Entrepreneur · Entrepreneurship

Is incubation becoming a business focused entirely on its own growth than growth of a startup?

Saurabh Saha Co Founder at Talent Pegs

May 4th, 2015

It seems today in the startup ecosystem across india incubation has become a business.I remember going to a premier Indian B-School  last year that has an incubation center and although they picked my product idea from a bunch of others they wanted me to pay them 6K on a monthly basis for one complete year to which I said no. Additionally many incubation bodies have approached me in the recent past started by less than average founders either hailing from IIT/IIM background who tend to demand equity plus cash plus a cut if they manage to get me funding.On a comparative note accelerators like YC/Techstars and many famous ones actually invest money in the startups they believe will rule the world and help them with the necessary mentorship and funding support.But I am wondering how useful are these services for a bootstrapping entrepreneur like me who is burning his life's savings in my startup if the sole objective for such incubation services is to make money on their own without giving much consideration to the growth of a startup and sharing the dream that an entrepreneur has.I am yet to meet Sam Altman and Paul Graham of India and the ones who claim to be the so called Paul Graham and Sam Altman are inherently insubstantial people with ulterior motives.So all in all incubation/acceleration has become kind of a joke and in the past 2 years most of these entities I have approached come back to me with their mouths filled with various demands either for money or equity or almost anything that could suffocate my startup at the most vulnerable stage that it is right now.And sadly the mentorship support they talk about is what I could do away with using so much free literature available on the internet.So wrt that I wish to know if people have faced similar situations and the general opinion around incubation services per se.

David Schwartz Multi-Platform (Desktop+Mobile) Rapid Prototyping + Dev, Tool Dev

May 4th, 2015

From what I've seen here in America, incubators and accelerators are typically funded by investors as a way to help them control costs with their seed-level investments, as well as provide some critical mass in terms of social infrastructure and the ability to easily coach / mentor the founders and their teams who are there.

The question you want to ask is what makes what they're proposing any different from what we call "Executive Suites" where you simply rent office space and get access to some shared resources?

Startups, by definition, are cash-strapped. That's why they are started in spare bedrooms and garages. There's no point of spending cash for a fancy office when a cheap flat somewhere might be just as useful.

Chris Carruth VP/Director. Strategy | Business Development | Operations | Product | Solutions

May 4th, 2015

I know that some local (Dallas, TX) incubators charge, some don't, some offer an equity/cost model. I have found investors to span the gamut as well, including some doing a "bait n switch" promising to invest if you reach x milestone then claim what they really meant was $$/month for consulting with no investment themselves and no guarantee of funding. Other flavors as well, including some that really do want to help but find it hard to get others in their circle to have the same faith in your company as they do.

The exception to this are well heeled families where a relative is given the money to start his/her idea and is given access to wealthy family friends who do it more as a favor than really worrying about a meaningful ROI.

The market is filled with all kinds. My advice is to keep digging..it is the only option, short of abandoning your "baby". However, at some point, it should also become clear that your "baby" may be more ugly than thought and worth shutting down, painful as that can be.

Peter li.blueoyster~@~gmail.com] Peter Jones creates solutions for product USP, market messaging, team building, venture and other commercial capital

May 5th, 2015

This is, as ever, a buyer beware situation.

Culturally, I can't comment on the ethical norm in India, more on the UK.

Like any business, some business owners are focused simply on their own business, and may get distracted from customer needs.

The best way to check on any service provide is to obtain real, social, online validation about the service that was provided.

Will anyone recommend the provider having used their services, and without a commission or other vested interest?

The proposition here is more complex though, since there is also a product involved, which may have varying degrees of attractiveness or market potential.

Some product owners are so hell bent on "doing their thing" they don't listen to advisers around them. 

Another complication is that advisers may not have seen a product like it before. So then who is "right", the founder or the adviser, in deciding the traction levels a product can reach. More art than science sometimes, but researching the markets and numbers thoroughly does reduce risk for investors.

Taking the investors side, far too many founders still want investment without the hard graft involved pre-product of researching their market, and further developing prototypes and testing them to validate their concept.

