If you're starting a company and you're looking for office and facilities space, as well as access to other resources in your market, you may be attracted to the concept of business incubators.
According to the National Business Incubation Association (NBIA), there are more than 1,400 business incubators in North America, each providing a variety of economic, technical and other support resources to entrepreneurs. One of the most important functions of incubators is helping their client tenants secure funding, which they do in a number of ways, such as managing in-house and revolving loan and microloan funds; connecting companies with angel investors; and working with companies on their pitches to venture capital firms.
Because of the array of services they offer, business incubators may reduce overall business risk. NBIA claims that 87 percent of all firms that have graduated from their incubators are still in business.
If you're looking at business incubators as a possible solution for your startup, NBIA has advice on how to find a quality program. Look for:
- Track record: How well is the program performing? How long has it been operating? Does it have successful graduates and how long have those firms been on their own outside of the incubator? What do other clients say about the incubator?
- Graduation policy: What are the incubator's exit criteria, and how flexible is it? Most incubators allow companies to stay for up to about three years - will that be enough time for you?
- Staff: How long have they been at the incubator or in other similar environments? What do they bring to the table in terms of expertise and connections to other resources you may need?
- Services: What services do you need to make your venture successful? Business plan development, legal and accounting advice, marketing, Internet access, or specialized manufacturing facilities? Is access to a particular market critical? Then consider finding an incubator that specializes in that market. Special focus incubators are programs that work with companies within a particular niche, such as gourmet foods, biotechnology, the arts and software.
- A Good Fit: Do you meet the business incubator's criteria? Find out what the incubator is looking for before you go through the application process. Find out the incubator's qualifications for accepting clients before applying. For example, some incubators expect prospective clients to have fully developed business plans, whereas others require a less developed idea and offer business plan development assistance.
- Program Structure: According to NBIA, most for-profit incubators exchange space and services for an equity share in their client companies, whereas most nonprofits charge fees for space and services. If a large cash infusion and speed to market are essential for your business success, then giving up equity in your company in order to secure quick cash may be right for you. But if you believe you have the skills to raise your own funding (with some assistance), don't want to give up any equity in your venture and are willing to build your company more slowly, then paying fees for services and space may be a better choice.