Do you want to start a business incubator? If YES, here is everything you need to know about the business incubator model plus example of successful companies.
What is a Business Incubator?
Business incubators are organizations that are geared towards helping startups and early stage organizations speed up their growth. Incubators also help their mentee businesses secure capital from angel investors, state governments, economic-development coalitions and other interested investors.
Business incubation programs are often sponsored by private companies or municipal entities and public institutions, such as colleges and universities. Their goal is to help create and grow young businesses by providing them with necessary support and financial and technical services.
Incubators are very essential in the life of a new business as they provide numerous benefits to these businesses. First off, their office and manufacturing space is offered at below-market rates, and their staff supplies advice and the much-needed expertise for the developing business. They equally create great marketing plans for these businesses so that they can easily access funding.
Companies usually spend an average of two years in a business incubator, during which time they often share telephone, secretarial office, and production equipment expenses with other startup companies, in an effort to reduce everyone’s overhead and operational costs, and make limited finances to go far.
Benefits of a Business Incubator
A business incubator provides diverse benefits to startup entrepreneurs so much so that they can no longer be ignored when starting a business. These benefits can include:
- Space to work: Some incubators offer office space for free or below-market rates to their portfolio companies. This solves a lot of problems for startups. Mainly, it allows them to find a professional space for their employees to work without having to sign a lease. This is especially helpful when the company is unsure how quickly they’ll scale production or headcount.
- Access to specialized equipment: Some incubators invest in specialized equipment, like modeling software, 3D printers, prototyping equipment, or software development labs. This equipment help greatly in scaling companies in their infancy. Access to costly equipment and simulation programs can be crucial when starting off.
- Experienced mentors: It’s important for startups to limit critical mistakes while scaling. Most incubators offer an experienced staff of savvy industry executives to help the business team stay focused and avoid mistakes. Incubators usually employ mentors with specific startup experience that can help explain process, planning, and decision criteria, so as to steer new entrepreneurs away from costly mistakes they made or witnessed.
- Expert training: Many business incubators offer an array of important business training spanning from legal advice on startup documents, incorporation terms, or IP issues to general business challenges like how to ship a product, establish a quality culture, or establish sales and marketing processes.
- Software discounts: From accounting to project management, incubators typically offer business software that helps their startups scale. Pricing and education are typically vetted and negotiated for a standard rate allowing portfolio companies to get right to work. HubSpot offers this type of arrangement to more than 1000 startup partners worldwide.
- Multiple business services: Much like leveraging software availability and selection, many incubators offer accounting, banking, marketing, and manufacturing services to help companies scale.
- Access to like-minded entrepreneurs: One of the best attributes of business incubators are the intangibles. Working with a group of like-minded entrepreneurs, using connections for connecting with prospects or customers, and learning from others in your cohort are invaluable parts of incubator life.
Role of Business Incubators
Incubators provide 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 so as to achieve success in record time.
A business incubator provides businesses the much needed support to develop their 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 Benefit?
Business incubators help their student entrepreneurs to nurture their ideas and successfully convert them into business models. This is done to entice potential students to sign up to their services.
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.
How Incubation Benefits the Society
Incubators have been created with the intention of achieving a wide range of objectives, primarily those which are needed by small businesses, such as creating jobs, developing innovative ideas, diversifying the local economy, and broadly generating activity and wealth in a region by creating a vibrant small business sector. However, bioentrepreneurs may well ask whether they actually achieve such goals.
As a test case, in 2001, UK Business Incubation measured the impact of incubators on the local economy and work force in the United Kingdom. The survey revealed that an incubator’s client businesses provided an average of 167 jobs (full-time equivalents) per incubator and were home to an average of 30 client businesses.
Most (60%) incubators also operate “outreach” services, helping and advising companies located outside the walls of the incubator. Incubators operating outreach activities supported an average of 106 additional businesses. Across the sample, an average of 75% of client companies turned over up to £500,000, but only 1.5% had a turnover of more than £5 million.
More importantly, companies housed within UK incubators had an average success rate of 80% compared with the national average of 50% of all small- and medium-sized companies registered and trading in that year. Around 70% of incubators attempted to measure the impact of their client businesses, for example, on the basis of jobs created and financial performance. Such indicators have also influenced government policy and funding in this arena.
Such studies do highlight the support for incubators, as well as their potential contribution. In particular, they highlight the usefulness of incubators in identifying and supporting potential growth businesses, helping technology transfer, developing innovation, and expanding the range of local businesses.
However, because incubation has been operative for only a relatively short time, there is less evidence that they are generators of jobs and wealth. Perhaps this is to be expected given the nature of these facilities, which is to offer longer-term approaches to immediate startup deficiencies.
