A business incubator is an organization that helps start-up companies or entrepreneurs develop their businesses. Assistance usually takes the form of dedicated office space, management training, and venture capital funding. According to the National Business Incubation Association, there are more than 1,400 incubators in the United States.
- How does a business incubator work?
- What does the business incubator expect in return?
- Four types of business incubator
- Key takeaways:
- Connected Concepts To Business Incubator
How does a business incubator work?
Business incubators provide specially designed programs to help young companies innovate, grow, and realize their vision. These programs provide access to financial and technical services that result in numerous benefits to the owners of such a company.
For one, office space may be offered at below-market rates. Experts can also provide advice on business or marketing plans and give entrepreneurs access to a network of investors and other professional services such as accountants and lawyers.
Most companies utilize the services of a business incubator for around two years. During this time, multiple start-ups with a similar focus work in a shared area to reduce operating costs.
It’s important to note that not all business incubators are created equal. Many specialize in a particular industry and some have a more rigorous application process than others. In most cases, however, the start-up will be required to submit a detailed business plan and disclose all business-related activities. Once accepted, it must commit to undertaking the necessary training and be prepared to report to the business incubator’s management.
What does the business incubator expect in return?
Ultimately, they seek a return on investment and will take an equity stake in the business in exchange for services rendered. The shareholding is typically in the region of 2% to 10%. Alternatively, some may choose to charge a flat fee. Some incubators – including research organizations and educational institutions – may take a percentage of earnings from any resultant innovations.
While capital is useful to any start-up company, the amount of capital it receives from a business incubator may pale in comparison to how much that equity is worth over the long term. Entrepreneurs should note that while the incubator is invested in their success to some extent, they are nonetheless paying to be part of an incubator program where the incubator may take profits at the earliest opportunity.
Four types of business incubator
Non-profit development incubators
These are non-profit or government agencies designed to stimulate economic development. Many of these business incubators work with companies with a focus on public welfare or the improvement of society.
Whose primary objective is to enhance the entrepreneurial skillset of a start-up and help it remain competitive relative to its peers. Corporate incubators focus on internal and external company projects.
Private investor incubators
These incubators assist high-potential businesses by taking a stake in the company and selling at some point in the future. Many tech start-ups enter into this sort of arrangement.
In response to increasingly dynamic and competitive markets, universities foster strategic partnerships between academia and industry to help graduates develop relevant, long-term skills.
- A business incubator is an organization that helps start-up companies or entrepreneurs develop their businesses. Assistance usually takes the form of dedicated office space, management training, and venture capital funding.
- In exchange for providing assistance, the business incubator takes an equity stake in the start-up of between 2% and 10%. Research and educational incubators may opt to take a percentage of the earnings resulting from any innovative products.
- There are four broad types of business incubators: non-profit development, corporate, private investor, and academic. All share the common goal of facilitating growth.
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