A business incubator is an organization designed to help startup businesses grow and succeed by offering free or low-cost workspace, mentorship, expertise, access to investors, and in some cases, working capital in form of loans. You’ll work around other entrepreneurial businesses, often with a similar focus as yours.
These incubators are all about helping startups and small businesses grow. Business incubators have existed in different forms for decades, but the first surge of business incubators came a little over a decade ago. They have since become a central part of the business world and there are a number of incubators across the globe looking to boost entrepreneurship.
The formal concept of business incubation began in the USA in 1959 when Joseph Mancuso opened the Batavia Industrial Centre in a Batavia, New York, warehouse. Incubation expanded in the U.S. in the 1980s and spread to the UK and Europe through various related forms.
According to reports, there are about 7,000 incubators worldwide. Incubation activity has not been restricted only to developed countries; incubation environments are now being implemented in developing countries and raising interest for financial support from organizations such as UNIDO and the World Bank.
However, joining an incubator is more or less like joining a college program: You are expected to apply, be accepted, and then follow a schedule in order to meet benchmarks set by the incubator. You’ll also need to commit for a length of time to be a part of the incubator, typically one to two years.
Since you will be giving up a hefty chunk of time and equity for its resources and expertise, it is always advisable that you first research the incubator’s offerings to see if they match your needs. Take your time to understand what resources and services the company provides. Study the incubator’s mentors and advisers to determine if their expertise, skills, and networks match your business’s needs.
Many incubators serve as a temporary launching pad for new ventures, expecting that participants (the newly launched businesses) will eventually grow and move out. Unfortunately, not all companies achieve this objective as some realize their business ideas were not viable and end up shutting down.
Different Types of Business Incubators for Startups
There are a number of business incubators that have focused on particular industries or on a particular business model, earning them their own name. Here are 10 major types of incubators in the United States.
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Social intrapreneurship is currently a global phenomenon that transforms the lives of citizens via innovative approaches to solving social challenges. Note that this concept puts together the passion of a social mission with entrepreneur-like discipline.
It is now heralded as a novel strategy to address social problems, ensure sustainable development, alleviate poverty levels, and create employment opportunities. Have it in mind that most experts see it as a transformation in addressing various challenges. It lets citizens take responsibility for initiating a change instead of demanding it.
Various initiatives are flourishing to leverage, encourage, and develop social entrepreneurship. This is where social incubators come in. These incubators offer the necessary knowledge and other resources to enable entrepreneurial businesses to deliver social good. Some of the benefits a social incubator can offer include.
- You don’t need to fit in a specific category or be a social enterprise or a charity to qualify. All you need is an appropriate business idea intended to deliver a positive environmental or social impact.
- Successful businesses to a social/ public incubator scheme can access finances regardless of whether or not they were turned down by mainstream financiers.
- Social incubators are aimed at regional and local communities. That means you can still get support at the grassroots.
- The incubators offer a wealth of knowledge to help you launch and manage your start – up. Perhaps you are a brilliant interior designer but no idea of business finance or accountancy. The incubator can provide such knowledge.
Academic and Scientific Incubators
Academic and scientific incubators are quite popular, with many famous universities in the United States offering a business incubator as part of their operational activity. Note that they mostly target internal projects at the university and you often need to be a student at the institution in order to get involved. Academic and scientific incubators can offer plenty of technical advice, as well as the possibility to test different concepts.
In addition, you can learn about intellectual property rights and most incubators offer seed capital to fund the projects. Also as the project matures, academic and scientific incubators can offer additional access to funding and provide a route to industrial networks.
However, the problem with this model is the inflexibility, as it operates as part of an established institution. This can mean that access is limited and the operational flexibility is restricted. The ability to access external resources and networks can also be somewhat limited
Virtual Business Incubators
According to reports, virtual company incubators began in the early 1950s and didn’t take off until the late 1950s. These organizations provide substantial support for startups that need capital and advice to actualize their business concepts.
As the famous dot – com bubble grew and busted, most high – tech venture incubators did so too. It represents the beginning of the revolution in the world of business incubation. Most of the incubator organizations that survived the bubble switched to the virtual business model.
The traditional company incubator model requires you to set up a physical shop at the incubator’s location (site). Meanwhile, the virtual incubation model allows businesses to rake in the advice and other resources that incubators offer but still maintain their own warehouses and offices away from the incubator’s site.
Academic and scientific institutions aren’t the only organizations that can set up incubators. In the United States, corporations themselves can launch incubators for both external and internal projects. The businesses, which are part of these incubators, are only expected to be related to the main activity of the company.
Note that corporate incubators are good at offering financial resources, as well as conduct things such as prototype and market testing. Also note that the resources available for these actions are multiple and companies participating in these programs can enjoy great access to commercial markets.
Howbeit, there can sometimes be conflicts of interest in terms of the management and the startup companies. Additionally, while corporate incubators have plenty of resources, the ability to mobilize these can sometimes be limited due to bureaucracy.
According to reports, so many medical startups in the United States and other regions in the world face many challenges when it comes to realising effective product development and validation. They also experience financial – related difficulties, and this hinders long – term growth.