7 Things to Know About Business Incubators Before Getting into It
- Know why you need them
Incubators work with early-stage companies or baby businesses, helping them access resources and support to get them to the point of self-sustainability. When people decide they want to become entrepreneurs, but are not sure where to turn for help, the incubator can provide mentoring, coaching, collaboration (with like-minded people), access to networks, and even physical office space. If your business is past the baby stage, then maybe you ought to look elsewhere.
- Look at an Incubator’s Track Record Before Signing Up
Just as investors look at traction for a startup before they invest, you should look at the success of previous startups at a particular incubator. The success of an incubator should be measured by how well startups have done after graduation. Does the incubator have a track record of successful startups? Has the incubator assisted startups in raising their seed rounds after graduation?
- Look for those you share similar objectives with
Ultimately your assessment should be based on what you need. If you are lacking in encouragement or mentorship, if your business plan is close to working, an incubator can be a great avenue to get that little nudge and the social support to help your business reach a new level. When looking out for one to sign up with, you should look out for those that complement your business objectives.
- Don’t jump in head first
Before joining an incubator, consider what’s going on in your life, your commitment level to your company, the location of the incubator, and what the requirements are. Don’t overcommit.
Ask yourself if you are ready to be a client. This means showing up and participating in the program; being teachable and being under someone; accepting input from the incubator’s leadership; and all the while continuing to grow as the leader of your own company.
- Know the Difference Between Early-Stage and Late-Stage Incubators
Early-stage incubators are valuable for helping an entrepreneur turn an idea into a step-by-step roadmap for building a business. The key ingredient in such incubators is mentorship from experts in the areas of building a business plan, financial strategy, management, operations, branding, pitching to investors, marketing strategy, etc.
Late-stage incubators and accelerators for businesses that can show initial market traction can provide important access to angel investors and opportunities to pitch to venture capitalists. Incubators and accelerators also help build important networks of contacts that can prove instrumental for financing and partnership prospects.
- Be wary of hidden fees
Incubators typically provide inexpensive office space and basic business needs, such as Internet connectivity, in exchange for a fee. Entrepreneurs should understand exactly what the program offers and at what cost.
The upside of incubators is easy and inexpensive access to essentials, such as office space, telecommunications tech, conference rooms, and mentors. The downside is that incubators can often be more focused on generating lease fees instead of building value for the entrepreneur’s business – that is, there seems to always be another tenant waiting in line.
How to Get Accepted into an Incubator Program in 4 Steps
Being accepted into a business incubator can and should be a process. Most incubators have an admissions process and require companies to apply for acceptance. Criteria for acceptance into an incubator varies, but most require you to present a feasible business idea and professional business plan. Here are a few steps to get started finding an incubator that’s right for your business.
- Review your options geographically or vertically – Because of the sheer volume of available incubators, you might have more than one option to choose from. By doing a quick regional search, you can understand and rank the incubators that might be a good fit for your company needs. Always review the website and ask for references from successful companies they’ve helped as well as a few from companies that have dropped out to get an overall view of fit.
- Review their admission criteria – Most incubators have defined criteria for which types of companies they’re prepared to help. Some require certain milestones or criteria, like headcount, capital, entrepreneurial experience, background, revenue, or product fit. Others require contractual obligations from the accepted companies, so reviewing the application and understanding what is crucial to ascertaining fit.
- Get your business plan ready – A business plan might not be required during the application process, but it’s helpful in determining whether the incubator is a good match. A simple overview of business name, team build, value proposition, competitive advantage, addressable market, go to market strategy, product or service, and a 12-month forecast can help you differentiate your company. Keep it simple at this stage.
- Know that you will be screened – In most cases, incubators will accept initial applications for companies meeting basic criteria. Some incubators require a video submission to explain the basic business model, vision, and mission of the company.
The second stage is usually to meet and discuss your goals, plans, strengths, and weaknesses with a screening committee. This might take the form of an application, pitch or interview, and a series of meetings to set expectations for each side. So you should endavour to prepare for it. If you make it through the screening stage, you are most likely to get accepted.
50 Successful Companies Operating on Business Incubator Model
One of the largest accelerator programs in the game is Techstars. They choose over 300 companies annually to join their three-month, mentorship-driven program. Techstars invests $120K in each startup and provides hands-on mentorship and access to the Techstars Network for life. Techstars hosts dozens of accelerator programs across different cities and industries.
