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Exploring The Business Incubator Models: A Comprehensive Guide

By gswardman May 2, 2022

Table of Contents

Definition and Objectives of Business Incubators

Business incubators are organizations or programs that support the growth and development of early-stage companies and startups. Their primary purpose is to provide a nurturing environment and a range of resources and services to help entrepreneurs turn their innovative ideas into successful and sustainable businesses.

The main objectives of business incubators are as follows:

Support and Guidance

Incubators offer guidance and mentorship to entrepreneurs, providing them with expert advice and support in areas such as business planning, marketing, finance, and operations. This guidance helps entrepreneurs avoid common pitfalls and make informed decisions during the critical early stages of their business.

Physical Space

Incubators typically provide physical infrastructure, such as office space, shared workspaces, meeting rooms, and sometimes specialized facilities like laboratories or prototyping spaces. These facilities offer startups a conducive environment to work, collaborate, and network with other entrepreneurs.

Access to Funding

Business incubators often connect startups with potential sources of funding, such as angel investors, venture capitalists, or government grants. They may also provide seed funding or facilitate introductions to financial institutions to help startups secure the necessary capital for growth.

Networking and Collaboration

Incubators foster a collaborative community by bringing together like-minded entrepreneurs, mentors, industry experts, and investors. This network enables startups to access valuable connections, partnerships, and knowledge sharing opportunities. The supportive environment encourages collaboration and the exchange of ideas, which can lead to innovation and business growth.

Business Development Services

Incubators offer various business development services tailored to the needs of startups, including legal and intellectual property advice, marketing and branding assistance, market research, product development support, and access to professional service providers.

Training and Education

Many incubators provide educational programs, workshops, seminars, and training sessions on relevant topics to enhance the entrepreneurial skills and knowledge of the startup founders. These programs help entrepreneurs build their capabilities and address any gaps in their understanding of business fundamentals.

Apply For Saas Incubator

Business incubator models play a critical role in creating successful startups in the ecosystem. A business incubation program will provide a new venture or small business with mentorship at its very early stages.

Business incubator models

Challenges and Future Trends in Business Incubator Models

Here are some challenges and future trends in business incubator models:

Increasing Competition

As the startup ecosystem continues to grow, the number of business incubators and accelerators has also increased significantly. This has led to a higher level of competition among incubators, making it more challenging for new or smaller players to attract and retain promising startups.

Funding and Sustainability

Business incubators often rely on funding from various sources, such as government grants, corporate partnerships, and private investments. Securing sustainable funding can be a challenge, especially for non-profit or publicly funded incubators. They need to demonstrate their value proposition and impact to attract ongoing financial support.

Globalization and Virtual Incubation

With advancements in technology, the traditional model of physical co-working spaces is being challenged by virtual or remote incubation. Virtual incubators leverage digital tools and platforms to support startups remotely, breaking geographical barriers and providing access to a global network of mentors and investors.

Sector-Specific Incubators

While generalist incubators cater to startups across various industries, there is a growing trend of sector-specific incubators. These focus on specific domains such as technology, healthcare, cleantech, fintech, or social impact ventures. Sector-specific incubators provide specialized expertise, industry connections, and tailored support to startups operating in those sectors.

Focus on Impact and Sustainability

Startups and entrepreneurs are increasingly interested in creating positive social and environmental impact alongside financial success. Future incubator models are likely to emphasize impact and sustainability as core components of their programs, offering support and resources to ventures that align with these values.

Corporate-Startup Collaboration

Collaboration between established corporations and startups is becoming more prevalent. Corporate incubators or accelerators are emerging as a way for large companies to tap into the innovation and agility of startups. These partnerships provide startups with access to corporate resources, market validation, and potential customers, while corporations benefit from disruptive ideas and entrepreneurial talent.

Data Analytics and AI Integration

Business incubators can leverage data analytics and artificial intelligence (AI) to enhance their operations and provide more personalized support to startups. By analyzing startup performance data, market trends, and other relevant metrics, incubators can offer tailored guidance, identify areas for improvement, and predict future success factors.

Ecosystem Collaboration

Collaboration and integration within the startup ecosystem are crucial for the success of incubator models. Incubators can form partnerships with universities, research institutions, venture capital firms, government agencies, and other stakeholders to create a comprehensive support network for startups. This collaboration facilitates access to funding, expertise, talent, and market opportunities.

Internationalization and Cross-Border Support

Startups are increasingly looking to expand globally from an early stage. Future incubator models may focus on providing cross-border support, helping startups navigate international markets, connect with global investors, and establish strategic partnerships across different regions.

Continuous Learning and Adaptation

Business incubators must stay agile and adaptable to meet the evolving needs of startups and the changing business landscape. Continuous learning, experimentation, and innovation are essential to refine incubation models, incorporate emerging technologies, and address the challenges faced by startups in a dynamic environment.

What are the Four Different Models of Business Incubation?

Before choosing the best incubation or accelerator program for your startup, you need to understand the underlying business incubator models. Although many business incubation programs offer similar business assistance, different models define their priorities.

The four fundamental incubation models are:

The Teachers

This incubation model operates a program similar to an MBA program. However, as the name suggests, this model is a startup school. After application and admission, the model puts startups through classes, training, and consultancy.

The model also organizes networking events and parties, which allow startups to network with successful entrepreneurs. The startups also get an opportunity to pitch their business ideas to angel investors and venture capitalists on the demo day.

An inherently good quality application is the key to getting admitted in a teacher’s incubation model. This business incubation model attracts the best candidates.

The agent business incubation model typically helps startup companies reach out to investors and customers from different regions. In addition, an agent incubation model may also assist an existing business look for new technologies.

The Agents is a successful incubator business model because it offers business development solutions to corporates and startups . In addition, agents also provide additional services such as consultancy on generating new income and market research.

Paying customers are the core of an agent incubation model. Therefore, these incubators must have a strong link with customers. In addition, they must also create startups and bring information that interests customers.

The Merchants

The critical priority of Merchant incubators is to sell their own products and services to customers. As a result, merchant incubators prefer to assist startup companies who succeed in marketing their products and services. They are corporate incubators belonging to large companies.

Merchant models spend a lot of resources on marketing. It is typical for this type of incubator to have sales and marketing budgets. They love to participate or organize high-profile events and promote business startups’ success stories.

The Builders

Builders are usually the creators of new businesses. Typically, they are small corporate incubators that create businesses using their own resources and ideas. Unlike venture capitalists, builders use different approaches in starting a new venture. First, they form an internal management team to develop business ideas within their own network.

Instead of focusing on raising funds, the management team spends most of its energy pushing the product out into the market. This model is similar to the natural process of how entrepreneurs start businesses and is a rising trend in an innovation ecosystem. The core of this model is centered around internal management teams led by successful entrepreneurs.

The builder incubation model has a higher success rate of creating new startup companies. This is because resourceful and experienced entrepreneurs actively looking for new business ideas initiate the startup project. More importantly, an internal management team experienced through precious startup projects drives the project. The team also benefits from economies of scale because it can re-apply the best practices and reuse infrastructure from previous projects.

What is an Incubation Model?

An incubation model is typically the way an incubation program supports new businesses to improve their chances of survival and accelerate their growth. Business incubators use various techniques, processes, and procedures to provide incubation services to startups. As a result, incubation models differ in their objectives, goals, processes, and outcomes.

For example, the traditional incubation models had physical buildings where the incubation process would occur. However, modern incubators, also called virtual incubators, don’t require physical facilities.

What is Campbell, Kendrick, and Samuelson Model?

This incubation model stresses process functions as the primary business development tools that can transform business ideas into real businesses.  Campbell, Kendrick, and Samuelson introduced this model in 1985 to illustrate four critical practices involved in a value-added incubator model.

The four practices are:

  • Diagnosis of business needs
  • Access to investment capital
  • Selecting and monitoring the services provided by corporate incubators
  • Access to networking

Campbell, Kendrick, and Samuelson's Incubation model

The authors of this model also failed to address:

  • Entrepreneurs’ competencies and the viability of their ideas. This incubation model fails to recognize that not all early-stage startups and entrepreneurship ideas are viable. It also fails to address the lack of capabilities in some entrepreneurs.
  • The Campbell model also fails to state how the incubation process will happen and what resources it needs.
  • Environmental barriers may occur during the incubation process and turn a new venture into a failure. This incubation model fails to link the external environment, the incubation process, and the entrepreneur’s life cycle.
  • Though the model states the four key activities of a business incubator, it does not explicitly explain them. For example, the model does not expressly explain potential candidates’ selection and application process. As a result, it fails to understand that an incorrect or lousy selection process could adversely affect the viability and growth of a startup.

In 1987, Merrifield addressed some of the challenges of the Campell, Kendrick, and Samuelson model. Merrifield built selection criteria for potential candidates. The criteria address the resources and competencies an incubated firm needs to compete successfully. Finally, Merrifield discussed the issue of which startups should use to enter and grow in the business world.

Example of Business Incubator Models

There are many business incubator models with different applications, performance, and efficiency for business development purposes. In addition, the incubation process involves multiple stakeholders, resources, and business service categories. This section will define, analyze, and evaluate the different incubation models to understand the incubation process better.

Smilor’s Incubation Model

Smilor developed this model in 1987 by improving Campbell’s model. He created a structure model by describing the critical support systems, incubator affiliates, and the primary outcomes of a business incubator process. Smilor also views an incubator program as a transformation methodology that helps entrepreneurs build successful ventures.

Smilor’s incubation method fails to provide extensive information on business incubators’ services to startup companies.  However, the model categorizes the benefits that startups derive from an incubation process into four dimensions, namely:

  • Access to a network of successful entrepreneurs
  • Shortening the learning curve
  • Credibility development
  • Faster troubleshooting

Smilor was among the pioneers who shifted the focus of business incubators from the provision of physical resources to the provision of business services and expertise. He emphasized that a business incubator is built from different support systems. He also sought to identify the components of a business incubation process.

Smilor developed the model having in mind innovation-based entrepreneurs. The model conceptualizes an incubator as a system that offers startups the structure and credibility of creating new businesses. It also ensures a set of critical resources for setting up new ventures.

Smilor's incubation model

However, Smilor’s systematic approach fails to link the internal and external environment. It also fails to describe the transformation process. Despite the drawbacks, the model’s stated outcomes include:

  • Business profits for startups
  • Profits for business incubators
  • Economic development
  • Successful products
  • Job creation
  • Technology diversification

Nijkam and Smilor Generic Incubator Model

This model is an extension of Smilor’s model. It also combines Smilor’s 1987 model with Nijkam’s 1988 model. The model is an interpretation of the generic business incubator. Nijkamp argues that business incubators act as mediators between the community and entrepreneurs.

