PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Making Sense of Support Programs for Entrepreneurs

By at 8 September, 2015, 8:45 am

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What about all these incubators, accelerators, and coworking spaces? 

by Brendan Karp-

Entrepreneurial support programs have surged over the past decade. Among the countless resources available to entrepreneurs; incubators, accelerators and coworking spaces have become commonplace. There are thousands worldwide, and the number is growing at an increasing rate. With all of these options available, many entrepreneurs are curious about which program might be right for their company. So how do you filter these programs according to what might work best for you, and look beyond the hype to ensure a good fit for your business?

There are a number of factors that you should take into consideration as you decide. Understanding the key features and differences of each program is important.

INCUBATORS 

Incubators have existed for decades as the oldest, most formal program of the three models, and perhaps the most recognized. The National Business Incubation Association estimates that there are approximately 7,000 incubation programs worldwide. While there are differences among incubators, most share some of these common features:

  • Semi-permanent office space available, generally structured as a month-to-month or short-term lease
  • Shared resources (printer, internet, phones, furniture)
  • Discounted/free services (software, hosting, legal, banking, or travel if incubator has program partners)
  • A mentorship element and staff that work with member companies
  • Many have a limit in the length of stay, ranging anywhere from 1-5 years
  • Company stage agnostic
  • May or may not provide funding depending on the program

 

Many incubators have an application process to ensure a company aligns with the focus and attributes of the program. Some may focus on a specific industry segment or stage of company. So you should make sure you find an incubator that is relevant to your business. There are four general categories of incubator models as well: private sector, university-affiliated, government/economic development run, or corporate sponsored.

Private sector incubators are most likely to provide investment capital and get involved at a deeper level with member companies as they have an economic motive to do so. University-affiliated and government-run incubators will not usually provide direct funding, but might have a strong pipeline to talent/research or Small Business Administration (SBA) loan programs, respectively. In some cases, corporate incubators provide funding and act as external engagement points for R&D and innovation efforts. They’re generally industry or focus-area aligned, and can provide key connections to the corporation, mentorship, and a path to partnership. Each of these models has its own strengths and weaknesses, and it all depends on what the strategic goals and needs of your business are.

Is it right for me? At a minimum, if you have a business model an incubator can provide valuable mentorship and guidance. There isn’t one “right” stage of company they help; it all depends on what the needs of your business. The incubator can usually help just as much with scaling your business as it can with getting it off the ground. The mentors and connections to capital, legal, or other resources in the community are key perks in addition to flexible office space without the risk and burden of a long-term lease. And, the opportunity to network with and work around other entrepreneurs facing similar challenges shouldn’t be discounted.

ACCELERATORS 

Accelerators have splashed onto the startup scene and are growing at a rapid pace. There are approximately 300-plus accelerator programs worldwide, and they range widely in their models and focus. Each program generally shares the following characteristics:

  • The program makes an investment or provides a stipend ($10k-$30k generally taking between 3%-8% equity)
  • It has a finite time period (generally 3-6 months)
  • Application process with a selection of 5-12 companies per “cohort”
  • Culminates in a pitch event to investors called demo day
  • Provides extensive mentorship and coaching with a set curriculum
  • Office space for the duration of the program is sometimes provided
  • Geographically focused, requiring a physical presence
  • Discounted/free services (software, hosting, legal, banking, or travel if accelerator has program partners)
  • Usually focused on early stage, high-growth potential technology businesses

 

Since accelerators are relatively new, little is known about the long-term success and effectiveness of the “traditional” model described above. There are three types of accelerator models: for-profit, non-profit, and corporate. However, unlike incubators, almost all accelerator programs make an investment. The model is evolving, and everyone from corporations to the government is catching on. At TechNexus, for example, we are currently running the first one for the Department of Homeland Security on wearable tech for first responders. The focus area or expertise of the accelerator and its relevancy to your business is a key factor to consider.