- Capital Factory
Capital Factory’s accelerator gives startups a competitive advantage in attracting talent, advisors, investors and customers. Its focus is on helping startups raise funding and increase customer growth by providing coworking space, hosting credits, a Startup Evangelist to advocate for your startup and access to a mentor network of the top investors and entrepreneurs in Texas.
- Tech Ranch Austin
Tech Ranch equips entrepreneurs and ecosystems with insights, proven techniques, tools and processes that develop both the community and the entrepreneur. Tech Ranch has been recognized as a 2015 Top 3 Social Impact Incubator by UBI Global and 2015 & 2016 Top 20 US/Canada Accelerators by Gust’s Global Report. Its programs have influenced more than 6,000 entrepreneurs in 42+ countries with more than 750 solutions deployed.
Headquartered in the United States with locations in Boston, Israel, Mexico, Switzerland, Texas, and the UK, MassChallenge strengthens the global innovation ecosystem by accelerating high-potential startups across all industries, from anywhere in the world for zero equity taken.
Specifically for women-led startups, MergeLane aims to support a diverse startup community through virtual mentoring, personal coaching and a curriculum targeting early-stage business issues and topics that specifically affect women leaders. The program takes place in Boulder, Colorado, but companies are only required to be there in person for part of the 12-week program. Some of the program can be completed virtually.
- Chicago Blockchain Center
The recently launched Chicago Blockchain Center is an accelerator focused on blockchain-enabled technologies. In collaboration with the State of Illinois, the Chicago Blockchain Center provides a platform for education, innovation and development with help from top Chicago companies and entrepreneurs.
- New Venture Challenge
Launched in 1996, the Edward L. Kaplan New Venture Challenge is recognized as one of the top-ranked accelerator programs in the US. Through the NVC, the Polsky Center of the University of Chicago has graduated more than 230 startup companies and created thousands of jobs for the economy. NVC startups have achieved more than $13 billion in mergers and exits, and include household names such as Grubhub, Braintree/Venmo and Simple Mills.
WiSTEM is a 12-week accelerator program that connects women to capital, community and technology resources. The program, co-created by 1871 and Ms. Tech, has found success since launching in 2015, helping over 50 women-founded companies who have raised almost $10 million in funding and have created hundreds of jobs. Funding from JPMorgan Chase has led to a recent expansion of the program, which is built around peer-to-peer learning, knowledge sharing and a fundraising strategy curriculum.
- The Brandery
The Brandery is a nationally ranked accelerator that leverages the expertise of the Cincinnati region, namely with branding, marketing and design. In addition to an elite mentor network, startups are paired with world-class creative agencies and gain access to some of the biggest companies in the world, including Procter & Gamble and Kroger. The Brandery runs one 16-week accelerator program per year for five companies. The participating startups each receive $100K, a year of free office space and more than $200K in additional benefits.
- Make in LA
Make in LA is an accelerator program that focuses on hardware startups. The Los Angeles-based program involves four months of hands-on work, from building prototypes to preparing pitches for investors. Innovative hardware startups can apply online during the yearly application period.
MuckerLab works with no more than ten companies per year, doing whatever is necessary, for as long as necessary, to ensure that each and every company achieves the operating milestones required for the next round of financing. Its hands-on, boutique approach has allowed for them to achieve extraordinary success rates and founder satisfaction scores. MuckerLab was recently ranked the number two accelerator in the US. Its bespoke model allows the company to deeply embed themselves as adjunct operating executives in companies at their earliest stages, as well as those going through major inflection points.
AngelPad is a seed-stage accelerator program based in NYC and San Francisco. Since 2010, it has launched more than 140 companies. Every 6 months, they select around 15 teams from a huge pool of applicants (usually around 2000) to work with. AngelPad was recently ranked as the number one accelerator in the US (based on a study from MIT/Brown University). AngelPad has been called the “Anti-Y Combinator” due to its strategy of working with fewer teams on a yearly basis.
- Betaworks (Camp)
Camp combines Betaworks’ building and investing experience into thematic accelerator programs for startups in frontier technology. Camp themes reflect the areas on which they are most focused and evolve along with their investment theses. This cycle’s theme is livecamp: everything around live streaming, esports, etc.
- Blueprint Health
Blueprint Health invests time and $20K into 20 healthcare IT companies each year. The staff and mentors work intensively with the companies for three months to help them meet their individual business goals. Typically these goals include gaining customers, raising capital, building marketing and sales collateral and refining an investor pitch. But Blueprint Health doesn’t end after three months – they continue to help their alumni founders build and grow their companies and offer them additional resources that the community can provide.
- Cofound Harlem
Cofound Harlem is an accelerator program in New York City that aims to build 100 companies in Harlem by the year 2020. The accelerator provides mentorship, education and other support to Harlem-based startups and companies that want to make a real impact on the community.
