As an entrepreneur, what do I need from an incubator?

QUESTION:

Many of our founders keep asking the question, “As an entrepreneur, what do I need from an incubator?   And with so many choices out there, how do I select one?”

ANSWER:

Nari Kannan

Nari Kannan

by Nari Kannan, Chief Delivery Officer, V-Soft Consulting

Of late, there has been a lot of discussion in this forum about incubators, what measures they use for their own success, their business models, and so forth. In this post I discuss five things that I, as an entrepreneur, need from an incubator.

I fully understand that there are incubators sponsored by a state, county, or city, sponsored by a university or a country, or that non-profit or for-profit. In this case, I am only talking about a for-profit incubator that does not take any subsidy from any government or university. Its sole agenda is to enable the companies that it incubates become “successful.”

By an incubator’s success I mean precisely this: to enable the incubated company raise enough money either from organic growth or by raising additional investment monies from angels or venture capitalists to move out of the incubator. I also define an incubator is some entity that helps an entrepreneur or a team to develop a business out of ideas on paper and then send it out to face the world on its own.

Now given all of these, here are the five things I need as an entrepreneur, in order of importance:

  1. Angel, seed, or early-stage capital: There are businesses that can be bootstrapped successfully if they have a cash flow profile established early enough with quick sales cycles. Most services come under this category, as do even some software-as-a-service (SaaS) plays. Unfortunately, many consumer-oriented companies do not have an option other than raising some early-stage capital from angels or friends and family if they can afford the money being raised. To me, for the kind of business I am building, this is a must.
  2. Networking, advice, and early validation contacts: When building a consumer-oriented business like mine, networking and advice from others who have done it in the same or similar spaces at the early stages of the company is invaluable. If it is a business-oriented company, contacts for early validation, the first five difficult customers to line up, is the next most valuable thing for me.
  3. Engagement and being vested in fellow graduates’ businesses: I would love an incubator that encourages a founders’ pool of shares where all fellow graduates of the incubator get a small stake in each others’ companies. Sitting around the incubator conference room and trading tips for free when you have time is fine, but nothing will build camaraderie like being vested in each others’ businesses. Entrepreneurs may have many years of experience and ideas to share among them. If they are given a vested interest in each others’ success, the whole will be definitely greater than the simple sum of the parts.
  4. Access to deferred, low-cost, shared, and guerrilla-mode servicesaccountinglegal advicecompany identity designWeb 2.0, design servicesmobile design, and contract programming services could all be useful if the incubator has a list of vetted and committed service providers. These should be providers who are open to deferred payments or even willingness to take options instead of cash, at least for part of the cost.
  5. Shared space, coffee, and meeting facilities: Many incubators start with this, but the space-for-rent model does not make much sense anymore with an increasing number of companies being distributed geographically. For some entrepreneurs this may be more important but for me less so.

Ask any entrepreneur like me, and they will tell you that access to early-stage capital is the most important resource for startup companies in any part of the world but unfortunately one that is dwindling. Also, I wish that incubator selection panels would make it so that a better mix of companies is being housed in their premises at any time. Increasingly, incubators pile on more and more of the same kind of companies. I don’t think this makes for a very beneficial environment for incubated companies. This kind of approach will just breed more group think. If I am incubated somewhere, I would like the other companies to be in completely different areas and addressing other segments of business. This way I can get completely new ways of thinking about my own business and find new solutions to my company’s problems.

Comments & Advice:
  1. Jason Wong says:

    This is really helpful! Thank you Nari. I totally agree with what you wrote.

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