Nijkamp also states that an incubation process requires the combination of the following elements to be successful:

  • Sources of entrepreneurs: Entrepreneurs can come from universities, the general community, the public sector, corporations, or research laboratories.
  • Entrepreneurs recognizing opportunities
  • Demand for business incubators

The demand for incubation services appears after entrepreneurs recognize business opportunities. There are two main ways of solving the need for business incubation services:

  • Formal Incubation: These are physical buildings established to assist small businesses with mentorship and business development services.
  • Informal Incubation: This incubation process is limited to a consultancy role. The startups are not housed in a physical building. Informal incubators are today known as virtual incubators.

Smilor added two components to the model. These are:

  • Possible funding sources: They include the private sector, universities, and the local government.
  • Incubator’s building blocks: The building blocks include an entrepreneurial base, pre-existing business networks, and the availability of venture capital.

Carter and Jones-Evans Process Incubation Model

Carter’s model is a process model, unlike Campbell, Smilor, and Nijkamp, which were structure models. Structure models discuss the elements of a business incubator, while process models explain how an incubation process is organized. In addition, the model gives the steps and possible consequences of the incubation process.

Carter and Jone-Evans proposed this five-step incubation process in 2000. The model focuses on the needs of startup companies, which are catered for by business incubators. According to Carter and Jones-Evans, the incubation process has the following stages:

  • Formulation of the business idea – This stage focuses on experiences, such as education, training, creativity, or work.
  • Post-entry development – This stage focuses on building credibility and developing networks.
  • Recognition of an opportunity – Opportunity recognition focuses on cultural attitudes to risk and the economic environment.
  • Entry and launch
  • Planning and preparation focus on market research, finding partners, and financing access.

Carter and Jone-Evans five-step incubation process

In 2005, Carayannis and Zedtwitz reviewed the model and added five essential services for startup companies. These services are:

  • Access to physical resources
  • Business administrative support
  • Access to capital
  • Business and organizational support
  • Networking activities

Though the services provided and the model proposed is valid, there are still some drawbacks to Carter’s incubation model. These drawbacks include:

  • The model is based on a waterfall model rather than being iterative. For example, some needs in the opportunity recognition stage could also occur at the later stages. Therefore, the process cannot simply follow a waterfall model.
  • The model fails to identify the services and stages in a typical incubator.
  • The model does not measure the efficiency and effectiveness of the incubation process.

Nowak and Grantham Virtual Incubation Process

Nowak and Grantham established this virtual incubation model in 2000. The model explains the structure of a virtual incubator. In addition, it is based on findings of the observations in the software industry case study . The concept of innovation networks brings together centers of excellence in business and technology management.

Nowak and Grantham Virtual Incubation Process

In a knowledge-based economy, Nowak and Grantham assert that creating wealth is synonymous with producing products and services with substantial software content. Moreover, with the IT industry’s globalization, the need for small companies to form strategic partnerships will become essential to their ability to create wealth.

The authors of this model considered the software industry and proposed a model for public-private partnerships, which could help startups achieve their growth goals. They concluded that a virtual incubator could be a possible way to facilitate business networks and startup success. The model shifts focus to connecting startups with strategic partners and business expertise.

The model assumes that traditional business development entrepreneurs have common challenges: lack of capital, management challenges, and human resources. Therefore, Nowak’s model provides startups with a platform to access:

  • Business management experience
  • Business development best practices
  • Resources for sales, distribution, and international marketing

The authors saw the need for a virtual incubation model founded on network innovation. The model would bring together centers of business management and technical excellence in a virtual way. A combination of experts and new technologies would help establish strategic alliances between specialized engineers, managers, and strategists. Such a model would achieve better synergies and business opportunities.

Nowak and Grantham’s model combines traditional incubation’s successful elements with new technologies that focus on strategic alliances and virtual channels. They also stress the profitability of a corporate incubator. Though 95 percent of business incubators are non-profit organizations, the critical point of this model is to provide theoretical evidence that new technologies strengthen the increase of incubators.

However, the model fails to explain the whole virtual incubation cycle. The authors discuss the potential benefits of a virtual incubation process and forget the downsides of the model, such as:

  • The time frame for productive collaboration through virtual channels
  • Lack of credibility and trust
  • Its applicability
  • Cultural differences
  • Social isolation

Booz, Allen, and Hamilton Corporate Incubator Model

The main contribution of this model is the conceptualization of the incubation process and applying continuous innovation to a company’s needs. In addition, the model outlines how corporate incubation could support innovation practices. Finally, the authors distinguish two idea paths within the corporate incubator:

  • Spin-off as a product or business into the existing environment. This path entails developing ideas into new products tied to the core business and utilizing company assets.
  • Spin-off as a new venture. This path seeks to develop a new venture that will be distinct from external funding.

Boos, Allen, and Hamilton explain the critical success factors of the model as:

  • Entrepreneurial leadership – The commitment of executives that empowers, enables and follows the incubation process.
  • Incubator Engine – Incubator managers should oversee the standard incubation process.
  • People and entrepreneurial culture – Empower the intrapreneurs and let them understand that failure is part of success.
  • Corporate resources – Use corporate resources like business networks, partnerships, marketing, public relations, and client database.
  • Corporate incubation process – It is essential to work with short lead times.

You should organize the incubation process in stages and gates to reduce uncertainty. First, a strict application process ensures that the model only funds the best business ideas. Then you launch detailed planning activities to identify an opportunity and develop a new venture. Finally, incubator managers decide on initial seed funding after following all the processes.

The stage-gate model has seven stages:

  • Formation of ideas and concepts
  • Screening and validation
  • Prototyping business development
  • Preparation
  • Building up

The stage-gate incuvation model

Like all other models, corporate incubators also have downsides, which include:

  • Bureaucracy
  • Achieving the right balance between exploitation and exploration, without limiting innovative capacity
  • Producing and incubating strategically aligned projects

Lazarowich and Wojciechowski New-Economy Incubator Model

John Wojciechowski and Michael Lazarowich developed their new economy incubation model in 2002 with two main objectives:

  • To examine the best practices of starting and running business incubators. The two authors had a strategic plan of forming a blueprint for the pilot project. The pilot project included identifying the metrics, parameters, processes, and goals of business incubation.
  • To establish a business incubation model that matches the local environment.

Incubator Environment

Lazarowich and Wojciechowski define the new-economy model as set up by multidisciplinary consultancies or funded by venture capitalists. This funding allows the model to offer business development support services and a vast range of technical support to startups. This type of incubator program is usually virtual.

The key aim of a new-economy incubation model is to generate a return on investment for its shareholders. However, some incubators sell consultancy services to established businesses due to low return rates and high risk. In addition, new-economy incubators may partner with research institutes or universities.

Based on their analysis of best practices, the authors recommended incubators be integrated into a network of critical agencies, schemes, and stakeholders rather than being treated as standalone operations. The integration will enable the incubator to promote innovation, technology transfer, competitiveness, and other key policy objectives.

The characteristics of the new-economy incubation model include:

  • Business incubators are private-sector and profit-driven, with payback from investing in companies and rental income.
  • They are technology business incubators that focus on internet-related and high-tech activities. Unlike traditional incubators, new-economy incubators don’t have job creation as their key objective.
  • They have a virtual presence with business and financial services as their core offering. This characteristic distinguishes them from traditional incubators that center on providing physical workspace.

Lazarowich and Wojciechowski also make the following recommendations

  • The micro-economic framework should vitalize the markets for new products and innovation. It should also create a master plan in consultation with entrepreneurs, stakeholders, and local authorities.
  • Scientific research, engineering, technical education, transport, communication, technology, and management consultancy requires commensurate investments.
  • The development of long-term plans for developing business development services anchored in a technology park or business incubator. The location of these support services should be attractive and well connected to research laboratories, universities, and recreational facilities.
  • The selection of organizational structure and proactive sponsors origination from strong government departments, non-governmental agencies, private sector, and knowledge institutions.
  • Programs for mentoring entrepreneurship from school onwards, structures for searching new early-stage companies, their selection, and graduation.
  • Developing networks with experts at national and international levels for mentors, consultancy services, and venture capital.

Lalkaka Incubator Model

Lalkaka developed a model that describes technology business incubators in 2000. The model has five parts, namely:

  • Incubation concepts: This section places the support services for small and medium enterprises in the overall framework. It outlines the objectives, characteristics, challenges, and types of technology business incubators.
  • Planning: Covers the preparation, application process, feasibility analysis on the business plan, design of facilities, and selection of a location. It also contains a financial analysis and the expected benefits.
  • Implementation: Defines the actions to start the technology business incubator, organizational issues and provides a guide for selecting tenant startups.
  • Operating: Proposes metrics for serving tenant startups through networking, mentoring, and training. It also provides a framework for assessing performance and outlines good management practices towards self-sustainability.
  • Learning: It brings together the success factors for enhancing operations and the lessons learned.

Lalkaka Incubator Model

The primary concern for business incubation is to nurture early-stage companies. The entrepreneur’s starting point is to overcome challenges and create a successful business. The preparatory stage begins with clearly understanding the incubation process as well as talking to consultants and incubator managers. The next step involves preparing a feasibility study to investigate viability.

The typical time frame is as follows:

  • Preparatory work consisting of feasibility study and incubator planning – six to nine months
  • Implementation – six to nine months

It, therefore, takes 12 to 18 months before a technology business incubation can begin operations. The implementation can take longer when the concept is new. However, assured funding and strong leadership can accelerate the process.

Incubation must be operated in a business-like way to achieve its objectives both for startups and sponsors. The concept of control and local autonomy is the basis of a technology business incubator. Local investors are the incubator’s owners. The incubation of businesses fosters interaction between existing structures since it combines many aspects of economic development.

Costa-David, Malan, and Lalkaka Incubation Model

Costa-David, Malan, and Lalkaka Incubation Model

Costa-David, Malan, and Lalkaka presented this model in a European Union (EU) incubation benchmarking study in 2002. The Center for Strategy and Evaluation Services later copied the model, using proposed benchmarks to show the efficiency and performance of business incubators.

The model explains the practices used in transforming initial inputs into outputs. The authors of the model believe that pre-incubation, incubation, and aftercare stages are the components of incubation.

