If you’re an entrepreneur looking to get your startup off the ground, you have probably heard the word “incubator” thrown around. More than just a buzzword, incubators can be a vital tool in a startup's rise to stardom. But what is an incubator in business and how does it work?
Startup incubators are specialized hubs that can help early-stage ventures and startups navigate some of the most challenging aspects of running a business.
By the end of this comprehensive guide, you will know all about the different types of incubators, how they can help your business, and how you can get your business into an incubator.
In this article:
- How does a startup incubator work?
- The pros and cons of a startup incubator
- What are the different types of startup incubators?
- Could an incubator help my business?
- What do incubators want from a business?
- How can I get my business into an incubator?
How does a startup incubator work?
Startup incubators are unique organizations that function as a springboard for early-stage businesses and startups with the goal of providing specialized tools needed for startups to grow and innovate.
The resources and services they offer can vary, but often include access to office space, mentorship opportunities, business education classes, and community networking events. The structure of an incubator is much like a corporate office space and can include mandatory meetings, strict deadlines, and even a direct supervisor.
The idea for incubators began just over 60 years ago in Batavia, New York. With a family-owned factory at his disposal, Joseph Mancuso, an emerging entrepreneur, saw an opportunity to help other like-minded individuals get their small businesses off the ground. From there, he began recruiting emerging enterprises to operate in the low-cost office space located in his massive factory.
Today, there are over 7,000 incubators across the world, according to the International Business Incubation Association. This means that there’s an incubator for every type of business in practically every corner of the globe. All you need to do is find one that fits your needs and apply.
Startup incubator examples
Incubators can come in all shapes and sizes and meet all types of different needs a particular startup may have. Whether you’re looking for seed funding, networking opportunities, or mentorship, there is a startup incubator that can help.
Some examples of incubators you may or may not be familiar with include:
- Founder Institute is a global network that helps companies at every level, from startups at the idea stage to developed companies with a product and customer.
- Entrepreneurs' Organization is a peer-to-peer network of founders and builders from more than 60 countries.
- Harvard Innovation Labs is Harvard’s own entrepreneurial ecosystem of support for its students and alumni.
- Endeavor is a global organization that focuses on businesses and startups in emerging and underserved economies.
- LaunchVic’s The Good Incubator is a Melbourne-based nonprofit incubator helping people with disabilities create or grow their businesses.
- Communitech Hyperdrive is a Canadian incubator focused on technology, with a network of 28 regional innovation hubs across the country.
- MaRS is a Toronto-based hub that provides office space, advisory support, and even access to investors.
- Plug and Play is a global platform that connects blue-chip companies with startups to promote innovation.
- Station F is a Paris-based hub offering a number of perks, services, events and workshops.
- Capital Factory is an Austin-based co-working and event space dedicated to entrepreneurs, providing local founders access to mentoring and accelerator programs.
Are incubators and accelerators the same?
While they have a lot in common, incubators and accelerators have some key differences to be aware of before committing to a program.
The primary differences between incubators and accelerators are:
- Venture stage: Startup incubators generally cater to very early-stage businesses, often without a product or team. Accelerators, on the other hand, look for companies that are more built out. They generally require a business to have a minimum viable product and a team of their own.
- Funding: Incubators come with a lot of perks, but they don't always invest directly into a business. For accelerators, however, seed funding is their bread and butter.
- Time frame: Incubators offer fairly flexible timelines, typically ending only once a company has a product pitch ready for investors. Accelerators operate on a much shorter timeline. The entire goal of an accelerator is rapid growth and a fast turnaround on their investment in a company.
The pros and cons of a startup incubator
Did you know that only 51% of businesses survive past the fifth year? That’s a pretty surprising statistic and can be a jarring realization for many ambitious entrepreneurs.
Businesses fail for a number of reasons. Whether they’re lacking funding, struggling to keep up with rising costs, or the managers lack the necessary experience, keeping the doors open can be a tricky feat. But this is exactly the kind of help startup incubators provide.
There are many benefits that come with joining a startup incubator, though there are some downsides as well. Let’s have a look.
What are the benefits of a startup incubator?
Startup incubators can provide startups with a number of valuable tools, from workspaces to seed funding and more.
Here is a quick look at some of the tools a startup incubator can provide and how they can help your business:
- Office space can help small companies save on rent and create unique networking opportunities with other enterprises.
- Seed funding can assist startups in tackling bigger goals and taking their businesses to the next level.
- Mentors can guide owners and managers to become more confident and efficient leaders.
- Equipment and software vouchers can provide some extra financial relief for tech startups in particular.
What are the downsides of a startup incubator?
While the benefits of startup incubators are plenty, there are some downsides to consider before committing to an incubator.
Top startup incubators can be extremely selective. Incubators can provide great financial benefits, so making sure their investments are going to pay off is a top priority.
It’s estimated that there are as many as 305 million startups created every year, while there are only 7,000 incubators. That means you’re going to have a lot of competition.
Some incubators may require a commitment of up to two years, or even until you have a product that is ready to launch.
