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.
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.