Dreamit Ventures is an early-stage venture fund that accelerates startups building transformative tech products in the fields of healthcare, real estate/built environment and security. Dreamit identifies and invests in startups with market-ready products looking to more rapidly gain customers, initiate new partnerships and raise their next round of funding. Startups participate in one of Dreamit’s three industry verticals: UrbanTech, HealthTech, or SecureTech.
- Entrepreneurs Roundtable Accelerator
Entrepreneurs Roundtable Accelerator combines seed capital, hands-on help and a great coworking location with an expert team to positively impact the trajectory of early-stage startups. ERA runs two four-month programs per year. They are New York City’s largest accelerator program as well as its deepest and strongest mentor network with 400+ expert investors, technologists, product specialists, marketers, customer acquisition strategists, sales execs and more, across all major industries represented in New York.
- Fintech Innovation Lab
The Fintech Innovation Lab is a highly competitive 12-week program that helps early- to growth-stage startup companies refine and test their value proposition with the support of the world’s leading financial service firms.
- MetaProp NYC
MetaProp and Columbia University collaborate to bring together some of the most innovative and influential real estate institutions and other industry PropTech visionary companies to lead the MetaProp Accelerator at the Columbia University Consortium.
- New York Digital Health Innovation Lab
The New York Digital Health Innovation Lab, previously NY Digital Health Accelerator, is an annual program run by the Partnership Fund for New York City and the New York eHealth Collaborative for growth-stage companies that have developed cutting-edge technology products targeted at healthcare organizations.
Startup52 is an early-stage accelerator program in New York City that is focused on promoting diversity. The accelerator accepts startups in various industries, but puts a big emphasis on the capabilities and diversity of founding team members. Accepted startups receive one-on-one mentorship, coworking space and other support tailored to each startup.
VentureOut is a New York City-based program that is a one-week hyper-accelerator. It brings in startups from around the world and connects them to members of the startup and technology communities in NYC. The VentureOut program features sessions on subjects ranging from leadership to sales, and ends with individual meetings and new client meetings at the end of the week.
- XRC Labs
For startups that focus on retail and consumer goods, XRC Labs provides an innovative, design-centric accelerator program in New York. Participants get mentorship, access to capital, operational support and workspace on the campus of the Parsons School of Design at the New School. XRC Labs runs two 10-week programs each year.
AlphaLab is a nationally ranked software accelerator in Pittsburgh. They help early-stage tech companies quickly figure out the best way to build and grow in an immersive 4-month program that includes funding opportunities.
BoomStartup is a seed, early-stage venture growth fund and virtual accelerator program. They provide entrepreneur boot camp basics like custom accelerator plans, extensive mentoring from seasoned professionals, personalized mentorship, investor introductions and pitch development. The program uses lean startup methodologies to launch a number of business startup programs such as early-phase tech, software, EdTech, product, and biotech startups.
Capria is a valuable Seattle-based investment firm and accelerator program focusing on global impact startups. The program aims to work with startups that develop innovative solutions to global problems, specifically those operating in emerging markets.
- 500 Startups
Probably one of the most well-known accelerators, 500 Startups’ 4-month seed program gets your company access to mentorship, hands-on sessions with startup experts and an office space where you’ll work with other talented founders from around the world. They invest $150K in exchange for 6% in equity. They charge a $37.5K fee for participation in the program and it takes place in both San Francisco and Mexico City.
- Alchemist Accelerators
The Alchemist Accelerator is an accelerator exclusively for startups whose revenue comes from enterprises, not consumers. The accelerator focuses on enterprise customer development, sales, market validation and a structured path to fundraising.
- Boost VC
Boost VC invests $50K – $100K in exchange for 7% of the company. They seek passionate technologists from around the world for their accelerator in Silicon Valley. They give their companies a place to live and work, an unparalleled network and time to focus on their startup.
- Founders Embassy
Founders Embassy is elevating, inspiring and educating international and immigrant founders by offering them unprecedented access to Silicon Valley through its immersive, bootcamp-style acceleration programs, impactful events and thought leadership – all without any exchange of equity. To qualify for the program, it is not required for the startup to be based outside of the US. However, if the company is based in the US, they do require for one of the founders to be either an international citizen or an immigrant living in the US.
- Illumina Accelerator
For startups involved in clinical research and applied sciences, especially in the area of genomics, Illumina Accelerator provides extensive mentorship, financial support lab space and more. Founders accepted into the program must work full-time in the Bay Area during the six-month program.