When joining a startup incubator, you’re committing to more than just the perks — you’re committing to a culture and way of doing things with which your company may or may not align.
What are the types of startup incubators?
There are a number of different types of startup incubators all specializing in different fields, offering different perks, and with different funding models. Rest assured, however, knowing that no matter what kind of incubator you choose, they all have one common goal: to help you grow your business.
Whether you’re looking for a nonprofit organization or a VC-run incubator, it's important to understand what each type of incubator does and what they might expect from you to ensure you’re choosing the right hub for your project.
The most common categories for incubators include:
- University startup incubators
- Nonprofit startup incubators
- Corporate startup incubators
University startup incubators
Now, more than any other time in history, students no longer have to decide between pursuing higher education and kick-starting a business. University startup incubators (UBIs) can help with both.
University incubators are usually university- or student-run and can receive funding from donations or venture capital support. They may also invest in students’ projects and use the proceeds to fund new endeavors. These programs can provide pupils with all types of assistance and mentorship, from access to costly technology to logistical solutions.
UBIs provide students with an opportunity to chase their dreams in a financially secure and safe environment. These startup incubators are rethinking the businesses of the future.
One of the top academic incubators in the world, University of California, Berkeley’s Berkeley SkyDeck, offers students’ companies up to $200,000 after being accepted. It also provides support with logistics, customer development, and even marketing and advertising.
Nonprofit startup incubators
Some startups set out to change the world without taking a profit. For this reason, nonprofit startup incubators are just as valuable as other incubators.
Nonprofit incubators are programs and work spaces that cater exclusively to — you guessed it — nonprofit businesses. These incubators leverage their networks, know-how, and resources to provide nonprofit startups with the tools they need to grow and accomplish their goals.
Resources can include things like office space or technology, which can prove to be a major benefit for nonprofit businesses that often struggle to secure these costly tools.
An example of a top nonprofit startup incubator is MassChallenge, a global organization helping early-stage companies solve some of the world’s most pressing challenges. Their program covers industries such as health and financial tech, sustainable food, and even space commercialization, just to name a few.
Corporate startup incubators
Corporate incubators are typically in-house programs or independent business units built to curate and develop ideas within their own company. These incubators, like others, focus on early-stage ideas, sometimes with the goal of creating an entirely new business or product.
Corporate startup incubators have the advantage of leveraging business assets to create brand-new revenue streams and create a hub for innovation within their own company, all while helping employees feel like they’re part of something bigger.
One of the most notable corporate incubators is Google’s Area 120—a radical idea built to help employees pursue their own radical ideas. Google’s in-house incubator features over 120 teams working on all kinds of projects, from AI customer support agents to a new tool that helps creators easily dub their content to expand their audience.
Could an incubator help my business?
Starting a business is hard work and incubators come with a lot of perks, though it is important to remember that not all incubators are the same and not all businesses are a good fit for an incubator.
Determining if an incubator is good for a startup can be a tricky task. Before diving headfirst into a time-consuming and competitive incubator application process, you may want to ask yourself a few questions:
- Am I ready to give up equity in my business?
- Does the incubator I’ve chosen align with my business’s core values?
- Can I commit to a rigorous schedule set by someone else?
- Do I really want to answer to someone else?
By asking yourself these questions, you make a more informed decision as to whether or not the perks of a startup incubator are worth the cost.
No first-time entrepreneur has the business network of contacts needed to succeed. An incubator should be well integrated into the local business community and have a steady source of contacts and introductions.
How can I get my business into an incubator?
It should come as no surprise that the resources startup incubators provide are highly sought after, and that entry to a startup incubator is a complicated and competitive process. But that doesn’t mean you can’t be prepared.
Here are a few tips that can help you in your application process:
- Explore your options. The world is a big place, and with over 7,000 incubators scattered across the globe, it’s worth checking out different options.
- Find the right fit. Think about your goals and what exactly you’d like from an incubator. Every incubator is different and finding the right match is imperative.
- Be aware of the required milestones. Incubators typically help individuals create something from the ground up, but that doesn’t mean you’re applying to a program empty-handed. You should have an idea of what milestones you hope to achieve and a time frame in which you plan to meet your goals.
- Create a killer business plan. Doing a deep dive into your business, your value proposition, and your projections will help you better understand what you’re looking for from an incubator. Additionally, it will help an incubator better understand exactly why they should accept your business.
- Brace yourself for a grueling application process. Patience is the name of the game when applying for a startup incubator. The interview can be exhausting and time-consuming, so it’s important to remember why you’re there in the first place.
Startup incubators are some of the most sought-after programs in the startup universe. They can help build a business from the ground up, offering a number of huge benefits, especially for early-stage ventures.
Deciding which startup incubator is best suited for your startup can be a difficult task, but now you’ve got a better understanding of some of the ins and outs of the process.
It’s on you to make the next move, but we’re here to help. Building a business is a daunting task, and your tech stack shouldn’t make it harder. Apply to HubSpot for Startups today and gain access to all the tools you need to increase leads, accelerate sales, and streamline your startup.
Header image by Brooke Cagle on Unsplash