Hope this helps!

Karl Schulmeisters Founder ExStreamVR

May 5th, 2015

I think it has always been a "business".  Now whether they get paid in cash or equity is only a question of how they monetize their services.  But fundamentally incubators that are not government run are a type of business model

John Seiffer Business Advisor to growing companies

May 5th, 2015

In the US most incubators are usually non-profits designed to help companies get started and create jobs OR run by investors who invest in the companies. I don't see how they could make a business out of charging startups. Startups don't have much money. 

Felix Litvinsky CEO at Abakama, Founder at The IoT Partners, Managing Partner at Minority Venture Partners, Advisor/Mentor at Princeton

May 5th, 2015

Both, incubators and accelerators are businesses. And not only in India. Universities have been establishing these entities for various reasons. Whether to increase the brand or get additional revenue - it's all about adding value. Accelerators are becoming like a franchise model popping up everywhere. Is there a value to work with good mentors and get exposed to investors? Of course. Is it worth giving up equity for a small amount of $$? A founder has to make that choice, hopefully a right one. There's plenty of bankers and advisors that will take your cash and equity and will never deliver. Vc's run away from deals when bankers are involved. Maybe finding a right mentor is the answer. A person that can guide a founder through the startup maze.

Rik Willard CEO, MintCombine

May 5th, 2015

What you are describing is not incubation, but rather "Venture Development" and is somewhat different from incubation, hence your confusion. 

The glut of startups that the global tech movement is fostering, is flooding the field with fewer and fewer good ideas and less good plans, leadership and teams. That said, most startups today -- if they are worth anything at all -- have at least one of these elements going for them. The rest of the elements have to be developed by people with experience. This is where venture development comes in.

Solid venture development has -- at minimum -- the following components: (1) experienced partners (with a mix of successes and failures in every key facet of a startup such as business plan development, sales experience, finance and accounting, etc), (2) a deep and relevant pool of social and business contacts for board and staffing assistance, (3) direct access to individual syndicated capital from early stage through Series A, (4) a media network spanning both traditional and social media, with some in-house expertise in same.

Note that the venture developer is taking on more risk than an incubator, angel or VC, and usually plays both inside and (importantly) outside of the 'good old boy' network. Hence, there should be a minimal charge to startups to make sure that the FOUNDERS are fully engaged and not just appropriating resources and contacts. only to move ahead somewhere else after they get to the next level. $6k a month for a year is a bit much, but somewhere between 5k-15k, depending on the size of the startup, the goals and the amount of work necessary to get things started - is reasonable on a one-time basis. A bit of equity and back-end on successful funding is natural.

So, to answer your question: YES, there is a business sector rising to support and advance those startups that, by accident of birth or luck, or by the nature of their business, do not have the specific tools or access to engage with the more famous or traditional incubators -- or to get unicorn funding, which everyone dreams of. Venture development is a legitimate business and if done correctly, produces results that sometimes exceed traditional pathways.

My advice to you is to check the team that proposes to work with you. Have they been successful at least twice (anyone can get lucky once)? Talk with those successful founders. Do they have a demonstrably deep network with key individuals relevant to your space (especially finance)? Research those individuals. Is this group willing to roll up their sleeves and get into the trenches with you if and when necessary? Make it part of the deal. Do they take anyone, or are they careful and realistic about who they support (this is key)?

The point is you are asking them to be accountable to you, so do your due diligence. You are also asking them to place a bet on you, when you are missing key components of success -- expect them to cover themselves as well, so that they don't go broke trying to help you and others succeed. 

The media gives the impression that there is free money dripping from the world's wealthy, and all you need is a pen, a napkin, and a concept. Nothing could be further from the truth and most find out the hard way. Most startups never make it to incubation, never mind funding. Venture developers help to create a rising tide that lifts all boats and makes the dream at reasonably more possible. The world will see much more of this model, so its something you'll need to get used to. Just be smart about it.

Chris Carruth VP/Director. Strategy | Business Development | Operations | Product | Solutions

May 5th, 2015

.....but many do....