed Funding – Any entrepreneur, before starting a business venture or a startup, requires some amount of funds to begin with, which they mostly receive from their family and friends, or close relatives and people around them. If they go to incubators for launching, these incubators open new sources of funds from them, such as from angel investors, states and governments, from business and economic coalitions, and other investors that personally the individual entrepreneur does not have any source to.
- Training and Mentoring – Since the entrepreneur is new to the idea of the startup, he might not have the expertise of knowledge of every aspect of the business idea. This is where incubators come into play, as they can provide training and mentoring to the people related to the business, and also get good discounts and free opportunities of professional services for the business. These could be in terms of accounting personnel, legal help, marketing experts, etc. whatever the business may require.
- How it works to make an app start on startup?
Physical companies and startups have proved to be easier to launch, as they have a product at hand, and then build towards its launching, and the same is the case with launching a brand, because there is something at hand that needs to raise funds, be produced and then sold. Manufacturing companies go through a similar process, and thus, are also an easier idea to launch. The most difficult of ideas to launch, even for incubators, are technology ideas and startups, especially the ideas related to apps, because that needs a series of tests to be conducted in order to judge whether the idea is feasible and viable as well, or will the app fail completely.
The different series of tests that need to be conducted to check the viability of any app in a startup incubator are as follows:
- Purpose Development and Market – The purpose behind the app and the idea needs to be crystal clear, and must solve an existing problem, so that the market for the app can be determined or created. If an app of such a kind already exists, then there will be no need for another one, and the idea can fail miserably as well.
- Wire-framing – The incubator experts that are dealing with the technology side make a structural design according to the needs and wants of the entrepreneur and see how the designing can be enhanced and the app can become better.
- 3D Modeling – The app idea is then given the shape of a proper model, that is, made into a proper app with buttons, and categories, and all the tech-based details the app needs to become complete.
- Beta Launch – The incubator experts then help the entrepreneur launch a beta version of the app, which gages insights and how the app will do in the market if the proper complete version is launched.
- Final Launch – The incubator then helps the entrepreneur sell his app idea to potential investors and launch the final complete version of the app, and see that it reaches that audience it had earlier gaged.
- Startup Incubator Business Processes?
Not every company can run to a business incubator for help at any time they want. There is a whole process of how to apply to business incubators, and then they choose which ideas they want to work with ahead and which ones they do not feel would work well. The business process or the process of signing up to a startup incubator is as follows:
- Application Process – Any entrepreneur who gets the idea of a potential business, needs to fill out a form for the application, which consists of questions about the idea and also the entrepreneur and his / her history in order to gain all the relevant information.
- Interview Process – The experts at the startup incubators then schedule a meeting with the potential entrepreneurial candidates, which can be a video call or a physical meeting, and further discuss the insights of the background of the idea, to see whether it really does make any business sense or is it the typical one that already exists.
- Decision-making Process – The experts at the incubator then further discuss the idea amongst themselves, and see which idea can potentially be taken under their care and further developed into a proper business plan and implementation of it. They notify the chosen candidates and then schedule further meetings with them to work on the idea together.
Once the final candidates are chosen, and meetings are scheduled, the incubator experts work closely with the entrepreneur to develop the business plan, financial plan, marketing plan, and all the necessary plans that are required to start the business. A 3D model plan is also built to check viability, and there are soft launches as well to see how successful the plan is, before the actual, final plan is developed and launched.
What are the benefits of a startup incubator?
As we all know, a startup incubator provides the entrepreneur all the basic business resources that they may need for launching their idea, but there are also many other aspects of an incubator that help the entrepreneur in different ways. These benefits include:
- Saving Costs – When the incubators offer co-working spaces, they are helping the business cut on operating costs and rent expense for a whole office. Additionally, they offer discounts on development and trainings, etc. saving the additional costs for the business there, too.
- Learning & Growth – The incubators also offer a pool of mentors that come from different facets such as: employees, investors, working personnel, lawyers, etc. who play the role of guiding the business towards success, and helping the entrepreneur learn from their personal experiences of how to avoid risks and mistakes. There is ample time and space for any startup idea to learn and grow from these mentors and their experiences.
- Funding Resources – The incubators also find you the right investors for your business and can make connections for you in the venture capitalists market, so that you can get your startup funds and then move forward with your idea.
- Networking & Support – Working with other entrepreneurs and startups under the same roof gives you ideas, helps you innovate in the best possible ways, and can help build an initial market for your startup idea within those working in the space with you, which can be helpful for some who have low marketing and PR budgets to start with. This networking is very important for the future success of the startup as well.
- Improved Focus – Since everyone working with you in the co-working space of the incubators is immersed in their own work, there are hardly any distractions, and one can easily focus on their own venture and startup. Moreover, the training sessions and collaborative planning that is happening in the incubator with different experts, helps the entrepreneur focus closely on his or her own business.
