What Is A Startup Incubator: Business Incubator Explained
With startups booming in every fiscal year, business incubator is just another term budding entrepreneurs are getting more familiar with.
Over a 1000 tech startups were added in 2017 to the ever-growing list of India’s technology startups, over 10,000 tech startups were registered in the UK in 2017, and the percentage of unicorns in China increased to over 35% in 2017. This is the perfect opportunity for business incubators to tap the developing market and make their business model grow.
What Is A Business Incubator?
Incubator, as the name suggests, is a place where conditions are met to make life sustainable by providing a nurturing environment. Now when you apply the same concept to startups or businesses that are just starting out, you get the basic concept of a startup incubator –
Startup incubators or business incubators are collaborative programs designed to help startups develop during its initial stages until it is able to sustain itself in the market.
In simple terms – incubators incubate new ideas and help new entrepreneurs convert their ideas into a business model and eventually into a working business.
How Does A Business Incubator Help?
Incubators are home to various venture capitalists, angel investors as well as other mentors for entrepreneurs. By helping the startups set up office spaces or legal expertise, they allow the startup to focus more on the running of the core business.
A business incubator provides you much needed support to develop your new startup. This support can be in the form of:
- Infrastructure: Startup incubators provide office workspaces, workshops for startups to get the initial prototype phase up and running.
- Networking: Incubators help multiple startups simultaneously. When these startups work under one roof, they get connected with entrepreneurs working in the same industry which helps them gain insights to improve their product. Many incubators even arrange startup networking meetings to help entrepreneurs increase their network.
- Financial advisory/ Intellectual property teams/ Legal advisory: Business incubators lend their financial advisors, IP teams and legal advisors to the entrepreneurs so that they can make well-informed decisions.
- Contacts for potential investors: Business incubators have been in the field of launching startups to become a legitimate business. Because of this, they have multiple contacts with previous and potential investors. They even help the entrepreneurs in developing a perfect pitch deck.
- Manufacturing: Many startup incubators have tools and equipment to manufacture prototypes, 3D models and even final products.
- Initial financial support: Some business incubators provide a minimal fund to set things into motion and begin with the initial phase of pitching the idea and developing the concept.
- Training and guidance: Business incubators provide training from market experts on how to begin, develop and implement ideas. They follow your progress closely and guide you how to improve your reach and get to the target market.
How Do Business Incubators Work?
There are multiple incubators in the market ready to support you but the requirements and support they provide are different.
- Academic incubators: universities and institutions incubator services,
- Private incubators: privately funded incubators which charge for their services, and
- Free starting incubators: which provide initial services for free.
Every business incubator serves its purpose with their predefined terms and conditions.
Some incubators are situated in actual physical space giving providing you support and guidance for the project and some incubators are set up virtually where they provide guidance, links to potential investors and fellow entrepreneur in the same domain.
Why Should You Take Support From A Startup Incubator?
Although capital can buy most of the services business incubators provide, it is unable to provide the benefits of a network, expertise of business owners, and constant guidance of the experts who have guided hundreds of startups in their nascent phase.
The ability to tap into the strong network of business partners is one advantage of business incubators. Being part of a group of companies that are already in the spotlight helps the other startups to grow big and successful. It also strengthens their ability to gain more opportunities to showcase their ideas and products.
Since the mentors such as venture capitalists or angel investors are entrepreneurs themselves, the startup founders are always given more challenges which lead to more clearer vision, roadmap, and strategy. Taking a help of an incubator actually jump starts the startup and gives them the ability to fly solo.
If you are running low on capital, a lot of startup incubators provide workspaces, manufacturing labs, technical guidance, and startup networking meetings at a slashed down prices; helping the entrepreneurs on their way to creating their own brand.
What Do Startup Incubators Get In Return?
Academic institutions help their student entrepreneurs to nurture their ideas and successfully convert them into business models. This is done to entice potential students as increased support to startups is an elusive deal.
Some existing companies incubate ideas to develop an eco-system around their existing product line thus making the market tilt towards their favour.
Other private incubators help entrepreneurs by providing them support in exchange for equity.
Examples of Famous Business Incubators
CodeLaunch, produced by Frisco, TX, is a competition conducted annually between people as well as groups on technology startup ideas. This competition has been the source of success for at least 7 startups which won it. This competition targets “embryonic” stage and “very early” stage startups through established startups can also participate but won’t be the primary focus. The main goal of this event is to create a medium through which people and their ideas can connect with investors and also for the investors to find ideas which they wish to support. Key2Close was one of the finalists of the 2015 edition of the competition.
India’s largest incubator for startups is T-Hub also known as Telangana Hub. On 5 November 2015 the first phase of T-Hub was set in operation by E. S. L. Narasimhan, Governor of Telangana and Ratan Tata, Chairman Emeritus of Tata Sons, and Telangana IT & Panchayat Raj Minister K. T. Rama Rao. Housed in a 70,000 square foot building called CatalysT, it is entirely dedicated to entrepreneurship. It is a partnership between the private sector and the Government of Telangana along with three of India’s leading academic institutes (IIIT-H, ISB & NALSAR).
Naiot Venture Accelerator
Based in Yokneam, Isreal, Naiot Venture accelerator engages in early seed startup investments. Hence, it invests and develops value by providing financial resources as well as management and human resources required to nurture seeds concept into sustainable companies. Since its starting in 1997, it has launched over 60 companies. It is difficult to get investment from Naiot as evident from their vigorous screening process. From over 350 project applications, they select 4-6 projects every year. Investments of $500k-$1M per project are leveraged through an agreement with the Israeli Chief Scientist’s Office and the OCS Technology Incubation Programs. One of the most popular companies which graduated from Naiot is MentorWave (Quiksee) which was acquired by Google in September 2010.
Centre for Digital Innovation in Hull
The Centre for Digital Innovation in Hull, popularly known as C4DI is a digital incubator based in Kingston upon Hull, England. For providing assistance to startups, this company has created links with Amazon Web Services, PwC, Kingston Communications as well as other firms. The C4DI accelerator was launched in May 2014.
There are networks of incubators weaved like a web to guide different startups through their beginning phase. These startups grew up to bring revenues of millions of dollars. Business incubation is a way of gaining equal profits, whether a person is an entrepreneur or an investor.
How to decide on an incubator?
The International Business Innovation Association has a large network of incubators that can be browsed and decided upon the user’s needs. It presently has a staggering number of 2,200 incubators in 62 countries.
However, we suggest that you do not jump on the first incubator you see and do a thorough research on what your organization would need to sustain itself in the future and which incubator provides support that best fits your needs.
Take your time and make an informed decision.
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