The incubation process offers the following practices for startups:

  • Business advice
  • Physical space
  • Financial support
  • Technology support

The main inputs of an incubator are:

  • Incubator management team
  • Objectives of stakeholders

The model does not provide the step-by-step process and the sequence of the practices during the incubation period. However, it links the incubation process with the external environment. In addition, it establishes the feedback loops for measuring the effectiveness and efficiency of the incubator.

The limitations of the Costa-David, Malan, and Lalkaka Incubation Model include:

  • The model fails to factor in the macro-politics of institutional change, regional and national environment, which are the determinants of the objectives of a state-level incubator.
  • The model does not consider the influence and role of startup companies, which are essential components of the incubation process.
  • The model gives a black-box view of the incubation process. However, it concentrates on the inputs and outputs, failing to discuss the process itself.

Gibson and Wiggins Technology Business Incubator Model

This model describes the operational blocks of technology business incubators. The authors consider incubation to add value to inputs and transform them into outputs. However, the process also adds industrial competitiveness, commercialization, experimental laboratory, and global networks to the outputs.

The authors say networking and capital are more valuable building blocks than business expertise and secretarial service.

Sahay Technology Business Incubator Model

Sahay Technology Business Incubator Model

The objective of this model is to transform entrepreneurs with business ideas into entrepreneurs with successful ventures. The model is also similar to the Gibson and Wiggins Technology Business Incubator Model. The model provides the following building blocks to startups.

  • Knowledge and expertise

Hackett and Dilts Business Incubator Model

Hackett and Dilts described the logic of this model in 2004. The authors believe that business incubation is a community strategy that promotes the survival of new ventures. The critical practices of this model include:

  • Venture development
  • Resource generosity
  • Business assistance
  • Product development

According to the model, the only way of producing innovative and profitable ventures is to feed the incubator with suitable materials. This increases the startup’s chances for survival. Incubation is a dualistic process between the incubator and the entrepreneur. Providing the incubator with high-quality and knowledgeable entrepreneurs is the most critical task.

Bergek and Norrman Incubation Model

This incubation model rejects the black box principle that most incubators use, which is centered on inputs and outputs. Instead, Bergek and Norrman consider that you can only evaluate an incubator’s performance when you confront the objectives and outcomes of the incubator.

Bergek and Norrman Incubation Model

The following set of components, depending on internal and external variables, form the incubation process:

  • First, the selections of startups to be accepted or rejected.
  • The infrastructure concerning administrative services and physical facilities to be offered.
  • Mediation – This concerns how the incubator mediates the relationship between the external world and the incubated startups.
  • Graduation – concerns the policies that the incubator put in place regarding the circumstances and moment of exit from the incubator.

According to the authors, the selection and application process are critical. Therefore, the selection process must match the goals and characteristics of the business incubator. This model identifies two selection approaches, which are:

  • Selection on the basis of business idea
  • Selection of the basis of the entrepreneur

The model requires that the incubator has fundamental knowledge in the business or domain of technology and the necessary background to evaluate the viability of the business ideas. In addition, the incubator must be competent in assessing the entrepreneur’s capabilities, personal traits, and skills related to the new venture.

InfoDev Process Model

The InfoDev model is a well-known and influential World Bank program. This incubation model focuses on five different areas, namely:

  • Women entrepreneurs
  • Climate technology
  • Access to finance
  • Mobile innovation
  • Agribusiness entrepreneurship

InfoDev Process Model

The business incubation services that the model offers are access to early-stage financing, better entrepreneurship financing, and business coaching.

The InfoDev model of 2009 proposes linking the incubation process to the entrepreneurial life cycle. According to the model, an entrepreneur goes through four stages: idea formation, startup, growth, and maturity. On the other hand, an incubator, as a business development tool, follows these stages:

  • Germination: This is where business ideas come and is the earliest stage of invention. It is also the riskiest stage because of high uncertainty. In addition, due to lack of capabilities, knowledge, and other challenges, it is the most expansive stage for the incubator and entrepreneur.
  • Pre-incubation: The key objective of this stage is to assist the entrepreneur with an idea. It is the most expensive stage, and only a few incubators can afford this stage, where they access private risk capital and public support.
  • Incubation: The business idea is graduated into a plan, with a management team, and operations begin. The startup starts to scale up and expand. Investments in this stage are expensive and don’t bring any profit.  Incubators assist in looking for a business model, building the team, providing business assistance, capitals sources, ad networks.
  • Post-incubation: At this stage, the incubator does not need to intervene, and the company merely seeks a particular facility. However, experience shows that incubators are still helpful at this stage.

What is the Business Model of an Incubator That Provides Office Space for Startups?

Traditional incubation models offer office space for startups. These incubators have physical sites and buildings to allow cohorts to co-share office space and other office equipment.

Traditional incubation models recognize that many startups don’t have enough capital to set up workspaces. Therefore, once a startup is selected for the incubation program, it is provided with a workspace. The startup will share with the management teams of other startups.

Virtual incubators do not offer office space. In addition, these incubation models do not have physical sites and buildings.

How do Incubator and Accelerator Business Models Work?

Startups aim to access world-class mentorship programs and pitch to venture capitalists. However, they don’t know the differences between the central business models that provide funding opportunities: incubators and accelerators.

It is essential that new entrepreneurs understand these models and how they work to pick the right one for their startups. Choosing the right one will enhance the chances of success.

Business incubators assist entrepreneurs in refining their business ideas and building startups from the ground up. However, business accelerators provide resources, education, and mentorship to early-stage companies with an existing minimum viable product. Accelerators promote companies with a few years or months of slow growth.

Although used interchangeably, incubators and accelerators have different purposes and outcomes. They also accept varying types of startups.

While accelerators aim at scaling up a company, incubators focus on mainly stimulating innovation. They incubate new business ideas. In addition, incubators may prepare startups for accelerators.

Accelerators offer a clear limited timeframe, usually a few months. However, incubators are a long time in nature and may take up to a few years. In addition, some incubation models are open-ended.

Mentoring by an established company is a distinctive component of accelerator programs. Often, the established company purchases some equity stake in the startup.  As a result, an accelerator has a high entry threshold. On the other hand, incubators are less selective.

Accelerator programs are more structured and try to create an alignment between startups. On the other hand, incubators are less structured and focus on creating environments for co-creation.

What Business Model for an Accelerator Incubator Generates the Most Profit?

The new-economy incubator model by Lazarowich and Wojciechowski is the most profitable. Venture capital firms or large multi-disciplinary consultancies fund the model with the primary aim of generating returns. New-economy incubators also sell business consultancy services to successful companies to boost their incomes.

Accelerator models that also buy equity in the startups they incubate are also profitable. However, such models have tough application processes because they select only companies with a high probability of success. They also seek early-stage companies with an existing minimum viable product. Since these accelerator models seek to profit from startups, the only select companies with slow growth but with a potential for fast growth.

Before choosing a corporate accelerator or incubator program, organizations and entrepreneurs should know the underlying models. Each incubator model varies, as does the value they offer. Understanding these models and choosing the right one could be your first successful milestone towards a successful entrepreneurship journey. So hire a business incubator today and take your new business to the next level.

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How Do Startup Incubators Make Money (If At All)?

how do startup incubators make money

A startup incubator is a very common and essential term in the startup ecosystem. With the number of startups increasing exponentially every year, incubators play a significant role in assisting and guiding startup founders through this challenging journey.

However, the term often creates confusion regarding its definition, structure and revenue model. So, here is a guide answering all your questions about startup incubators, their work and how they differ from startup accelerators .

What Are Startup Incubators?

A startup incubator is a program designed to help early-stage or seed-stage startups grow and sustain themselves by providing them with the space, equipment, and support they need. Usually, incubators help startups in their early stages with minimal to no traction and make them more competitive when it comes to securing venture capital.

Startups in an incubator typically receive free office space, utilities, computers, equipment, and access to incubator services and events. Sometimes, they also offer mentorship, business coaching, and other services, as well as the opportunity to network with people who can help their business grow. Some incubators are even connected to accelerators, which provide companies with funding and other resources to help them grow faster.

In addition, startups that enter an incubator may receive preferential treatment when applying for funding from venture capital firms. This is because venture capital firms or angel investors often have connections with startup incubators .

Business incubators are quickly gaining popularity in various industries. For example, in 2017, Google invested $1 million in an incubator called Y Combinator. Other examples include Techstars, 500 Startups, Techstars Chicago, and Startupbootcamp. The Y Combinator program has helped create hundreds of successful companies, including Dropbox, Airbnb, Reddit, Stripe, and GitHub . Startupbootcamp London and Start-Up Chile are also well known for helping startups grow.

Types Of Business Incubators

While all incubators share the same goal of assisting startups in their early stages, they are divided into the following types:

  • Non-profit corporations: Most renowned incubators are non-profit organisations run by academic institutions, NPOs, government agencies, etc., to help young students or assist economic development in society. For example, the Berkeley Skydeck is the educational business incubator from the University of California, Berkeley and the Venture Incubation Program is a 12-week incubator program for Harvard students. Another example of a non-profit corporation is Mass Challenge .
  • For-profit development institutions: some firms also develop incubator services to profit while assisting startups or creating an investment opportunity for themselves. They usually provide investments or fundings to startups in exchange for equity. Some popular examples include Tech Ranch , WiSTEM or pyros, etc.

How Do Startup Incubators Work?

While startup incubators are usually flexible when it comes to helping companies by providing them with various facilities and mentoring them, they work in a structured manner to ensure the proper growth of different startups they work with.

Stages Of Progress In An Incubator

Generally, startups participating in an incubator go through the following four stages including:

  • Recruitment: startup incubators have a recruitment process where the potential members go through the whole application process. At this stage, the incubators analyse the startup potential, the idea, the team, the potential market, etc. Usually, the startup founders have to interview and convince the leaders to take them in.
  • Onboarding: once a startup gets accepted in the incubator program, the onboarding process begins where the incubator informs startup founders about its working and some rules to be followed. Moreover, during this period, the incubator also gets to know more about the company and its needs.
  • Beginning the program: this is when the program starts, and the incubator starts helping the company with mentorship, networking opportunities, funding, etc. An incubator program usually goes on for as long as the startup needs assistance. It can take anywhere from 3 months to two years. However, the specifications are generally clarified beforehand.
  • Networking with the alumni: even when the duration of the program finishes, the incubator provides startups with a vast network of alumni. As a result, the startup founders now have access to experienced entrepreneurs who can interact with them and guide them for their future endeavours.

