Investors Love Top Startup Incubator Graduates

Business incubators for sharing services were all the rage back in the days of the dot-com bubble. About that time the bubble burst, causing more than 80 percent of them to disappear. Now they are coming back.
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Business incubators for sharing services were all the rage back in the days of the dot-com bubble (700 for profit, many more non-profit). About that time the bubble burst, causing more than 80 percent of them to disappear. Now they are coming back, and the best even provide networking, technical leadership, and seed funding, as well as investors waving money at graduates.

Incubators I hear mentioned most often include YCombinator, led by Paul Graham in Silicon Valley, and TechStars, located in Boston, Boulder, New York City and Seattle. TechStars has several excellent mentors on staff, led by founder and CEO David Cohen. Both provide excellent networking to investors and on-site technical leadership, which I believe sets them apart.

By way of a definition, a business or startup incubator is a company, university, or other organization which provides resources to nurture young companies, helping them to survive and grow during the startup period when they are most vulnerable. The goal of most business incubators today is to strengthen the local economy, and commercialize new technologies. A few are still trying to make money doing it, but it is hard to make money off startups.

Most incubators today provide one or more of the following:

  • flexible space and leases, often at very low rates

  • business support services for a fee, including administrative support, telephone answering, graphic services, bookkeeping, copy machine access, and meeting rooms
  • group rates for health, life and other insurance plans
  • business and technical assistance either on site or through a community referral system
  • assistance in obtaining funding, or direct seed funding
  • networking with other entrepreneurs
  • Incubators differ from research and technology parks, in that most research and technology parks do not offer business assistance services, the hallmark of a business incubation program. However, many research and technology parks also house incubation programs. Another variation is technology business incubators, which nurture high-tech startups and present a technology oriented variant of business incubators.

    To find what's available in your area, take a look at the National Business Incubation Association (NBIA) web site, and use the lookup tool provided. This organization claims to be the world's leading organization for advancing business incubation and entrepreneurship. Another sure-fire approach to finding what's available is to check local university resources, or even websites, like TechCocktail, which recently ranked the "Top 15 U.S. Startup Accelerators and Incubators."

    The only down-side I have heard is that many business incubators used to be notoriously high-pressure environments where a lucrative exit strategy was more important than the half-baked products. If that's the toughest problem you face as a startup, then you probably didn't need an incubator in the first place.

    Experts agree that the real value of an incubator is in the relationships, and relationships work best when the entrepreneur has selected a real market opportunity, with plans to address it in a unique, powerful and direct manner.

    For that reason, I am a strong proponent of incubators that screen prospective clients carefully, selecting only the best ones, and track whether they can handle responsibilities, like paying the rent. All startups are expected to "graduate" in a timely fashion to stand on their own two feet.

    To convince you it can work, SiteBoat recently aggregated the combined valuation of the top 21 companies graduated by YCombinator at $4.7 billion. However, if you are looking for an incubator for "free" money and services, you should think again. Look for the best mentors, and the toughest regimen for program survival. They can make the real world look like a walk in the park, with investors dropping money along the way.

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