There is little doubt incubators are playing an increasingly important
role in raising investment for entrepreneurs.
Some incubators act as an office with minor introductory or connections
as part of the mix. Then there are incubators
who are looking for a substantial stake in your company (Silicon Valley average
ranges from 2 to 10 percent) to become an alumnus of their incubator. So, if they are asking for that kind of stake
what would an entrepreneur anticipate receiving in return and is it worth it?
Many of these incubators will offer intensive coaching, warm
introductions to potential investors that they think fit your companies
profiles (and most importantly get you in the door - rather than ending up in
the stack of plans that get weeded out by the new analyst at the VC) and
networking with other founders / connections that are of value. Incubators level and intensity of services
varies considerably but it can provide first time entrepreneurs and especially international
teams that aren't familiar with US VC's critical initial linkage in Silicon
Valley.
An entrepreneur looking at an incubator (especially first timers)
should look at an incubator just like they should look at potential investors /
Venture Capital money. What can they do
for me and what do I have to offer them.
Here are some questions to ponder:
·
What companies have they
invested in? Do those companies look like mine? Will they have knowledge /
connections in the space that I need to succeed?
You need to evaluate each incubator just like you do a VC. Some incubators such as AngelPad, Y Combinator or 500 Startups are well known - some others that maybe worth looking at are
listed on Berkeley's
Lester Center for Entrepreneurship resource page: and still others like Australia's Startmate offer an incubator like service while investing (25K for 7.5% /
post valuation of $333K) in your company without a physical space as part of
the bargain.
The key point is you need to know what is important to your
potential investors by spending time looking at their sites and in some cases
reviewing what they look for - as they will spell it out to you. Make a
proposal that will resonate with the decision makers and hit the key points
they have likely already articulated for you.
Last be prepared for a dance just like you have to do with VC's. See some helpful hints on this blog post: Top Ten Investor / Entrepreneur lies.
·
Understand the challenge
that incubators face
An incubator acts like a VC in many aspects. They have to believe that they can get other
like minded investors to put money into your business, early on, or it doesn't
make sense to invest in you. You have to
convince them that your idea and people are winners. By investing in your team they will be part of
that winning company. Your team must
look the part and preferably have the chops that make them believe in you. If you get in, they will help you with your
pitch at the next level.
· As always, Introductions
matter / use LinkedIn to check out Profiles & Connections
Look at the incubator
team and do everything you can to find someone who can make a friendly
introduction, just like you would with a VC.
Review companies the incubator teams members have either been a part of
or invested in. Use LinkedIn to gather this
information if it isn't readily apparent and then use your connections to get
an in and avoid the application death bin.
·
You won the first battle, you have an interview scheduled, now
what?
I'm a big believer in the keep it simple approach. Keep your presentation to 10 slides (check
out Garage Ventures Guy
Kawasaki's model if you haven't seen
it previously) and do your homework.
Hopefully you know who will be in the meeting. If you do, make sure you tie anything your
company will do to something the investor can relate to (preferably a
"positive" thing). Also make
sure that your team is prepared to answer questions based on their role/responsibilities. CEO should answer market / business
questions, CTO - Tech questions etc.,.
Last practice, practice, practice.
You only get one shot in these situations - bring in people that will
"professionally" beat you up with questions in a practice setting so that when the live
bullets fly - you're ready!
·
Does an alma mater, matter?
Absolutely! Think about
what school you went to. Generally the
more prestigious the University you went to the more market cache you'll
have. If you went to Stanford and are
looking for work in Silicon Valley you know what I mean. However, for international startups they
usually don't have the US university pedigree and going through a well known
incubator can be critical, supplying you with credentials that last a lifetime.
Mentors and relationships from your incubator will provide you
with many springboards in later pursuits as well as giving you that initial leg
up with your current startup. Plus
you'll work side by side with other companies with similar dreams and knowledge
to pass on along the way. Entrepreneurs
are likely to have many different jobs over the course of their working lives
and incubators provide an opportunity to work with like minded people that
maybe your next team mates.
Incubators aren't for
everyone and there are many success stories for companies that didn't use
incubators to start. However, if a first
time entrepreneur or international startup is looking for a fast path to knowledge, connections, street credibility and
increased success. Incubators are worth
serious consideration.