What Are The Variables That An Incubator Depends On?

The success of a startup incubator depends on a lot of variables, including:

  • The total number of startups in the program: incubators generally take in a cohort of preferable startups with growth potential and nurture them. This is because the more the number of startups they invest in, the more are the chances that some of them will succeed and eventually make up for the money lost in unsuccessful startups.
  • The number of startups that fail within the first two years: it is a very well established fact in the startup ecosystem that most of the startups are bound to fail. Early failures give incubators no chance of exit, and they lose all their investments. Furthermore, they have to make up for their loss through other startups they invest in.
  • The time it takes to get a return (or liquidate the equity): even if a startup doesn’t fail and shows certain growth potential, there could be unprecedented delays in liquidating the equity or getting a return from them. As a result, investors usually try to get an exit as soon as possible. 

How Do Startup Incubators Make Money?

Usually, startup incubators are non-profit organisations funded by the government, academic institutions or private corporations . They take in a cohort of startups in their early stages and offer them services without asking for any equity in return. This is because they usually receive government grants or funding from universities or private organisations.

Why do these organisations invest in incubators, you ask?

Well, there are several reasons. For example, academic institutions want to help their students and alumni grow their startups by providing long-lasting connections to investors and mentorship from experienced entrepreneurs. At the same time, government or private sponsors invest to get access to startups in their early stages or help in the economic development of the society as a whole.

Furthermore, some private organisations run a non-profit incubator service as a front to fund ideas around their products or services to advertise themselves and create an ecosystem in their favour.

How Do For-Profit Incubators Make Money?

For-profit incubators usually demand equity in the early-stage startup for their services. More often than not, such incubators even provide funding or access to VC firms , accelerators, and so on apart from the standard services.

They look for potential exits or liquidity events once a startup gains enough market value and traction or when it goes public. This provides them with huge returns on their investment.

How Does Equity Convert Into Money?

Equity represents the number of shares of a startup. An incubator can easily convert this equity into money through an exit. An exit is when the incubator sells this equity or shares to another entity. This entity could be the company itself, another investor, some private company or even the common public.

There are many ways to get an exit. For example, if the startup an incubator has invested in goes public or declares an IPO , the incubator can sell its shares to the common public and get a massive return on its investment. Furthermore, sometimes there is a buyback when the company repurchases its own shares. Another way to get an exit is to sell the shares to a larger investor when the company starts a new funding round.

What If The Startup Fails?

There is no doubt that an incubator can earn loads of money by taking equity in startups. But, it is also highly plausible that most of the startups don’t make it. For example, according to Forbes , 90% of the startups fail during the first five years of their incorporation. So, how do incubators make money if the startup they have invested in fails?

Well, they have various other ways of making money, including:

  • Participation fee : such incubators usually charge a recurring fee from participating startups to cover their costs . Even though it doesn’t generate much revenue, the price helps incubators sustain themselves and the startups they support.
  • Multiple startups : another important thing to keep in mind is that incubators take in a cohort of early-stage startups with unlimited potential to grow. So even if a small fraction of them succeeds to get traction or enough market value, the incubator will be able to get a significant return on its investment.
  • Multiple sources of revenue : incubators, non-profit or for-profit, have numerous revenue streams coming from different sources. They don’t depend on just incubation services for their profits. For example, incubators develop a lot of connections and relationships that help them generate revenue by selling their services, providing consultation, tilting the market in their favour, etc.
  • Royalties from IP commercialisation or licencing : apart from equity, some incubators also demand a percentage of earnings from startups they incubate. But, it is not very easy to earn through royalties as it involves loads of legal arrangements and cash investments. Therefore, this is not the most used revenue source for many incubators.

Go On, Tell Us What You Think!

Did we miss something? Come on! Tell us what you think about our article on  How Do Startup Incubators Make Money  in the comments section.

Tanya Chhabra

An enthusiastic human being with determination and zeal to explore new ventures. Tanya is an entrepreneurial spirit searching for changes and learning to exploit them as opportunities and impacting people for good.

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Home » Business Model

Business Incubator Model – Everything You Need to Know

Do you want to start a business incubator? If YES, here is everything you need to know about the business incubator model plus example of successful companies. Business incubators are organizations that are geared towards helping startups and early stage organizations speed up their growth. Incubators also help their mentee businesses secure capital from angel investors, state governments, economic-development coalitions and other interested investors.

Business incubation programs are often sponsored by private companies or municipal entities and public institutions, such as colleges and universities. Their goal is to help create and grow young businesses by providing them with necessary support and financial and technical services.

Incubators are very essential in the life of a new business as they provide numerous benefits to these businesses. First off, their office and manufacturing space is offered at below-market rates, and their staff supplies advice and the much-needed expertise for the developing business. They equally create great marketing plans for these businesses so that they can easily access funding.

Companies usually spend an average of two years in a business incubator, during which time they often share telephone, secretarial office, and production equipment expenses with other startup companies, in an effort to reduce everyone’s overhead and operational costs, and make limited finances to go far.

Benefits of a Business Incubator

A business incubator provides diverse benefits to startup entrepreneurs so much so that they can no longer be ignored when starting a business. These benefits can include:

Space to work

Some incubators offer office space for free or below-market rates to their portfolio companies. This solves a lot of problems for startups. Mainly, it allows them to find a professional space for their employees to work without having to sign a lease. This is especially helpful when the company is unsure how quickly they’ll scale production or headcount.

Access to specialized equipment

Some incubators invest in specialized equipment, like modeling software, 3D printers, prototyping equipment, or software development labs. This equipment help greatly in scaling companies in their infancy. Access to costly equipment and simulation programs can be crucial when starting off.

Experienced mentors

It’s important for startups to limit critical mistakes while scaling. Most incubators offer an experienced staff of savvy industry executives to help the business team stay focused and avoid mistakes. Incubators usually employ mentors with specific startup experience that can help explain process, planning, and decision criteria, so as to steer new entrepreneurs away from costly mistakes they made or witnessed.

Expert training

Many business incubators offer an array of important business training spanning from legal advice on startup documents, incorporation terms, or IP issues to general business challenges like how to ship a product, establish a quality culture, or establish sales and marketing processes.

Software discounts

From accounting to project management, incubators typically offer business software that helps their startups scale. Pricing and education are typically vetted and negotiated for a standard rate allowing portfolio companies to get right to work. HubSpot offers this type of arrangement to more than 1000 startup partners worldwide.

Multiple business services

Much like leveraging software availability and selection, many incubators offer accounting, banking, marketing, and manufacturing services to help companies scale.

Access to like-minded entrepreneurs

One of the best attributes of business incubators are the intangibles. Working with a group of like-minded entrepreneurs, using connections for connecting with prospects or customers, and learning from others in your cohort are invaluable parts of incubator life.

Role of Business Incubators

Incubators provide various venture capitalists, angel investors as well as other mentors for entrepreneurs. By helping the startups set up office spaces or legal expertise, they allow the startup to focus more on the running of the core business so as to achieve success in record time. A business incubator provides businesses the much needed support to develop their new startup. This support can be in the form of:

Infrastructure

Startup incubators provide office workspaces, workshops for startups to get the initial prototype phase up and running.

Incubators help multiple startups simultaneously. When these startups work under one roof, they get connected with entrepreneurs working in the same industry which helps them gain insights to improve their product. Many incubators even arrange startup networking meetings to help entrepreneurs increase their network.

Financial advisory/ Intellectual property teams/ Legal advisory

Business incubators lend their financial advisors, IP teams and legal advisors to the entrepreneurs so that they can make well-informed decisions.

Contacts for potential investors

Business incubators have been in the field of launching startups to become a legitimate business. Because of this, they have multiple contacts with previous and potential investors. They even help the entrepreneurs in developing a perfect pitch deck.

Manufacturing

Many startup incubators have tools and equipment to manufacture prototypes, 3D models and even final products.

Initial financial support

Some business incubators provide a minimal fund to set things into motion and begin with the initial phase of pitching the idea and developing the concept.

Training and guidance

Business incubators provide training from market experts on how to begin, develop and implement ideas. They follow your progress closely and guide you how to improve your reach and get to the target market.

How Do Business Incubators Benefit?

Business incubators help their student entrepreneurs to nurture their ideas and successfully convert them into business models. This is done to entice potential students to sign up to their services.

Some existing companies incubate ideas to develop an eco-system around their existing product line thus making the market tilt towards their favour. Other private incubators help entrepreneurs by providing them support in exchange for equity.

How Incubation Benefits the Society

Incubators have been created with the intention of achieving a wide range of objectives, primarily those which are needed by small businesses, such as creating jobs, developing innovative ideas, diversifying the local economy, and broadly generating activity and wealth in a region by creating a vibrant small business sector. However, bioentrepreneurs may well ask whether they actually achieve such goals.

As a test case, in 2001, UK Business Incubation measured the impact of incubators on the local economy and work force in the united kingdom. The survey revealed that an incubator’s client businesses provided an average of 167 jobs (full-time equivalents) per incubator and were home to an average of 30 client businesses.

Most (60%) incubators also operate “outreach” services, helping and advising companies located outside the walls of the incubator. Incubators operating outreach activities supported an average of 106 additional businesses. Across the sample, an average of 75% of client companies turned over up to £500,000, but only 1.5% had a turnover of more than £5 million.

More importantly, companies housed within UK incubators had an average success rate of 80% compared with the national average of 50% of all small- and medium-sized companies registered and trading in that year. Around 70% of incubators attempted to measure the impact of their client businesses, for example, on the basis of jobs created and financial performance. Such indicators have also influenced government policy and funding in this arena.

Such studies do highlight the support for incubators, as well as their potential contribution. In particular, they highlight the usefulness of incubators in identifying and supporting potential growth businesses, helping technology transfer, developing innovation, and expanding the range of local businesses.

However, because incubation has been operative for only a relatively short time, there is less evidence that they are generators of jobs and wealth. Perhaps this is to be expected given the nature of these facilities, which is to offer longer-term approaches to immediate startup deficiencies.

7 Things to Know About Business Incubators Before Getting into It

Know why you need them.

Incubators work with early-stage companies or baby businesses, helping them access resources and support to get them to the point of self-sustainability. When people decide they want to become entrepreneurs, but are not sure where to turn for help, the incubator can provide mentoring, coaching, collaboration (with like-minded people), access to networks, and even physical office space. If your business is past the baby stage, then maybe you ought to look elsewhere.

