About 543,000 new businesses were created each month in 2011, according to the Kauffman Foundation. And some of those got their start in an incubator.
Startup incubators help emerging companies grow by providing them with necessary resources and initial funding to expand their ideas. In exchange for funding, they typically keep a small percentage of the company. Over the course of a few months, incubators work with startups to create a blueprint for their companies to present to investors at the end of the program. These blueprints usually result in investments. Among some of the more famous companies that got their start in an incubator: AirBnB and Dropbox.
Funding for Existing Companies
Startups seeking early-stage funding aren't the only companies encouraged to apply. Even companies that are already formed and have limited funding can still utilize the program to amplify their brand.
Mike Onghai, founder of AppAddictive, left a comfortable hedge fund to spend a summer with Philadelphia-based DreamIt Ventures, one of the top 10 incubators in the U.S, according to Forbes. When he arrived at DreamIt, he already had a user base of 50 million people but used the incubator program to transform his consumer-based model into a business-to-business model. AppAddictive is a social and mobile application platform geared towards publishing and advertising that allows businesses to publish apps without coding. Onghai recently acquired $1.2 million in seed funding for the company's drag-and-drop tools for Facebook.
"I had managed a hedge fund and I had bootstrapped two ventures before, but I had never raised money from outside investors for my own startup before," Onghai says. "I wish there were incubators around when I started my first ventures; I could have avoided a lot of mistakes."
In addition to getting money for your company, the talented connections available at incubators provide invaluable support. The best incubators remain in touch with their startups even after their term has finished. Consider it like having an entire faculty and board of advisors to yourself. They work with you through your projects and most, like DreamIt Ventures, provide legal, accounting, and administrative help.
An incubator also accelerates the development process. During roughly 10 weeks, participants focus solely on the projects at hand and are provided with space and resources.
On Demo Day companies get the opportunity to display what they've been doing in front of a room of investors, creating an auction environment. The majority of Onghai's funding was the result of his demonstration at DreamIt Ventures.
Learning by Doing
Aside from formal mentoring, the peers you'll be working alongside at startup incubators can provide just as much support. Incubators have a tough selection process, often sifting through thousands of applications. "I was the senior in my group," says Onghai, "so a lot of people turned to me for advice."
Incubators are arguably more beneficial than business schools. "I dropped out of a paid-scholarship MBA program to start my online venture," says Onghai. "Hands-on experience cannot be replaced by lectures and classes. You can get video lectures online these days. I follow the quote, 'When I hear, I forget. When I read, I remember. When I do, I understand.'"
Do you have any experience with a startup incubator?
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