However, startups specializing on the provision of healthcare can always turn to medical incubators to boost their chances of becoming the next success story. According to a report, medical startups raised over $ 2.8 billion (capital funding) in 2018 alone. This amount represents about a 70 percent increase from $ 1.64 billion reported in 2017.
Medical incubators and accelerators play a major role in the startup economy. They provide new medical device companies the information, direction, resources, and finances necessary to start bringing their product concepts to life.
Note that they are the centre of a somewhat triangular network that comprises healthcare systems, healthcare start – ups, and venture capital. In this modern age, healthcare incubators and accelerators are driving innovations in the medical industry. Their services are beneficial to healthcare startups that focus on healthcare services, digital health, medical technology, genomics, and informatics.
The seed model of incubators is among the most common in the incubator industry. Y Combinator, as well as many of the other most successful incubators, successfully use this model, and accelerators rely on this approach. Note that these Incubators are a combination of high – quality filter and broad portfolio approach to finding the right companies.
The high – quality filter means the incubator is focused on attracting only the brightest of talent. These incubators and accelerators often have a vetting process – the first stage lasts for a while after which only the best ideas and companies continue. Additionally, it also utilizes the broad portfolio approach. Under this approach, the incubator would accept multiple companies of which only a handful might become a huge success for the organization
Unlike accelerators and incubators, studios are specialists in idea generation. Note that they can either begin with an idea or a team, or then set forth a unique path to validate the idea and analyze whether or not to take it to the market by passing a series of “stage gates” that give“go/ no go” decisions depending on key milestones and metrics.
These studios normally take a larger stake in new ventures, up to 45 percent, and don’t operate on a set time frame like accelerators and other types of incubators. Instead, they hit each of the ‘stage – gates’ or milestones until product – market fit is realized. Note that passing the last gate stage means a “launch in the market.”
Some years back, the concept of the incubator kitchen was a novel concept. However, the food industry has evolved rapidly. It is now filled with artisan products and enjoys unparalleled access to outstanding food trucks and food services. Note that this evolution and the changing business landscape have further increased the number of food entrepreneurs who strive to meet consumer demand for both local and unique products.
The resultant demand for kitchen space has fuelled the implementation of the incubator kitchen concept. Culinary incubators are designed to offer small food businesses a competitive edge when entering the local marketplace. They achieve this objective through the provision of the following;
- Certified insufficient kitchen space for food preparation.
- Sufficient capital to overcome restrictive barriers of the high cost associated with purchasing or leasing kitchen space and kitchen equipment
- Resources related to branding, accounting, marketing, financing new products, and insurance.
Unlike business accelerators and incubators, venture builders never take any applications nor engage in any sort of competitive programs that culminate in a Demo Day. Instead, they pool business ideas from their own network of resources and get the right team of advisers, sales managers, business developers, and other experts to develop them.
Have it in mind that these organizations can develop many models, projects, or systems at once and create separate companies around each promising idea by assigning capital and operational resources to those portfolio businesses. Basically, a venture-building organization is a holding company that owns different levels of equity in various corporate entities it has helped create. Note that so many successful venture builders are usually more hands – on and operational than holding companies.
They tend to raise the necessary capital, host internal coding sessions, acquire staff resources, work with the right legal teams, design business models, and build the minimum viable products. These organizations also seek the expertise of business development managers and oversee marketing campaigns to ensure successful pre – and post – launch phases.
Local Economic Development Incubators
Just as the name suggests, local economic development incubators target small businesses, often working in the service or craft industry. It can also attract larger businesses as well, but this doesn’t necessarily happen on purpose. Note that these incubators can provide different services from hosting to administrative tasks. They also offer varying consulting and coaching options, as well as help the businesses to gain access to financing.
The incubators often don’t provide direct financing, but rather help businesses access external financing. However, these local incubators tend to be relatively small and can often have problems with the stability of available resources. In certain instances, the quality of services can also be hindered.
With nearly 90 percent of startups failing in the first few months, an organization that can guide it through the starting hurdles can be very helpful. The sole focus of incubators and accelerators is to help a business or an idea to grow. The way these organizations go about dealing with these can vary greatly, so it is always advisable to do your research before making any commitments.
Frequently Asked Questions
What Is Business Incubator? What Are The Facilities Provided By Business Incubator?
A business incubator is a company that helps new and startup companies to develop by providing services such as management training or office space. This is also a Facility established to nurture young (startup) firms during their early months or years.
What Are The Types Of Business Incubators?
Here are the types of business incubators;
- Virtual business incubator – online business incubator.
- Kitchen incubator – a business incubator focused on the food industry.
- Public incubator – a business incubator focused on the public good.
- Seed accelerator – a business incubator focused on early startups.
- Startup studio – a business incubator with interacting portfolio companies
- Venture Builder: These are similar to a startup studio, but builds companies internally.
- Medical Incubator: a business incubator focused on medical devices and biomaterials
What Is The Role And Function Of Business Incubators?
A business incubator is a company that helps new and startup companies to develop by providing services such as management training or office space. It usually provides affordable space, shared offices and services, hands-on management training, marketing support, and often, access to some form of financing.