Accelerator participants can be connected with many different mentors. While this can be beneficial, sometimes it can be a distraction due to conflicting viewpoints and areas of expertise. As a selected company, you will follow a set curriculum that can include networking opportunities within the cohort, pitch coaching/practice, guest speakers, and mentoring. Entrepreneurs primarily seek the help of accelerators to get their business launched and to obtain capital down the road since much of the program will center on refining your business model, perfecting the pitch, and preparing for the demo day. 

Is it right for me? Accelerators are a bit narrower in structure. The first question you should ask yourself is whether or not your company needs funding, and is that your primary goal for the next several months? If so, are you OK with the equity requirements of the program? If not, move on. There are other sources of mentorship and funding within the ecosystem. Another determining factor is the stage of your company. If you’re just starting out and would prefer the mentorship, guidance, and funding opportunities, then this structured program could be the right fit. However, if you’re more established, in the growth stage, or don’t fit the program mold, then an incubator might be a better option. 

COWORKING 

The last model worth mentioning is coworking. It is exploding, with over 3,000 “spaces” across the globe. Coworking is nothing new, but rather a fresh spin on an age-old concept. Think flexible corporate office space meets coffee shop evolved. These spaces generally don’t offer a specific program, but rather the following elements:

  • Flexible office space, generally payable month-to-month
  • Membership levels are usually tiered: (1) shared space (2) dedicated desk in shared space (3) private office/suite
  • Shared amenities (phone, furniture, kitchen, internet, etc.)
  • Some have access to discounted services and resources (i.e. software, legal, etc.)
  • May host some networking events or programming

 

Coworking is almost always focused on the workspace aspect, but is not an entrepreneurial support program. However, some incubator spaces offer coworking as a form of membership.

Is it right for me? Yes, if you’re looking for a convenient office and don’t need the resources entrepreneurial support programs offer. Also, pure coworking spaces usually aren’t thematically aligned, so you might miss out on the industry-specific networking opportunities that the other programs have.

You may find that making the choice between these three programs isn’t easy. However, one of the common elements of these programs is that you have an opportunity to join on a trial basis. Incubators have month-to-month commitments with the ability to cancel your membership after the first month. So you can go for a test run to make sure you’re getting what you hoped for from the program. Accelerators have a lengthy application and interview process to in order to do diligence on the companies they’re going to invest in. By the end of the process you should have a pretty good idea if it’s a fit. Coworking spaces, like incubators, have short-term commitments and most offer day passes to test the waters.

CHECKLIST: Things to consider during the selection process 

  • What am I looking for in a program? Funding, mentorship, office space, or otherwise.
  • What are the success metrics and track record? How many companies have participated, raised funding, or exited?
  • What is the typical profile of the type and size of company that participates? Is it similar to mine?
  • Speak with current members of the program to get their feedback. Look for member companies that you already know.
  • Attend public events to meet with members of the community and get a feel for it.
  • Read reviews and blog posts from current members and alumni.
  • Meet with program staff to learn more.
  • Take advantage of the month-to-month policy (if available) to give the program a test run.

 

Each program has its’ unique benefits, but they should ultimately be compatible with the goals for your business. There’s no shortage of programs out there, and choosing the right one is simply a matter of diligence to find the one that is best aligned with the vision and goals for your company.

Brendan Karp is an advisory board member of the Small Business and Entrepreneurship Council and is a young entrepreneur who passionate about startups, innovation, and the opportunities they create.  He works at TechNexus, a venture collaborative, where he helps big companies engage with startups and invent solutions to meet the challenges that large enterprises face. TechNexus finds, funds and develops ventures in alignment with large, Fortune 1000 corporate partners facing innovation challenges. TechNexus also operate an incubator at its headquarters in Chicago hosting 65 startups across 50,000 sq. ft. Prior to joining TechNexus; Brendan founded First Funder, the crowdfunding industry’s first partner-based platform.

 

 

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