Business Incubators: what they are and how to join one

If you’re a startup looking to accelerate your growth, working with a business incubator could be the answer. But what are they, how do you apply to one, and is it the right decision for your business?

What is a business incubator?

A business incubator is an organization that helps early stage and start-up companies to grow. Sometimes referred to as a ‘startup accelerator’, it aims to expedite the development process for companies that are prepared to move quickly forwards. While they are typically located in a physical space, helping to foster relationships between fellow entrepreneurs and their respective teams, they may also exist virtually by providing online mentorship.

The various services provided by business incubators constitute what UK Business Incubation describe as a "highly flexible combination of business development processes, infrastructure and people." Ranging from management training and expertise to a professional reception, office space and parcel pickup spot, they aim to provide a one-stop shop for startups to operate their daily business from, removing the initial logistical headaches they would otherwise face.

Selected businesses are required to pay rent at a below-market fee in exchange for these services, sharing the price of various overheads and operational costs with the other startups involved, thereby promoting collaboration among themselves. The other capital is provided by angel investors, venture capital firms, private companies and academic institutions, meaning startups are free to accelerate their progress without financial delays. 

Are there different kinds?

Despite being a relatively young concept, with Y Combinator being the first to launch in 2005, the International Business Incubation Association1 now numbers over 2200 members across 62 countries. Each business incubator is unique and will cater to a different type of company, which is something specialized businesses in particular must keep in mind when considering whether to apply. Seedcamp2 invests in European companies with a global outlook who plan to address real world issues using technology. By comparison, 500 Startups3 prioritizes diversity when considering applicants, meaning 44.5% of companies in their portfolio belong to racial minorities.

Some global companies have also launched their own incubators to harness ideas that complement their own. Google’s in-house ‘Area 120’4 aims to keep their top entrepreneurial talent from running astray, playing on the company’s famous policy for allowing employees to spend 20% of their time on side projects. Teams get to work on their idea for several months before pitching for additional funding, meaning they become a formalized company Google will invest in.

You can browse a comprehensive list of business incubators by visiting the National Business Incubation Association. You can also access specific information relevant to your sector by contacting your local economic development agency. You should also investigate academic institutions nearby, to see whether they offer their own programs.

Which business incubator should you apply to?

Many incubators choose to predominantly serve local businesses, owing to their provision of a physical space within their own company, so you should be prepared to relocate in such instances. Involvement with the incubator will ideally lead to local network development, meaning you must see the potential for your business to flourish there in the future. Other considerations include checking whether your business meets the incubator's specific requirements. These may include certain milestones such as headcount and revenue, as well as background and product fit. Likewise, you should choose an incubator that is the right fit for you – a startup incubator for example, if your business is at the very early stages of its journey and requires extra support and guidance or a business accelerator for other programmes.

Before you apply, you should research the program’s alumni to see how they developed through the incubator. Remember to collect references from people at both ends of the success spectrum. It is vital that thorough research is conducted, and you don’t simply move into the first one you find – getting involved with the wrong incubator will waste both time and valuable equity, which you cannot afford to lose at the early stages of your business's life.

How do you apply?

Make sure your business plan has been fully fleshed out prior to application, with a condensed version ready for presentation to the screening committee. Incubators only want to accept businesses they feel they can grow and set up for success, so the ones most likely to be chosen are those that already have a clear idea of where they are headed. If you progress to the pitching stage, be concise about your business’s strengths and USP; what differentiates it from other applicants? Having a firm grasp of your finances is also important and will help you to fully utilize your incubator’s resources if you're successful. It's advisable to consult a legal counsel before signing an incubator contract; ensure you fully understand the obligations being placed upon your business, and also what you can expect to receive in return.  

Is an incubator right for your business?

While contracts typically come without a specified duration, the average time spent in a business incubator is between one and two years, and the goal should be to leave sooner rather than later. This is because the very services they provide can become problematic, with constant mentorship proving tiresome, especially when it goes in an alternative direction to your plans. While your young business may be eager to learn and benefit from an incubator, such micromanaging can also be frustrating when you end up feeling watched as opposed to guided. Incubators are themselves a business, with the various investors pooling funds to set up the space. The staff provided have a vested interest in your company's success but may not share your path to achieving it. Remember; incubators need you to make sure their business succeeds through you, so don't feel you have to gratefully accept the first offer that comes along.

So, incubators, like many things related to starting your business, can cause problems as well as solve them, but there's no doubt that they can be an enormous benefit to getting your project off the ground if you pick the one that's a good fit for you. Talking to the right people at the right time is integral; read the business press avidly to find out what incubators are launching (they're sometimes attached to funding rounds with big corporations) and contact as many incubator programs as possible. The best place to start? Right here; see below for a list of associations in your region.