- Investing in start-ups
When people have a lot of money ad are wealthy enough, they invest in different startups so that their money is put to good use, and is not wasted anywhere. They would give opportunities to different individuals to prove their worth, but not risk everything by funding any kind of business. They are careful to look and choose from different incubators, the business they themselves think is viable, or the ones that the incubator experts tell will suit their investment desires. Some famous television based incubators are: ABC’s Shark Tank, etc., and some physical ones include Nest i/o, etc.
Since any startup, at such an early stage, is only in the idea phase, they mostly gain their funds from family, friends and close people, or even taking bank loans or selling equity shares. The next part of this phase leads the entrepreneur to reach angel investors, and then connect to further investors who think the business could upscale soon. Thus, investments of a startup slowly and gradually start growing.
Sone reasons why people or investors would invest in your startup idea include:
- The investors think that once the startup becomes famous, it can potentially generate multifold and uncorrelated amounts of outsized returns, and help certain companies diversify their portfolio of work.
- Individuals who pay keen attention on startups and pick the right ones every time, then become known as winners of the pick, and they become the trending and hot topic, making them famous for being smart.
- Some investors take this incubator and startup investment as a side business, that would give those returns forever, and want to secure for themselves a healthy retirement portfolio.
- Investors who take this investment risk also have a sense of pride in them, for the positive change that they are bringing in the lives of those who would be affected by this startup, and feel proud of bringing solutions to problems that exist in life.
- Connecting start-ups to investors
One of the main jobs that the startup incubators are well known for in providing help to the new startups is the stage where funds are required. They are the best sources of funding apart from the initial investment that the entrepreneurs obtain from their FF&F, that is, founders, friends and family. These are the close people to the entrepreneur, thus, they readily invest in any venture the entrepreneur wants to start, and this is all called seed money, or seed capital.
Though, this amount of seed money is very less, or rather, not completely enough to start the actual business or its operations, thus, more money is definitely always required. It is actually the outsiders that need to be attracted and gained investment from. This is where the help of the incubators come into play.
The stages of outside investment that come in through the incubators include:
- Seed Money Stage – This is the amount that the entrepreneur already has, collected from founders themselves, family and friends. During this stage, the entrepreneur already starts building his case in order to showcase his idea to the investors to prove that it is a good idea, overall.
- Bona Fide Stage – During this stage, a small prototype or presentation is made by the entrepreneur in order to pitch his idea to outside investors and potential market consumers for feedback and additions that are required. This proves the genuineness of the idea, and gives the entrepreneur time to do market research and other information gathering and analysis.
- Angel Investor Stage – Angel investors are people who have a small amount of money accumulated and especially kept for investing in small, new startups, and they are the first source of funding that the incubators connect the entrepreneur to. This money is enough to start the first batch of production or start marketing efforts.
- Venture Capital (VC) Stage – Once the company has started gaining momentum and started initial stages of operation and business, venture capitalists are connected to by incubators, who then invest in your business and gain a seat in the board of directors, and this is how the company moves forward to bigger and better ideas of business.
After all these stages have been passed by any entrepreneur and company, we can safely assume that the company is now a full-fledged business that is running, producing and earning and then reinvesting in the business to move forward.
- Supplying mentorship and experience
An entrepreneur starting a new business, who gets an idea, is often not experienced, and has no idea how to and where to start from. They are not only confused about the operations and business, but also need help in setting up the complete business idea into a proper thing. This is where they need mentoring and support the most, and this is why incubators also keep a pool of mentors, who have had the experience before, and are ready to help the young entrepreneurs that are now starting.
The mentors have all the experience already, and offer their help and expertise knowledge in departments such as: sales, marketing, finance, business development, laws and regulations, and the overall operations of the business. They also help out with the technology usage that is required and can help out the new entrepreneur within the budget. So the mentor shares his business acumen, and can help the entrepreneur in solving the issues that may exist now or come up later.
The mentors give the right direction for the business to the entrepreneur, and have the founder be well prepared beforehand for any problems that may come up later as well, giving the business a successful backing and a proper pathway to follow.
- What’s the difference between an incubator and accelerator?
|They incubate new startup ideas.||They accelerate already existing businesses.|
|Mainly focus on innovation.||Mainly focus on scaling a business.|
|They work on varying timeframes, depending on the success of the startup.||They have a set timeframe.|
|Work on how to start the operations of the business.||Work on how to solve issues that come up during the operations of any business.|
|Connect to sponsors who want to invest in new startups.||Connect to mentors who help along the way.|
|Define the market that would be suitable for the business themselves.||Work on the market that already exists for the business.|
|Give you the initial direction of your business.||Re-direct your business towards the right path.|
- Things to consider before using a business incubator to make an app start?