Look at an Incubator’s Track Record Before Signing Up

Just as investors look at traction for a startup before they invest, you should look at the success of previous startups at a particular incubator. The success of an incubator should be measured by how well startups have done after graduation. Does the incubator have a track record of successful startups? Has the incubator assisted startups in raising their seed rounds after graduation?

Look for those you share similar objectives with

Ultimately your assessment should be based on what you need. If you are lacking in encouragement or mentorship, if your business plan is close to working, an incubator can be a great avenue to get that little nudge and the social support to help your business reach a new level. When looking out for one to sign up with, you should look out for those that complement your business objectives.

Don’t jump in head first

Before joining an incubator, consider what’s going on in your life, your commitment level to your company, the location of the incubator, and what the requirements are. Don’t overcommit.

Ask yourself if you are ready to be a client. This means showing up and participating in the program; being teachable and being under someone; accepting input from the incubator’s leadership; and all the while continuing to grow as the leader of your own company.

Know the Difference Between Early-Stage and Late-Stage Incubators

Early-stage incubators are valuable for helping an entrepreneur turn an idea into a step-by-step roadmap for building a business. The key ingredient in such incubators is mentorship from experts in the areas of building a business plan, financial strategy, management, operations, branding, pitching to investors, marketing strategy, etc.

Late-stage incubators and accelerators for businesses that can show initial market traction can provide important access to angel investors and opportunities to pitch to venture capitalists. Incubators and accelerators also help build important networks of contacts that can prove instrumental for financing and partnership prospects.

Be wary of hidden fees

Incubators typically provide inexpensive office space and basic business needs, such as Internet connectivity, in exchange for a fee. Entrepreneurs should understand exactly what the program offers and at what cost.

The upside of incubators is easy and inexpensive access to essentials, such as office space, telecommunications tech, conference rooms, and mentors. The downside is that incubators can often be more focused on generating lease fees instead of building value for the entrepreneur’s business – that is, there seems to always be another tenant waiting in line.

How to Get Accepted into an Incubator Program in 4 Steps

Being accepted into a business incubator can and should be a process. Most incubators have an admissions process and require companies to apply for acceptance. Criteria for acceptance into an incubator varies, but most require you to present a feasible business idea and professional business plan. Here are a few steps to get started finding an incubator that’s right for your business.

Review your options geographically or vertically

Because of the sheer volume of available incubators, you might have more than one option to choose from. By doing a quick regional search, you can understand and rank the incubators that might be a good fit for your company needs. Always review the website and ask for references from successful companies they’ve helped as well as a few from companies that have dropped out to get an overall view of fit.

Review their admission criteria

Most incubators have defined criteria for which types of companies they’re prepared to help. Some require certain milestones or criteria, like headcount, capital, entrepreneurial experience, background, revenue, or product fit. Others require contractual obligations from the accepted companies, so reviewing the application and understanding what is crucial to ascertaining fit.

Get your business plan ready

A business plan might not be required during the application process, but it’s helpful in determining whether the incubator is a good match. A simple overview of business name, team build, value proposition, competitive advantage, addressable market, go to market strategy, product or service, and a 12-month forecast can help you differentiate your company. Keep it simple at this stage.

Know that you will be screened

In most cases, incubators will accept initial applications for companies meeting basic criteria. Some incubators require a video submission to explain the basic Business model, vision, and mission of the company.

The second stage is usually to meet and discuss your goals, plans, strengths, and weaknesses with a screening committee. This might take the form of an application, pitch or interview, and a series of meetings to set expectations for each side. So you should endavour to prepare for it. If you make it through the screening stage, you are most likely to get accepted.

50 Successful Companies Operating on Business Incubator Model

One of the largest accelerator programs in the game is Techstars. They choose over 300 companies annually to join their three-month, mentorship-driven program. Techstars invests $120K in each startup and provides hands-on mentorship and access to the Techstars Network for life. Techstars hosts dozens of accelerator programs across different cities and industries.

Capital Factory

Capital Factory’s accelerator gives startups a competitive advantage in attracting talent, advisors, investors and customers. Its focus is on helping startups raise funding and increase customer growth by providing coworking space, hosting credits, a Startup Evangelist to advocate for your startup and access to a mentor network of the top investors and entrepreneurs in Texas.

Tech Ranch Austin

Tech Ranch equips entrepreneurs and ecosystems with insights, proven techniques, tools and processes that develop both the community and the entrepreneur. Tech Ranch has been recognized as a 2015 Top 3 Social Impact Incubator by UBI Global and 2015 & 2016 Top 20 US/Canada Accelerators by Gust’s Global Report. Its programs have influenced more than 6,000​ ​entrepreneurs in 42+ countries with more than 750​ solutions deployed.

MassChallenge

Headquartered in the united states with locations in Boston, Israel, Mexico, Switzerland, Texas, and the UK, MassChallenge strengthens the global innovation ecosystem by accelerating high-potential startups across all industries, from anywhere in the world for zero equity taken.

Specifically for women-led startups, MergeLane aims to support a diverse startup community through virtual mentoring, personal coaching and a curriculum targeting early-stage business issues and topics that specifically affect women leaders. The program takes place in Boulder, Colorado, but companies are only required to be there in person for part of the 12-week program. Some of the program can be completed virtually.

Chicago Blockchain Center

The recently launched Chicago Blockchain Center is an accelerator focused on blockchain-enabled technologies. In collaboration with the State of Illinois, the Chicago Blockchain Center provides a platform for education, innovation and development with help from top Chicago companies and entrepreneurs.

New Venture Challenge

Launched in 1996, the Edward L. Kaplan New Venture Challenge is recognized as one of the top-ranked accelerator programs in the US. Through the NVC, the Polsky Center of the University of Chicago has graduated more than 230 startup companies and created thousands of jobs for the economy. NVC startups have achieved more than $13 billion in mergers and exits, and include household names such as Grubhub, Braintree/Venmo and Simple Mills.

WiSTEM is a 12-week accelerator program that connects women to capital, community and technology resources. The program, co-created by 1871 and Ms. Tech, has found success since launching in 2015, helping over 50 women-founded companies who have raised almost $10 million in funding and have created hundreds of jobs.

Funding from JPMorgan Chase has led to a recent expansion of the program, which is built around peer-to-peer learning, knowledge sharing and a fundraising strategy curriculum.

The Brandery

The Brandery is a nationally ranked accelerator that leverages the expertise of the Cincinnati region, namely with branding, marketing and design. In addition to an elite mentor network, startups are paired with world-class creative agencies and gain access to some of the biggest companies in the world, including Procter & Gamble and Kroger. The Brandery runs one 16-week accelerator program per year for five companies. The participating startups each receive $100K, a year of free office space and more than $200K in additional benefits.

Make in LA is an accelerator program that focuses on hardware startups. The Los Angeles-based program involves four months of hands-on work, from building prototypes to preparing pitches for investors. Innovative hardware startups can apply online during the yearly application period.

MuckerLab works with no more than ten companies per year, doing whatever is necessary, for as long as necessary, to ensure that each and every company achieves the operating milestones required for the next round of financing. Its hands-on, boutique approach has allowed for them to achieve extraordinary success rates and founder satisfaction scores. MuckerLab was recently ranked the number two accelerator in the US.

Its bespoke model allows the company to deeply embed themselves as adjunct operating executives in companies at their earliest stages, as well as those going through major inflection points.

AngelPad is a seed-stage accelerator program based in NYC and San Francisco. Since 2010, it has launched more than 140 companies. Every 6 months, they select around 15 teams from a huge pool of applicants (usually around 2000) to work with. AngelPad was recently ranked as the number one accelerator in the US (based on a study from MIT/Brown University). AngelPad has been called the “Anti-Y Combinator” due to its strategy of working with fewer teams on a yearly basis.

Betaworks (Camp)

Camp combines Betaworks’ building and investing experience into thematic accelerator programs for startups in frontier technology. Camp themes reflect the areas on which they are most focused and evolve along with their investment theses. This cycle’s theme is livecamp: everything around live streaming, esports, etc.

Blueprint Health

Blueprint Health invests time and $20K into 20 healthcare IT companies each year. The staff and mentors work intensively with the companies for three months to help them meet their individual business goals. Typically these goals include gaining customers, raising capital, building marketing and sales collateral and refining an investor pitch. But Blueprint Health doesn’t end after three months – they continue to help their alumni founders build and grow their companies and offer them additional resources that the community can provide.

Cofound Harlem

Cofound Harlem is an accelerator program in New York City that aims to build 100 companies in Harlem by the year 2022. The accelerator provides mentorship, education and other support to Harlem-based startups and companies that want to make a real impact on the community.

Dreamit Ventures is an early-stage venture fund that accelerates startups building transformative tech products in the fields of healthcare, real estate/built environment and security. Dreamit identifies and invests in startups with market-ready products looking to more rapidly gain customers, initiate new partnerships and raise their next round of funding. Startups participate in one of Dreamit’s three industry verticals: UrbanTech, HealthTech, or SecureTech.

Entrepreneurs Roundtable Accelerator

Entrepreneurs Roundtable Accelerator combines seed capital, hands-on help and a great coworking location with an expert team to positively impact the trajectory of early-stage startups. ERA runs two four-month programs per year. They are New York City’s largest accelerator program as well as its deepest and strongest mentor network with 400+ expert investors, technologists, product specialists, marketers, customer acquisition strategists, sales execs and more, across all major industries represented in New York.

Fintech Innovation Lab

The Fintech Innovation Lab is a highly competitive 12-week program that helps early- to growth-stage startup companies refine and test their value proposition with the support of the world’s leading financial service firms.

MetaProp NYC

MetaProp and Columbia University collaborate to bring together some of the most innovative and influential real estate institutions and other industry PropTech visionary companies to lead the MetaProp Accelerator at the Columbia University Consortium.

New York Digital Health Innovation Lab

The New York Digital Health Innovation Lab, previously NY Digital Health Accelerator, is an annual program run by the Partnership Fund for New York City and the New York eHealth Collaborative for growth-stage companies that have developed cutting-edge technology products targeted at healthcare organizations.

Startup52 is an early-stage accelerator program in New York City that is focused on promoting diversity. The accelerator accepts startups in various industries, but puts a big emphasis on the capabilities and diversity of founding team members. Accepted startups receive one-on-one mentorship, coworking space and other support tailored to each startup.

