Spend time looking for the right incubator for your startup

Inside Entrepreneurship: Spend time looking for the right incubator for your startup

By SUSAN SCHRETER  /  SPECIAL TO THE P-I
September 6, 2007 3:25 p.m. PT

Q: Will joining an incubator help my
company raise startup funding faster than if I don’t join? Are
companies that come out of incubators credible to venture funds? What
do I need to watch out for? My partner and I don’t know if paying for
space is a good use of our limited savings.

M.V., Reston, Va.

A:
About 10 years ago I had the privilege of meeting Bernard Goldhirsh,
the founder of Inc. magazine. While most people assume that the
magazine title stood for the abbreviated form of incorporation, to
Bernie, "Inc." was all about "incubation." He incubated a magazine that
helped its readers incubate prosperous companies, too.

Today,
the services offered by organizations that call themselves incubators
are quite diverse. Some are for-profit entities, some are bona fide
non-profit organizations and some are entrepreneurial education centers
that operate within universities or municipal government facilities.

At
the lower end of the service scale are real estate developers who
market their cubicle office space as incubators. Startup entrepreneurs
pay a monthly fee for some office space plus the use of office
equipment, conference rooms and possibly pay-per-project administrative
personnel. These centers can be a good deal for entrepreneurs who work
more productively in an office setting than at home and can build out a
business plan on their own.

Some incubators, also called
"clusters," specialize in supporting entrepreneurs in a particular
field such as biotechnology, the arts, clean technology, food service,
retailing or agriculture. Here, startup entrepreneurs can usually find
mentors and timesaving product development guidance from industry
experts. It’s no surprise that incubators that focus on high-growth,
high-potential-reward technologies are also well equipped to help their
"resident" entrepreneurs raise money from local angel investor
organizations and venture funds.

As you would expect,
acceptance in an incubator varies according to the reputation and
resources offered by the organization. For example, respected
technology oriented incubators that are backed by venture capital
firms, like Seattle-based Accelerator Corp., are highly competitive. To
gain acceptance to elite incubators with state-of-the-art facilities,
entrepreneurs have to submit compelling, detailed business plans and
demonstrate a mature ability to thrive in a collaborative
business-building environment. Thereafter, cash and equity compensation
to the incubator organizers are negotiated based on the operating needs
of the startup.

So how do you know if an incubator is right for your startup? Consider the following.

  • As
    a partnership-based startup, I would hold off signing incubator leases
    until your business plan is fully developed and you know you can work
    effectively as partners. Contact your local Small Business
    Administration office for a list of local universities, municipal
    business development centers and SCORE offices that offer free or
    low-cost business-planning support services.
  • As
    much as the more respectable incubators will ask questions about you,
    ask questions about the incubator in return. Sign up only if the
    services offered match your current needs.
  • Be
    wary of incubators that have a financial interest in too many business
    support services such as accounting, Web design, advertising, computer
    sales, etc., or contractually require you to use their preferred
    service vendors.

    Lastly, you have asked if you can count on an
    incubator to help you raise money. It is my view that entrepreneurs who
    hand over fundraising leadership to brokers, incubators or board
    members rarely raise money for their enterprise. Sure, you can solicit
    fundraising advice, but only a business founder like you can speak for
    a new company. In all critical business-building jobs like fundraising,
    you will always own the responsibility.

  • Susan Schreter writes about startup planning and
    small-business financing for the Seattle P-I. She has an investment
    banking and buyout background and serves as a coach to entrepreneurs
    and consultant to corporations. Find more Inside Entrepreneurship
    columns at seattlepi.com/venture. Send questions about small-business
    management or raising money for your business to susan@insideentrepreneurship.com or by mail to Inside Entrepreneurship, c/o Seattle Post-Intelligencer Business Section, 101 Elliott Ave. W., Seattle, WA 98119.

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