Incubators can assist a startup in its search for a business model that's scalable and repeatable. Seeing a potential boost to their fortunes, many startups jump at the chance to join one.
I've personally invested in a one incubator in San Francisco and helped with several others. Still, you should know that joining an incubator is not a move to be made without putting in a lot of thought first. Before you decide, review some of the pros and cons:
Many startups find that the environment in an incubator is inspiring and encouraging because each startup can confer with and feed off the others.
Access to veteran advice
One of the greatest benefits that an incubator can provide is access to seasoned entrepreneurs and experienced professionals. They have been there before, so there's no reason for another company to experience the same problems they've already weathered and resolved.
When a startup joins an incubator, investors start to take it more seriously. An incubator will help an entrepreneur's chance at getting a foot in the door. It'll also prove to investors like me that others care enough about a given startup to invest. I don't just invest in any business.
Another benefit incubators offer is access to the kinds of resources that are necessary for a startup's success. For example, an incubator can help a founder with promotion and media coverage that will draw more exposure for both parties. (Here is an example of one I've written about in the past)
Incubators offer tons of potential connections for a startup to leverage. That can be well worth the 2 percent to 7 percent of the business that the startup gives the incubator for joining.
Incubators are still a business, and one of the ways they diversify the risk to their portfolio is to take on many startups knowing that most will fail but one or two might make it big. Examine the incubator that you're interested in joining to be sure that it makes for a good fit for your startup and isn't just taking you on as a way to diversify its portfolio.
Equity in your company
The benefit to incubators is gaining an equity stake in a startup's business, but negotiations for equity ownership can become complicated really quick. The negotiation stage may be off-putting to some startups, so don't join an incubator without being ready to talk turkey.
Trying to capitalize on a hot trend, bubble incubators tend to gamble with startup teams. And in the end, bubble incubators are only looking out for their financial gain, not the success of the startups.
Haven't decided yet whether an incubator is right for you? Here are a few resources:
Consult this checklist of items to review when evaluating if a particular incubator is a good fit. A New York Times article also discussed the process of incubator selection. To find specific incubators, check out the databases offered by TechCrunch, the National Business Incubation Association, AngelList, and Crunch Base.