VentureOut is a New York City-based program that is a one-week hyper-accelerator. It brings in startups from around the world and connects them to members of the startup and technology communities in NYC. The VentureOut program features sessions on subjects ranging from leadership to sales, and ends with individual meetings and new client meetings at the end of the week.

For startups that focus on retail and consumer goods, XRC Labs provides an innovative, design-centric accelerator program in New York. Participants get mentorship, access to capital, operational support and workspace on the campus of the Parsons School of Design at the New School. XRC Labs runs two 10-week programs each year.

AlphaLab is a nationally ranked software accelerator in Pittsburgh. They help early-stage tech companies quickly figure out the best way to build and grow in an immersive 4-month program that includes funding opportunities.

BoomStartup

BoomStartup is a seed, early-stage venture growth fund and virtual accelerator program. They provide entrepreneur boot camp basics like custom accelerator plans, extensive mentoring from seasoned professionals, personalized mentorship, investor introductions and pitch development. The program uses lean startup methodologies to launch a number of business startup programs such as early-phase tech, software, EdTech, product, and biotech startups.

Capria is a valuable Seattle-based investment firm and accelerator program focusing on global impact startups. The program aims to work with startups that develop innovative solutions to global problems, specifically those operating in emerging markets.

500 Startups

Probably one of the most well-known accelerators, 500 Startups’ 4-month seed program gets your company access to mentorship, hands-on sessions with startup experts and an office space where you’ll work with other talented founders from around the world. They invest $150K in exchange for 6% in equity. They charge a $37.5K fee for participation in the program and it takes place in both San Francisco and Mexico City.

Alchemist Accelerators

The Alchemist Accelerator is an accelerator exclusively for startups whose revenue comes from enterprises, not consumers. The accelerator focuses on enterprise customer development, sales, market validation and a structured path to fundraising.

Boost VC invests $50K – $100K in exchange for 7% of the company. They seek passionate technologists from around the world for their accelerator in Silicon Valley. They give their companies a place to live and work, an unparalleled network and time to focus on their startup.

Founders Embassy

Founders Embassy is elevating, inspiring and educating international and immigrant founders by offering them unprecedented access to Silicon Valley through its immersive, bootcamp-style acceleration programs, impactful events and thought leadership – all without any exchange of equity. To qualify for the program, it is not required for the startup to be based outside of the US. However, if the company is based in the US, they do require for one of the founders to be either an international citizen or an immigrant living in the US.

Illumina Accelerator

For startups involved in clinical research and applied sciences, especially in the area of genomics, Illumina Accelerator provides extensive mentorship, financial support lab space and more. Founders accepted into the program must work full-time in the Bay Area during the six-month program.

Matter is a 20-week accelerator program that focuses on design thinking. Based in both San Francisco and New York City, participants immerse themselves in a collaborative culture where they are taught to focus on creating human-centered offerings in order to fail fast and bring products to market sooner. The application process includes a pitch, project and finalist round that startups must go through in order to be selected.

Upwest Labs

Upwest Labs offers $20K in funding over a four-month period for small businesses based in Silicon Valley. In addition to seed funding, small businesses can gain access to investors, mentors and more through the comprehensive small business development program that Upwest Labs provides.

Le Camp is a Québec-based incubator-accelerator that is dedicated to tech businesses growth and mentorship. They offer a diversity of services adapted to companies’ development stages, from pre-startup to internationalization.

Creative Destruction Lab

Creative Destruction Lab helps innovators transition from science projects to high-growth companies. Its focus is as a seed-stage program with the goal of helping companies go through the transition phase from pre-seed to seed-stage funding. Thalmic Labs, Nymi, Charge Spot and Pet Bot are some examples of the companies that CDL works with.

DMZ is a world-leading accelerator for tech startups in Canada. They help startups build great businesses by connecting them with customers, capital, experts and a community of entrepreneurs and influencers. They aim to create an environment where companies can focus on scaling their businesses. DMZ is ranked as the #1 university-based business incubator in the world by UBI Global. They have a strong commitment to helping high-growth tech startups scale, fostering a vibrant startup community and fueling innovation in Canada.

Extreme Accelerator

Extreme Accelerator is the most active Canadian pre-seed fund that invests, sponsors immigration and accelerates global startups. They are mainly looking for international startups relocating or expanding to Canada, with an aim to target a global or North American market. They also require demonstrated product-market fit through revenue and validations by accelerators or other parties.

Ideaboost is a Toronto-based business accelerator and startup community for companies that are building the next generation of technology-based media and entertainment products, services, and brands. This accelerator is an initiative of the Canadian Film Centre’s Media Lab, in partnership with Corus Entertainment. It provides high-potential Canadian startups with seed investment, mentorship and access to its network.

Launch Academy

Launch Academy is a tech incubator that provides the mentorship, resources, network and environment entrepreneurs need to launch, fund and grow their startups. Launch Academy offers three comprehensive programs, depending on a startup’s needs and growth stage.

Accelerate Tectoria

Its mission is simple: to increase the number of successful technology companies that start and grow in the Greater Victoria area. With input and funding from its partners, Accelerate Tectoria provides a structured venture development service designed to guide, coach and grow ambitious early-stage technology entrepreneurs.

CSI Kickstart

Known for their mentorship, impressive toolbox spilling over with resources and the ability to connect projects with the right investors, possible investors, mentors and more, CSI has it all. The incubator offers everything from human resources to knowledgeable entrepreneurs with an in-house production company — and even a virtual candy drawer!

This global incubator is wholly digital and aspires to help one million entrepreneurs achieve one million dollars in annual revenue within the next four years. This will lead to up to ten million jobs. Based on online educational programming, you’ll experience video lectures and get connected with online strategies and mentors. Aspects of this virtual incubator are free, but only approved members can access the entire program.

Based at Missouri State University, recipients are startups that aren’t physically nearby but are a good match for the program goals. Emerging businesses, startups and job creation are the goals of the eFactory. You can access the incubator program for support services, counseling, admin support and shared equipment. Mail services, virtual conference rooms and access to mailing lists and mentorship are at the heart of this program.

DreamIt Ventures

DreamIt focuses on the trifecta of the startup world — startups themselves, investors and corporate innovators. It’s one of the 20 most active incubators in the country, DreamIt is all about helping entrepreneurs scale via securing capital and customers. The incubator also partners with brands and corporations to help with pilot programs and tech advancement. Top angel networks and venture capitalists also connect with DreamIt for a healthy startup ecosystem.

Focused on tech startups, Amplify LA understands that not all startups are equal — and that means their goals and paths aren’t the same. Adopting a flexible approach is at the center of the program, with an accelerator customized to each project.

There’s no catch-all calendar or required schedule for all. Instead, mentors watch a startup’s performance and offer support. On-site support in Venice Beach is an option, but with the flexible mentorship approach, mandatory requirements are slim.

If someone in your startup has a connection to Stanford, you can qualify for the Accelerator Program. Your connection can come from your undergraduate or graduate years, but only one person needs to have such a connection. Otherwise, on-site incubator options are available, including a visiting professorship.

CodeLaunch, produced by Frisco, TX,  is a competition conducted annually between people as well as groups on technology startup ideas. This competition has been the source of success for at least 7 startups which won it. This competition targets “embryonic” stage and “very early” stage startups through established startups can also participate but won’t be the primary focus.

The main goal of this event is to create a medium through which people and their ideas can connect with investors and also for the investors to find ideas which they wish to support. Key2Close was one of the finalists of the 2015 edition of the competition.

India’s largest incubator for startups is T-Hub also known as Telangana Hub. On 5 November 2015 the first phase of T-Hub was set in operation by E. S. L. Narasimhan, Governor of Telangana and Ratan Tata, Chairman Emeritus of Tata Sons, and Telangana IT & Panchayat Raj Minister K. T. Rama Rao. Housed in a 70,000 square foot building called CatalysT, it is entirely dedicated to entrepreneurship.

Centre for Digital Innovation in Hull

The Centre for Digital Innovation in Hull, popularly known as C4DI is a digital incubator based in Kingston upon Hull, England. For providing assistance to startups, this company has created links with Amazon Web Services, PwC, Kingston Communications as well as other firms. The C4DI accelerator was launched in May 2014.

Y Combinator

Twice a year, they invest $120k into a large number of startups. These startups move to Silicon Valley for three months for intensive mentorship and support.

More on Business Model

Business Incubator

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You will learn how the unique traits of business incubators can help your business evolve. Then, you will learn step-by-step how to build your own business incubator.

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In this training, you will

  • Learn a brief history of business incubators.
  • Compare incubators to other innovation tools.
  • Learn the benefits of participating in a business incubator.
  • Learn the underlying theories behind business incubators.
  • Walk through how to build a business incubator.
  • Explore business incubator metrics and KPIs.

Skills that will be explored

business incubator revenue model

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A Brief History of Incubators

The very first incubator hatched from an egg.

Amidst a robust poultry industry in the 1960s, the Rochester-based Mount Hope Hatchery was trying to meet the growing demand for poultry and was in need of 80,000 square feet to house surplus chickens. That led them to the Batavia Industrial Center close to Rochester, New York.

The Mancuso family, well-known and respected local business owners, had bought a defunct old farm machinery plant and its warehouse in Batavia, which had closed leaving thousands of local residents out of work. The family wanted to use the warehouse in some way, to help boost the local economy ideally, and planned to find tenants to lease the space. Mount Hope Hatchery’s chicken coops were some of the early businesses tenants in the space.

The idea was straightforward: lease out excess commercial space to growing businesses poorly served by existing markets. No one could foresee that the Mancuso family’s actions would become a model for diversification and innovation. As quoted in an  article by Justin Peters in Wired , Mancuso family legend has it that while giving a tour of his complex in 1963, Mancuso said to reporters: “These guys are incubating chickens ….  I guess we’re incubating businesses.”

Far from its humble roots, the incubator concept first seen in Batavia has since transcended regional and national boundaries to become a  global phenomenon .

Incubators Compared to Other Tools

business incubator revenue model

Figure 1:  Comparison of startup support institutions

Image Source: Source:  Cohen (2013) and Hathaway’s adaptions (2016)

Incubators share some characteristics with corporate accelerators: they interact with startups;  provide physical space; and offer education programs, mentorship, and networks. But the goals and operation of these programs are much different.

Incubators operate over a longer cycle than accelerators. Startups participating in these programs tend to work on more experimental ideas and require more time to develop their product and business model. Because of these traits, the majority of incubators are non-profits, often working with local governments or universities.

