When I was a kid in the 70’s (yes, I am getting old) we had a chicken incubator in the back of the science class room. The whole concept was to bathe the eggs (the ones we make yummy omelets with) with warm light like the mama chicken was sitting on them. This was so they could finish developing and when the shells hatched we had cute baby chickens (cue “awww” sound track).

The Original Business Incubators – Hatching Many Bad Eggs and Few Cute Baby Chickens

Fast forward to the late 90’s and the Internet boom was in full swing. The stock market was flying high, the web was new and exciting and everyone had an idea for the next Internet start up. To answer that call for great idea were these spaces called, you guessed it, incubators. They housed many startups and instead of bathing them warm light, most were bathed in venture capital. Companies would apply, then present and if accepted, get free or deeply discounted space, access to resources and advisors in exchange for a stake in the company. It was a college dorm environment in many places and it fueled a community to work 21 hour days writing code and living the dream. Two types of incubators existed back then – keiretsu and suites. Keirestu’s were as Wikipedia states “is a set of companies with interlocking business relationships and shareholdings“. They allowed investors to put their companies together and work in a true partnership ecosystem. In concept this was good and Bill Gross’ IdeaLabs was a prime example. The Incubator Suites were real estate investors way of playing in the Internet game. If they couldn’t invest in the company with cash they could use their assets to leverage an equity stake. Well, as all good things go, that came to an end and most business incubators closed their doors and few limped along opening up to paying clients (gee, what a concept).

A New Breed of Incubators – Not So Much Focused On the Chickens but Getting Those Chickens to Lay Golden Eggs

Over the last decade, incubators had a bad reputation associated with them because of the Internet bubble only leaving it to government funded incubators like the Emerging Technology Center in Baltimore, MD or the university backed ones like MTech support by the University of Maryland. With the advance of technology and the change in social mores (a term not to be confused with s’mores) there has been an evolution of the business incubator and while they would like to hatch cute chickens (profitable companies), they are more interested in those companies that lay golden eggs and create platforms like Google, Facebook and Twitter. There are three types of incubators we will look at and provide some pros and cons along with how you will know that type of incubator is right for you.

Incubator Type #1 – The Venture Accelerator

Venture Accelerators generally take in a certain number of startups that apply for their particular program and they take a stake in the company in exchange for mentoring, help in getting their business model ready, or technical development assistance so they can pitch to investors that are screened and most likely invest in the startups. There are two general types of Venture Accelerators, program-based and growth-based. Program based ones have an enrollment process and a program that is usually three months and at the end there are pitches to investors. Examples of these are Techstars in Colorado and Y Combinator in San Francisco. Growth-based incubators are more long-term and provide a place for the startup to reside as they grow and graduate out of the incubator. Examples of these incubators are the Emerging Technology Center in Baltimore, MD

Pros: Well, the biggest advantage is working side by side with smart and experienced people who like working with startups and want you to succeed for their own pride and bank account.

Cons: You gotta give to get and this means giving up some equity. Also the program based accelerators might not be long enough to finish the product or pitch your business plan.

How You Will Know It is Right for You: Well,if have a great idea and beginnings of a product, a great team but need polishing and possibly a place to grow your business, these could be perfect for you.

Incubator Type #2 – The Social Cause Incubators

Yes, Green is cool and trendy. So is saving the world. There is an evolving model of entrepreneurship that creates businesses that are called “double bottom-line” companies. They essentially make a profit (the first bottom line) and then take a portion of the net profit to explicit social or environmental benefits (those that do both of those are called “triple bottom-line” businesses). Examples of this are Global Social Benefit Incubator in Santa Clara University and GoodCompany Ventures in Philadelphia.

Pros: You can get great mentorship from people tailored to your social entrepreneurship vision.

Cons: Well, this can be a horrible match if you want to be a traditional business that gives some money to charity.

How You Will Know It is Right for You: Are you a double or triple bottom line business with a serious social cause mission along with a transformative business?

Incubator Type #3 – Virtual or Long Distance Incubators

These are more challenging types of incubators because these types of programs are partly or entirely online. Being a member of this type of program gets you access to mentors and investors along with short in-person programs or online classes that helps founders build their skills in various areas of entrepreneurship (i.e. Intellectual Property, Financial Models, Business Plans). Examples of this are the Founder Institute and Astia, both located in San Francisco.

Pros: Well, if you are trying to do this remotely or part time and need access to experts then this is a great thing.

Cons: You will have to give up some equity, albeit less that other types of incubators but you won’t get the full impact if this was in person or at a physical location.

How You Will Know It is Right for You: Well, if you are not good with the online model then this will not work for you. However, if you are trying to keep your day job and this can be the way to help it grow and turn into a fully baked product.

Any Experience with Incubators? We would love to hear from you.

Do you have experience past or present being in a business incubator? We would love to hear from you so leave a comment.

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