Matter is a 20-week accelerator program that focuses on design thinking. Based in both San Francisco and New York City, participants immerse themselves in a collaborative culture where they are taught to focus on creating human-centered offerings in order to fail fast and bring products to market sooner. The application process includes a pitch, project and finalist round that startups must go through in order to be selected.
- Upwest Labs
Upwest Labs offers $20K in funding over a four-month period for small businesses based in Silicon Valley. In addition to seed funding, small businesses can gain access to investors, mentors and more through the comprehensive small business development program that Upwest Labs provides.
- Le Camp
Le Camp is a Québec-based incubator-accelerator that is dedicated to tech businesses growth and mentorship. They offer a diversity of services adapted to companies’ development stages, from pre-startup to internationalization.
- Creative Destruction Lab
Creative Destruction Lab helps innovators transition from science projects to high-growth companies. Its focus is as a seed-stage program with the goal of helping companies go through the transition phase from pre-seed to seed-stage funding. Thalmic Labs, Nymi, Charge Spot and Pet Bot are some examples of the companies that CDL works with.
DMZ is a world-leading accelerator for tech startups in Canada. They help startups build great businesses by connecting them with customers, capital, experts and a community of entrepreneurs and influencers. They aim to create an environment where companies can focus on scaling their businesses. DMZ is ranked as the #1 university-based business incubator in the world by UBI Global. They have a strong commitment to helping high-growth tech startups scale, fostering a vibrant startup community and fueling innovation in Canada.
- Extreme Accelerator
Extreme Accelerator is the most active Canadian pre-seed fund that invests, sponsors immigration and accelerates global startups. They are mainly looking for international startups relocating or expanding to Canada, with an aim to target a global or North American market. They also require demonstrated product-market fit through revenue and validations by accelerators or other parties.
Ideaboost is a Toronto-based business accelerator and startup community for companies that are building the next generation of technology-based media and entertainment products, services, and brands. This accelerator is an initiative of the Canadian Film Centre’s Media Lab, in partnership with Corus Entertainment. It provides high-potential Canadian startups with seed investment, mentorship and access to its network.
- Launch Academy
Launch Academy is a tech incubator that provides the mentorship, resources, network and environment entrepreneurs need to launch, fund and grow their startups. Launch Academy offers three comprehensive programs, depending on a startup’s needs and growth stage.
- Accelerate Tectoria
Its mission is simple: to increase the number of successful technology companies that start and grow in the Greater Victoria area. With input and funding from its partners, Accelerate Tectoria provides a structured venture development service designed to guide, coach and grow ambitious early-stage technology entrepreneurs.
- CSI Kickstart
Known for their mentorship, impressive toolbox spilling over with resources and the ability to connect projects with the right investors, possible investors, mentors and more, CSI has it all. The incubator offers everything from human resources to knowledgeable entrepreneurs with an in-house production company — and even a virtual candy drawer!
This global incubator is wholly digital and aspires to help one million entrepreneurs achieve one million dollars in annual revenue within the next four years. This will lead to up to ten million jobs. Based on online educational programming, you’ll experience video lectures and get connected with online strategies and mentors. Aspects of this virtual incubator are free, but only approved members can access the entire program.
Based at Missouri State University, recipients are startups that aren’t physically nearby but are a good match for the program goals. Emerging businesses, startups and job creation are the goals of the eFactory. You can access the incubator program for support services, counseling, admin support and shared equipment. Mail services, virtual conference rooms and access to mailing lists and mentorship are at the heart of this program.
- DreamIt Ventures
DreamIt focuses on the trifecta of the startup world — startups themselves, investors and corporate innovators. It’s one of the 20 most active incubators in the country, DreamIt is all about helping entrepreneurs scale via securing capital and customers. The incubator also partners with brands and corporations to help with pilot programs and tech advancement. Top angel networks and venture capitalists also connect with DreamIt for a healthy startup ecosystem.
- Amplify LA
Focused on tech startups, Amplify LA understands that not all startups are equal — and that means their goals and paths aren’t the same. Adopting a flexible approach is at the center of the program, with an accelerator customized to each project.
There’s no catch-all calendar or required schedule for all. Instead, mentors watch a startup’s performance and offer support. On-site support in Venice Beach is an option, but with the flexible mentorship approach, mandatory requirements are slim.
If someone in your startup has a connection to Stanford, you can qualify for the Accelerator Program. Your connection can come from your undergraduate or graduate years, but only one person needs to have such a connection. Otherwise, on-site incubator options are available, including a visiting professorship.
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.
- 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.
- Y Combinator
Twice a year, they invest $120k into a large number of startups. These startups move to Silicon Valley for three months for intensive mentorship and support.