This shouldn’t discourage corporates from building this tool. In the same way non-profit incubators succeed in building innovation ecosystems in local communities, corporate incubators strengthen innovation ecosystems inside companies. They also help companies commit to long-term strategy in a world focused on short-term gains.

But long-term strategies are hard to sell to leadership. Understanding the incentives for building incubators will help prospective incubator leaders secure buy-in.

Why Participate in an Incubator?

There is significant risk for companies that invest in incubators (or  accelerators ). There are upfront costs, and the time horizon for ROI is long. But a long-term commitment to experimentation is essential if companies are to stand a chance. Incubators can house these types of ideas.

Business incubators leverage the unique advantages and perspectives of startups, which established companies often lack. For example, Eddie Yoon and Steve Hughes explain in the Harvard Business Review that  startups are better at  detecting  and unlocking emerging and latent market demand  perhaps because they are consistently monitoring the pulse of a specific market area. Where startups often stumble, however, is when it comes to scaling their concept.

Big companies often make the mistake of creating what they can rather than what people want. They lack the agility and creativity of early-stage startups, but these big companies are more experienced at scaling. They also have advantages in logistics, such as procurement, distribution, and manufacturing, and established sales and marketing advantages.

The two entities complement each other; they can perfect a product and hold off on the scaling until the market is ready.

Large companies can benefit from and support startups’ capability to provide proof of concepts through early stage funding and later-stage M&A. But timing is everything. There are plenty of companies looking to invest in a promising startup, but there are far fewer promising startups. Yoon and Hughes  explain :

“there are more buyers than sellers; if the first time an established company is made aware of a startup is by receiving a deal book from an investment banker, it’s already too late.”

Companies must stay ahead of the curve and find complimentary startups for partnerships, experimentation and acquisition.

The following list outlines some of the benefits of a corporate incubator for startups and their corporate sponsors.

Benefits for Startups

  • Possible access to later venture funding
  • Lower personal and financial risk
  • Ready-to-use infrastructure such as office space, IT tools, and administrative business support services
  • Mentorship and training, which can include individual coaching, presentation, and negotiation skills
  • Assistance with business management, technology, and legal services
  • The opportunity to build relationships with potential investors, suppliers, and industry experts
  • If a startup is sponsored by a host company, it will likely receive funding, skills, expertise, peer support, and R&D knowledge from the host

The figure, below, summarizes the rationale for business incubators, highlighting the value derived from networks in terms of knowledge resources, access to financing, and community support.

business incubator revenue model

Image Source:   Wiggins & Gibson, 2003

Criticisms of the Business Incubator Concept

The results of business incubators can be hard to quantify. Ernesto Tavoletti notes that in  incubators “tend to fail” in supporting entrepreneurship , innovation, and regional development and are not proven policy instruments despite their popularity and the funding and promotion they receive.

Tavoletti also notes that studies that claim that incubators create jobs often originate from incubator associations and only measure the intended effects, not the unintended effects. These studies often fail to consider that firms would most likely have received funding without participating in an incubator. In some cases, studies include companies that moved into incubators later in their development to take advantage of facilities or funding.

On the other hand, a 2017 study finds that  firm performance is greatly enhanced by an incubator . This study by Ayatse, Kwahar, and Iyortsuun, published in the Journal of Global Entrepreneurship Research finds that revenue growth, job creation, venture funding, networking, and alliance building all improved after the incubation process. Interestingly, the study also finds that tenants should not overstay their time in an incubation program because that could reduce their chances of survival once they graduate.

The truth here is that every incubator is different. Each requires strategic planning from people who both know the tool and know the organization. It’s important to understand the theories behind incubators, the various models, the different tenant profiles, and to hear the perspectives of incubator critics.

The Underlying Theories in Support of Incubators

In a 2012 white paper, Mathew J. Manimala and Devi Vijay of the Indian Institute of Management Bangalore presented  seven theories  that explain and conceptualize incubator functions.

Structural Support Theory

The structural support theory proposes that new ventures can overcome the problems associated with startups, such as being new and small, if the cost of their infrastructure and overheads can be reduced. According to this theory, “pooling resources, as occurs in an incubator context, leads to efficiencies because the central pooling of resources can significantly reduce overhead costs and thereby increase operating efficiencies.”

Structural support can include office space, communication technology, managerial assistance, access to laboratory and equipment, research facilities, and expert staff. According to this theory, the venture stands a better chance of survival if support in these areas is pooled.

Cluster Theory

The cluster theory was developed by Michael E. Porter and described in The Harvard Business Review in 1998. The theory places incubators within a broader ecosystem with other entities. Clusters are “ geographic concentrations of interconnected companies and institutions in a particular field .”

The clusters are composed of industries and other linked entities important to competition. Fundamentally, they are networks and include, for example, component providers, machinery providers, services suppliers, and providers of specialized infrastructure. The advantage of being part of an incubator within a cluster is that it is easier to access resources within this environment, which increases efficiency and productivity.

According to Manimala and Vijay, the cluster theory builds on structural support theory and suggests that high-tech firms with similar characteristics in the same value chain cluster stimulate faster knowledge dissemination and synergistic growth using each other’s capabilities.

Social Network Theory

This theory posits that the effect of internal and external network connections and social networks increase the client firm’s network density and positively affect the development and growth of the startups.

“[S]ocial networks and contacts,” according to Manimala and Vijay, “facilitate access to capital, credibility and respectability because of the association with the incubator and its sponsor institutions, and they provide techno-managerial assistance through the incubator’s professionals and/or network.”

New Venture Creation Theory

With the new venture creation theory, network access and community support for entrepreneurs increases their legitimacy and the chances of venture funding and survival.

A 2004 study by Neck, Meyer, Corben, and Corbett found that incubator organizations, spin-offs, informal and formal networks, physical infrastructure, and the culture of the region where the incubator is located  interact to form an ecosystem conducive to high-technology entrepreneurial activity . Additionally, the authors found greater rates of new venture formation were found following critical moments in the life of incubator organizations.

The Resource-based View

This theory states that incubators provide both tangible and intangible resources to client firms. These resources—knowledge sources in the form of universities, for example—and market proximity spur growth through a community effect. This is not unlike the cluster theory in that incubators benefit from proximity and access to networks and logistics.

Gassmen and Becker used two levels of analysis in 2006—the resource flow between the corporate incubator and the technology venture and the resource flow interface between the corporate incubator and the technology venture—to develop  a model that can determine “how corporate incubators function  as specialized corporate units that hatch new businesses.” They emphasize that tangible resources are all visible and easy to measure, whereas intangible resources, such as tacit knowledge and branding, are more difficult to quantify and assess.

Dyadic Theory

The concept behind this theory is that entrepreneurs  “operate in an inter-dependent co-production dyad”  where business assistance is provided by the sponsor. According to Hackett and Dilts (2004), incubation co-production stimulates developmental assistance in independent incubator-client dyads.

This co-development is of mutual benefit and increases the likelihood that startups survive and that the sponsor and regional economies benefit.

Real Options Theory

Real options theory borrows concepts from the finance literature. The theory states that the selection of startups or entrepreneurs for the incubator creates an option, and the injection of required resources, monitoring, and assistance are also options. The real options methodology was initially applied when evaluating technological assets such as R&D.

In 2004, Hackett and Dilts used  real options theory to predict whether new ventures will survive  the early stages of development. The incubator is conceptualized as an entrepreneurial firm that sources and manages the innovation process within emerging organizations. The incubator is the unit of analysis while incubation outcomes, measured in terms of startup growth and financial performance at the time of incubator exit, provide indicators of success.

Theory is one thing, but the best way to learn is by doing. The following outlines the steps to building an incubator.

How to Build an Incubator

Step 1. select the incubator model.

“For incubators to live up to their full economic potential, they need to overcome two pitfalls: they need to provide real value, not just office space, and they need to measure success in more than just outside funding.” —  Harvard Business Review , 2013

Internal corporate incubators

Internal corporate incubators are the most common type of incubator. They are built inside the corporation, often without walls, and the startups are often spun out when they graduate. These incubators increase the chances of intrapreneurial success, and the corporation often receives equity ownership as though they were founders of the startups.

Entrepreneurs are typically recruited to manage the startup, and internal employees may join the new company. However, not all incubated concepts are spun out, and companies use these incubators to create breakthrough products for growth and revenue. PwC states that while typical R&D seeks incremental development,  incubators build company initiatives that have market viability . Incubators strive to go from concept to market.

Internal corporate incubators nearly always focus on the sectors relevant to the parent company. TechCrunch lists the following examples of  successful corporate incubation programs and startup spin-outs:

  • McDonalds’s spin out of Red Box (acquired by Coinstar for over $150 million)
  • Google’s spin out of Niantic Labs and Pokémon GO (reportedly worth $3.5 billion)
  • Oracle Labs’ development of the Java programming language
  • Amazon’s Lab 126 creation of the Kindle, Echo, and Fire products

External corporate incubators

External corporate incubators provide external entrepreneurs and startups with a location, infrastructure, and resources to pursue potential ideas. Host organizations seek out startups that they believe have potential in their business area in the hopes of later financial gain and an ongoing relationship, if not an ongoing investment.

This is based on the idea of “open innovation. Originally coined by Henry Chesbrough, open innovation is the concept that companies must open themselves up to the external world for the creation and development of new products and ideas. The following table from Henry Chesbrough’s writing in MIT’s Sloan Review compares open innovation to closed innovation:

business incubator revenue model

Here are some  examples of open innovation  provided by  ideXlab :

  • Audi launched the  Audi Innovation Award , a contest where participants submit their concepts for the car of the future. The winner earns a $25,000 worth of consultancy.
  • Procter & Gamble  published a list of technical problems that their team failed to solve on the company website. Readers were asked to provide a workable solution, no matter how out-of-the-box it may have seemed.
  • GE launched  Ecomagination Challenge , which requests ideas from anyone who has ideas related to energy problems.
  • Hewlett Packard created open innovation laboratories where researchers worldwide collaborate and create partnerships between internal teams and external scientists.
  • Local Motors  is a crowdsourcing startup created in 2007 by Jay Rogers, a former Marine. The model avoids the typical financial cost and time involved in designing and creating a new car because participants provide the industrial design. The winners of the design contests can also receive royalties from the car sales.