There are multiple advantages of using an incubator for businesses, as we have already seen, and we have also read about all the services the incubators offer that can take your startup ideas multiple levels ahead of where the entrepreneur has planned till. Yet, this is mostly true for physical ideas and companies, in the case of apps, the process may be a little different.
The following few key points need to be considered when using a business incubator in order to make an app start and reach the heights you have planned:
- Tech-based Incubator – The entrepreneur needs to make sure that the incubator they choose should be technology based and should know how the mobile app design and development takes place, and then how to take the app forward to the required market.
- Time Commitment – Since incubators take their time and slowly process the whole business idea, the entrepreneur needs to make sure that they do not have a certain timeframe in mind, and that flexibility exists and they have time to grow.
- Accessibility – Incubators are very selective in their choosing process of the business ideas they want to take under them, and choosing which apps would work best is an even harder choice to make, since it all depends on once the app is in working conditions.
- Rigid Schedule – Incubators have training sessions and mentor programs that need time and focus, thus, schedules can be difficult, and app developers and entrepreneurs need to keep that in mind.
- Experienced Personnel – The entrepreneurs need to see which incubators have the proper mentors and experienced personnel for helping out in their tech startup, and carefully choose the right incubator.
- How do startup incubators make money to make an app start on startup?
An incubator has many different ways in which it makes its money, and some of them are given below:
- Sponsorships – Many companies or investors, or even some government organizations mostly sponsor a certain incubator, so that they can be the first people to see the new startup ideas and be the first people to invest.
- Profits – Some incubators are also run by venture capitalists, who, through the incubator, invest their own money into certain business ideas, and once these businesses start running and equity is built, or liquidity events start, they start getting back their returns, and profits as well.
- Fees – Everyone who participates in an incubator, that is, all the startup entrepreneurs, they pay a certain amount to be a part of the incubator, since they are getting multiple resources, so a little fee does not matter. This is affordable and subsidized for them, as well as a way to earn for the incubators themselves.
- Royalties – Some incubators go even further and make agreements with companies, most commonly seen with tech startups, to pay the incubator royalties for being the ones to take up the idea and incubate it. This is a great long term plan, but does not pay off too well in the short term.
- Groups or Agencies – At times, some information or data collection agencies and groups of corporate alliances pay these incubators to provide them with information as to what new startups are coming in, and what the next best industry will be, in order to gage information for their own future investments.
- What are the Most Common Startup Incubator Services to make an app start on startup?
For physical business ideas and companies, incubators have a lot to offer and multiple services in action, but for apps, and technology based startups, the following certain services are mainly offered by incubators:
- Market Research
- Internet Access (High-speed)
- Access to Funds from Banks, Investors, etc.
- Development of Presentation Skills
- Linkages to Strategic Partners
- Assistance in Technology Commercialization
- Management and Safety of Intellectual Property
- Regulatory Compliance and Laws
Q.1.) Do incubators take equity?
Yes, once the company starts working, some incubators that are run by venture capitalists take profits in the form of equity from the businesses and entrepreneurs.
Q.2.) List of Incubators?
Some famous incubators around the world include:
- Y Combinator (USA)
- Techstars (USA)
- Venture Catalysts (India)
- StartupBootCamp (Multiple Countries)
- Ignite (Europe)
- Startup Reykjavik (Norway)
- Metavallon (Greece)
- Startup Wise Guys (Europe)
Q.3.) What is Startup incubator business model?
Business Incubators are a part of the private sector, and are based on profits. The profits are driven from investing into companies and business ideas, rather than from any rental income or otherwise. They don’t generally create jobs, rather, they build ideas into reality.
Q.4.) What are the Stages of Business Incubation?
Business Incubation works in the following stages:
- Application to Incubators
- Acceptance from Incubators
- Sharing the Big Idea
- Making a Business Plan
- Gaining Investment from Different Areas
- Building the Actual Product
- Soft Launch / Beta Version / Prototype
- Actual Product in the Market
Q.5.) How many types of business incubation exist?
Not many different kinds of business incubations exist, the only difference that does exist is between incubators that are venture capitalists, or ones run by universities, or the ones that launch actual products differ from the tech-based ones.
Q.6.) List the startup incubators in Boston?
The best startup incubators in Boston are:
- Cogo Labs
- TechStars Boston.
- Greentown Labs.
Q.7.) List the startup incubators in Chicago?
The best startup incubators in Chicago are:
- Catapult Chicago
Q.8.) List startup incubators in Los Angeles?
The best startup incubators in Los Angeles are:
- Science Inc.
- LACleanTech Incubator
- Originate Labs
- Founder Institute LA
Q.9.) List the startup incubators in Austin?
The best startup incubators in Austin are:
- Austin Technology Incubator
- Capital Factory
- Economic Growth Business Incubator (EGBI)
- Founder Institute, Texas