What Are The Benefits Of a Business Incubator?
Here are some of the Benefits of Business Incubators;
- Mentorship and advisory services.
- Time- and money-saver.
- Access to industry experts and mentors.
- Comprehensive admission process.
- Creation of a new cohort.
- Mentorship and advisory services.
What Is The Process Of Business Incubation?
Business incubation (process) is a public and/or private, entrepreneurial, economic, and social development process designed to nurture business ideas and start-up companies and through a comprehensive business support program, help them establish and accelerate their growth and success.
What Are The Stages Of Business Incubation?
Here are the Stages of Business Incubation;
- Physical Facility Support.
- Networking Facilities.
- Support Services.
- Corporate Incubators.
- Private Investors’ Incubators.
- Academic Incubators.
- Local Economic Development Incubators.
What Do The Business Incubators Have To Offer?
An incubator is an organization designed to help startup businesses grow and succeed by providing free or low-cost workspace, mentorship, expertise, access to investors, and in some cases, working capital in the form of a loan. You’ll work around other entrepreneurial businesses, often with a similar focus as yours.
How Much Does It Cost To Start A Business Incubator?
A few incubators and most accelerators provide some seed funding for startup entrants, ranging from $10,000 to $150,000, and expect a chunk of your equity in return. The best ones also charge an up-front participation fee for services provided.
Who Are Business Incubators Looking For?
Business incubators are commonly established as partnerships or collaborations between several organizations such as investment-related ventures. This is usually done by large companies who wish to invest in small but innovative startup firms.
How Do Incubators Make Money?
A government, company, or other investors pay the incubator to run. Again, they profit from ventures from liquidity events that have their equity.
How Much Do Business Incubators Cost?
Those fees can range from a few hundred to a few thousand dollars. Incubators do not generally have a strict focus on the amount of time a business will spend in the program.
What Is The Difference Between A Startup Accelerator And A Business Incubator?
The difference between a startup accelerator and a business incubator is that accelerators are funded by an existing company. Incubators are often independent but can have connections to venture capital firms or funds, or universities. Accelerators are aimed at accelerating companies and scaling them up. Incubators focus primarily on stimulating innovation (they incubate disruptive ideas). Better put, if an incubator helps “infant” companies, then an accelerator assists “toddler” startups.
Do Accelerators Take Equity?
Accelerators usually provide some level of pre-seed or seed investment for each startup within their cohort in return for an equity stake in the company. The amount of investment and equity varies but as a general figure, accelerators tend to take between 7% — 10% equity.
What Is Business Model Canvas?
The business model canvas is a shared language for describing, visualizing, assessing, and changing business models. It describes the rationale of how an organization creates, delivers, and captures value.
What Does Success Look Like For Corporate Incubator?
The success of a corporate incubator cannot be decided based on a single parameter, there are a narrow but diverse set of metrics such as number of start-ups incubated, percentage of successful exits, financial sustainability of the incubator, engagement with mentors, faculty, and investors, funding support, and infrastructure support et al.
What Are Incubator Models?
An incubation model is broadly defined as the way in which an incubation entity provides support to start-ups to improve the probability of survival of the portfolio companies and accelerate their development.
What Is A Startup Incubator?
A startup incubator is a collaborative program for startup companies — usually physically located in one central workspace — designed to help startups in their infancy succeed by providing workspace, seed funding, mentoring, and training.
What Are The Disadvantages Of Business Incubators?
- The application process can be rigorous and competitive.
- Many incubators require a time commitment of around one to two years, plus adherence to the schedule set by the incubator, which can include many trainings and workshops.
- For better or worse, an incubator is a professional environment.
How Long Do Business Incubators Usually Take?
Companies typically 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.
What Are The Building Blocks That Describe A Business Model?
There are nine building blocks that describe and assess a business model: customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure.
How Do I Build An Accelerator Program?
Here are the steps to follow to build the startup accelerator of your dreams;
- Step 1: Found your own company.
- Step 2: Participate in the community.
- Step 3: Talk about the community.
- Step 4: Invite the community in.
- Step 5: Create a common space.
- Step 6: Keep doing all of that stuff.
- Step 7: Start an accelerator.
Do Incubators Charge Money?
An incubator charges the participants who are the startups. They pay as they can get quality advisers, connections, and content. But for an incubator, it may be inaccessible or expensive.
Do Startup Accelerators Work?
Yes, accelerators work because they can have a positive effect on the performance of the startups they work with, even compared with other key early-stage investors. But this finding is not universal among all accelerators and so far, has been isolated to leading programs.
Do Accelerators Give Funding?
Accelerators typically offer seed money in exchange for equity in the company. This may range from $10,000 to over $120,000. Though some have recently pulled back on the amount of funding they provide, citing over funding as a major roadblock to success.
25. What Is A Startup Accelerator, And How Does It Work?
A startup accelerator sometimes referred to as a seed accelerator, is a business program that supports early-stage, growth-driven companies through education, mentorship, and financing. Startups typically enter accelerators for a fixed period of time and as part of a cohort of companies.