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Should you use an Incubator for your Startup?

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There are many incubators in Silicon Valley and increasingly all over the world as entrepreneurs who have "won" start opening up their own incubators often with their cash outs.  The biggest question for an entrepreneur is what do I get out of it besides a physical place for my office and what should I be looking for when evaluating incubators? 

There are many incubators in Silicon Valley and increasingly all over the world as entrepreneurs who have "won" start opening up their own incubators often with their cash outs.  The biggest question for an entrepreneur is what do I get out of it besides a physical place for my office and what should I be looking for when evaluating incubators?

There is little doubt incubators are playing an increasingly important role in raising investment for entrepreneurs.  Some incubators act as an office with minor introductory or connections as part of the mix.  Then there are incubators who are looking for a substantial stake in your company (Silicon Valley average ranges from 2 to 10 percent) to become an alumnus of their incubator.  So, if they are asking for that kind of stake what would an entrepreneur anticipate receiving in return and is it worth it?

Many of these incubators will offer intensive coaching, warm introductions to potential investors that they think fit your companies profiles (and most importantly get you in the door - rather than ending up in the stack of plans that get weeded out by the new analyst at the VC) and networking with other founders / connections that are of value.  Incubators level and intensity of services varies considerably but it can provide first time entrepreneurs and especially international teams that aren't familiar with US VC's critical initial linkage in Silicon Valley.

An entrepreneur looking at an incubator (especially first timers) should look at an incubator just like they should look at potential investors / Venture Capital money.  What can they do for me and what do I have to offer them.  Here are some questions to ponder:

  • What companies have they invested in, do those companies look like me, will they have knowledge / connections in the space that I need?

You need to evaluate each incubator just like you do a VC.  Some incubators such as AngelPad, Y Combinator or 500 Startups are well known - some others that maybe worth looking at are listed on Berkeley's Lester Center for Entrepreneurship resource page: and still others like Australia's Startmate offer an incubator like service while investing (25K for 7.5% / post valuation of $333K) in your company without a physical space as part of the bargain.

The key point is you need to know what is important to your potential investors by spending time looking at their sites and in some cases reviewing what they look for - as they will spell it out to you. Make a proposal that will resonate with the decision makers and hit the key points they have likely already articulated for you.  Last be prepared for a dance just like you have to do with VC's.  See some helpful hints on this blog post: Top Ten Investor / Entrepreneur lies.

  • Understand the challenge that incubators face

An incubator acts like a VC in many aspects.  They have to believe that they can get other like minded investors to put money into your business, early on, or it doesn't make sense to invest in you.  You have to convince them that your idea and people are winners.  By investing in your team they will be part of that winning company.  Your team must look the part and preferably have the chops that make them believe in you.  If you get in, they will help you with your pitch at the next level.

  • As always, Introductions do matter / use LinkedIn

Look at the incubator team and do everything you can to find someone who can make a friendly introduction, just like you would with a VC.  Review companies the incubator teams members have either been a part of or invested in. Use LinkedIn to gather this information if it isn't readily apparent and then use your connections to get an in and avoid the application death bin.

  • You have an interview now what?

I'm a big believer in the keep it simple approach.  Keep your presentation to 10 slides (check out Garage Ventures Guy Kawasaki's model if you haven't seen it previously) and do your homework.  Hopefully you know who will be in the meeting.  If you do, make sure you tie anything your company will do to something the investor can relate to (preferably a "positive" thing).  Also make sure that your team is prepared to answer questions based on their role.  CEO should answer market / business questions, CTO - Tech questions etc.,.  Last practice, practice, practice.  You only get one shot in these situations - bring in people that will "professionally" beat you up with questions so that when the live bullets fly - you're ready! 

  • Does an alma mater, matter?

Absolutely!  Think about what school you went to.  Generally the more prestigious the University you went to the more market cache you'll have.  If you went to Stanford and are looking for work in Silicon Valley you know what I mean.  However, for international startups they usually don't have the US university pedigree and going through a well known incubator can be critical, supplying you with credentials that last a lifetime.

Mentors and relationships from your incubator will provide you with many springboards in later pursuits as well as giving you that initial leg up with your current startup.  Plus you'll work side by side with other companies with similar dreams and knowledge to pass on along the way.  Entrepreneurs are likely to have many different jobs over the course of their working lives and incubators provide an opportunity to work with like minded people that maybe your next team mates.

Incubators aren't for everyone and there are many success stories for companies that didn't use incubators to start.  However, if a first time entrepreneur is looking for a fast path to knowledge, connections and increased success.  Incubators are worth serious consideration.



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