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How do business incubators work?

How do business incubators work?
Source: Getty Images


The startup space is full of many terms that can sometimes be confusing for aspiring business owners. Maybe you’ve heard of business incubators. If you are wondering what they are and how they work, read on to find out everything you need to know, including how they can benefit your startup.

What is a business incubator?

It’s a special programme designed to foster the growth and success of young companies or startups by providing them with an array of business support resources and services.

Depending on the specific incubator, this support might include things like:

  • a physical working space
  • exposure to investors
  • coaching and mentorship
  • access to professional services
  • network connections

In a nutshell, incubators provide you with the resources you need to launch or see your business idea take off at a much lower cost than you would typically expect while figuring it all out on your own.

Some of the most successful and well-known companies in the world, like Airbnb, Reddit and Dropbox, actually used incubators during their startup phase to spur growth.

What kinds of organisations run business incubators?

Business incubation programs are often sponsored by:

  • public institutions (e.g. colleges and universities)
  • non-profit organisations
  • commercial organisations
  • venture capital firms

What are the benefits of business incubators?

Savings on rent through low-cost space. Incubators provide a wide range of working spaces at a fraction of the cost you would incur buying or leasing your own space.

Access to professional resources and services. Partnering with an incubator means access to different professional resources including hardware and software, and services such as accountants and lawyers at discounted rates.

Opportunity to learn. When working with an incubator, you’ll most certainly have exposure to experienced mentors and advisers. as well as industry leaders from whom you can learn a lot.

Access to funding. The best incubators provide startups with access to funding opportunities from sources such as venture capitalists or angel investors.

Improved focus. Incubators can provide the structure needed to immerse yourself in your work and maintain focus on what is a critical stage of your business journey.

Networks and partnerships with other startups. You can meet and interact with other startups within the incubator with whom you can share ideas and form partnerships.

Are there any downsides?

While there are many benefits of working with a business incubator, there are few key things to be wary of:

  • The selection criteria vary from one incubator to the next.
  • The application process can be quite rigorous and competitive. Be prepared to submit a business plan and answer questions related to your business goals.
  • Many incubators require a time commitment of up to five years.
  • Incubators call for strict adherence to set schedules including regular training and workshops.

How do incubators make money?

Incubators make money in several ways.

Often, when an incubator takes a startup under its wing, it might ask for an equity stake. Once the startup becomes successful and is acquired or goes through an IPO, the incubator will sell its equity at a premium.

Some incubators might also make money via corporate sponsorships. In return, the corporates get media exposure, opportunity to recruit talent and acquire startups, and learn about new innovations. 

How can I find a business incubator programme for my business?

In the UK, the best place to start your search for an incubator is the gov.uk website, where there’s a report that explores the landscape of business incubators and accelerators in the country.

Here, you’ll find a lot of useful information including a database of existing incubators in the UK, the types of businesses they support, the amount of equity they ask for and so on.

Takeaway

A business incubator can serve as a launching pad for your startup and help it grow and survive at a time when it’s most vulnerable. With research showing that more than 80% of incubator graduates stay in business, it’s something worth considering for any startup.

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