Incubators can provide the infrastructure for cooperation with the external ecosystem. The cooperation between the two entities can vary in its intensity. However, the goal is always to partner, learn, and build a successful new business that can be scaled independently either as a joint commercial venture or integrated into the host corporation.

Among external and internal incubators, there are various models and types. The U.S. Department of Commerce separates them into incubators “ with walls” and “without walls .” Incubators with walls provide a separate space and location for projects, and incubators without walls (or “virtual incubators”) house the incubator within the corporate environment and use the existing infrastructure and communication systems.

Evangelos Simoudis, founder of Synapse Partners, describes the following four incubator models in his piece “ Using Corporate Incubators and Accelerators To Drive Disruptive Innovation. ” I suggest that a corporation should adapt these models to their needs. 

The Incubator/Accelerator Model

This model includes both intrapreneurs (entrepreneurs within a corporation) and entrepreneurs. The incubation period for this type of model is typically between four to 18 months. Teams, if deemed of a high standard, are invited to join the corporation, or to “spin in.” Such teams are retained for longer with additional sponsor investment to keep them going, or they are required to work outside the corporation, as a “spin out,” with an investment from either the sponsor’s VCs or perhaps in conjunction with external VCs. Alternatively, the teams can be left to raise their own funding from external VCs or other funding sources.

This model is appropriate when a sponsoring business wants access to early stage concepts, is looking at the long term—ideally, seven to 10 years—for concept development and potential disruption, has appropriate metrics set up to measure the startup’s performance, and is open to the risks involved in mentoring and supporting an early-stage startup.

The unique benefits of this model are that there is a long-term commitment to disruption, which is crucial. Concepts need time to morph into products, time to reach the market, and time for adoption, which means that there may be some delay before there is significant ROI. Another benefit is that entrepreneurs and intrapreneurs work side-by-side and may eventually join the sponsor’s business units.

But entrepreneurs should be aware of the downsides to the model. According to Wharton Magazine, the sheer number of incubators is increasing, and not all of them are up to snuff. Some have weak investor relationships, which means that fundraising for the startups might be difficult come demo day. In addition, new programs have not had sufficient time to build a reputation or track record, which is not conducive to ready investor funding in a competitive startup market.

Wharton magazine also suggests that the time that entrepreneurs must spend at social events, building networks and discussing initiatives with potential investors, is time taken away from engineering, experimenting, and problem-solving toward a better end product.

Samsung and Telefonica are examples of firms that have applied this model.

The Pay-it-forward Model

For this model, the corporate incubator provides facilities and training while the teams work with external entrepreneurial teams. The idea is to expose teams to real-world problems in the industry and to provide resources and experts to help them solve those problems. This type of program typically lasts from six to 12 months, and the sponsoring corporation receives no equity from the startup.

This model is appropriate when the corporation wants to expose its executives to startup thinking and practices, attract entrepreneurial talent, and access new ideas and early-stage concepts from other resources to solve existing problems.

The unique benefits to corporations for this type of incubator are access to startup teams and their thinking and the creation of goodwill. A downside to this model that entrepreneurs might want to consider is that there may be a significant bias toward the interests of the corporation.

Allianz and Turner have applied this model.

The Developing Intrapreneurs Model

LinkedIn, Google, and Starbucks use this model where entrepreneurial teams incubate solutions and test business models within the organization; hence the term “intrapreneur.” This strategy works for companies that can’t pursue ideas using existing business units, so they set up a separate unit. This model fits when an organization is strongly committed to long-term concept building to achieve disruption.

The unique benefits of this model are that new products and business models can be rapidly developed. Resources are allocated to strengthen intrapreneurship and permit risk taking with out-of-the-box thinking.

One downside, according to Sean Silverthorne of Harvard Business School, is that if a  startup is working on a product or service that competes in some way  with the business of the company, the effort could be perceived as a threat to many inside the company.

The New Work Environments Testing Model

This model, applied by ATT Foundry and Standard Chartered Bank (SC Studio), describes creative work and the testing of new solutions or environments by the innovators.

The new work environments testing model is an incubator without walls. The sponsoring corporation does not offer on-site space for clients although they may have a central office through which to coordinate services, house the management staff, meet with clients, and perhaps even conference rooms. This is a suitable model for a corporation that wants to test startups but does not want to assume the risk of creating an external startup team.

The unique benefits to the new work environments testing model are that the corporation can use existing structures, such as flat management and open communication tools, to experiment with ideas, which reduces costs and may lead to better performance within the organization.

The New Incubator – Soft Landing for International Programs

Although a goal of incubators has been to boost local economies and ideally the national market, not all are focused on domestic markets. Many startups now use the incubator environment to reach beyond domestic boundaries.

According to the U.S. Department of Commerce,  international business incubators provide the same set of entrepreneurial services as a typical incubator , but they also provide a “soft landing” for international firms seeking to enter the U.S. market.

These types of incubators often provide specialized services. For example, the University of Florida’s soft landing program  helps both domestic and international firms integrate into the Central Florida business community .  The program helps with short-term leased office space, networking with the Central Florida business community, domestic market research, and provides access to experts on legal, government, regulatory, and press and media matters.

The  University of Toronto has partnered with the Chinese firm Diantou.net  to help companies who are entering the lucrative Chinese market. According to The Impact Centre at the University of Toronto center, Diantou.net will “provide start-ups with legal, marketing and other support services” while the Toronto center will offer entrepreneurship courses to Chinese students, researchers, and startups.

Other similar incubators offer translation services, language training, assistance with documentation such as obtaining business and driver’s licenses, cultural training, assistance with visa and immigration, and housing assistance.

Consider these examples and design a model that best suits your organization and its goals.

Step 2. Select Your Industry Focus

Most incubators are  focused on a specific industry  such as digital education, green technology, homeland security, fashion, or food. An industry focus ensures that the available skills and resources are optimized and targeted.

Technology incubators are specifically focused on emerging technologies such as software, biotechnology, robotics, or instrumentation. A service incubation program, as the name implies, focuses on entrepreneurial firms in the service sector, for example, landscapers, graphic designers, accountants, and internet-based companies. However, mixed-use incubators, or general-purpose incubators, nurture the growth of all types of companies and may not fit into any specialized niche.

According to Nola Hewitt-Dundas, incubators are increasingly oriented  toward knowledge-intensive activities  such as knowledge dispersion among collaborating actors and a more open collaborative model. While customers and suppliers have traditionally been valuable contributors to incubator projects, universities are now also increasingly involved.

Step 3. Select Your Program Length

While corporate accelerators generally  stick to a 3-month program , corporate incubators  don’t have a strict duration . According to Accion, many incubators require a  one- to two-year time commitment that includes incubator training and workshops . At the Polytechnic Institute at New York University, entrepreneur teams typically spend 18 months in the program while other incubators take much longer.

The SPARK Regional Incubator Network in Ann Arbor is structured so that  compani es graduate from the incubator in two to three years. Clients initially c ommit to a standard one-year lease. If the business meets their desired milestones, the lease is renewable for one or two additional one-year leases.

The duration of internal incubators depends on how long the company expects the concept to take to see quantifiable value,  according to Robert Wolcott of Kellogg Insight . But that’s the tricky part when it comes to early stage concepts. Wolcott explains that a startup may not see any returns for four or five years. Therefore, to retain the commitment of a host corporation, startups must demonstrate some other quantifiable value. Wolcott estimates that this must be achieved within 18 months to keep a corporate board happy.

The reason for this “need to produce” is the budget cycle. According to Wolcott, not much is expected of an incubator startup in the first three or four months. But, after a year, financiers are itching for positive indicators. With no results to speak of after 18 months, a startup might have a target on its back if it doesn’t come up with some proof of positive impacts.

Step 4. Select Your Location

Location considerations are similar to those of  corporate  accelerators .

Brad Feld, co-founder of Techstars, suggests that business incubators can thrive in any location. His opinion is that because many incubators are “virtual” and lack walls, incubators do not have to be in the same geographic area as the host organization. Rather, it might be better for the incubator to be located where there is optimal access to knowledge and physical resources. Close to a university, for example.

In the case of tech startups, and in the case of Silicon Valley, tech incubators benefit from the networks and events in the local area. According to  Michael Seibel of Y Combinator , the Valley offers “money and good valuations. We can introduce them to tons of other companies that can be mentors and customers, and we can introduce them to the pace of the Valley … We can’t do that anywhere else.”

According to the U.S. Department of Commerce,  graduating entrepreneurs tend to stay in the same geographic region as their incubator organizations  and, in most technical industries at least, entrepreneurs usually start businesses related to their previous work. Thus, because most entrepreneurs do not move to start a business, the possibilities for high-technology startups may be limited in some locations.

Where virtual incubators are concerned, they may be able to build a thriving ecosystem of their own, remote from the host organization—particularly if the location provides valuable external networks and resources.

Visual Representation of a Virtual Business Incubator

business incubator revenue model

Image Source:   World Business Incubation , 2015

Step 5. Select Your Learning Program

Business incubators and accelerators are fundamentally engines for learning. But the type of learning that you require, as well as the knowledge and skills that each startup team requires, will differ. A diagnostic process can help you to determine how best to allocate resources for learning so that both entities are served.

A model developed by Campbell, Kendrick, and Samuelson shows  four basic areas or “services” where incubators contribute  – revenue growth, employment or job creation, venture funding, networking, and alliance-building. The value addition activities begin with a diagnosis of needs, which is applied to prospective incubatee’s new business proposals. Once this diagnosis is complete, you can tailor the learning experience for participating startups. For more on learning programs, see our piece in  corporate accelerator design .

Step 6. Select Your Tenant

Just as there are different incubator types and models, there are also different types of tenants who may or may not be viable participants in one or more of the incubator models. A lot depends on the support and the resources that you, the host company, are willing or able to provide and whether the startup is in the same industry vertical as the sponsor.

When seeking a tenant, consider their maturity and readiness. Ernesto Tavoletti describes  four types of incubator tenants .

  • Anchor tenants  are typically mature entrepreneurs and can contribute financially to the incubator. They do not require input from the corporate host. Examples of this type of tenant include accounting companies, law and financial services firms, economic development agencies, or university offices.
  • Long shots  are early-stage startups that require a nurturing environment from the corporate host. These entrepreneurs are aware that they lack resources and require co-production efforts from their host to reach their potential.
  • Up-and-comers  also have significant resource gaps that can be addressed through co-production. These companies are one step ahead of long shots in terms of maturity and are operated by entrepreneurs who are aware of the gaps but are on the verge of being able to engage with resource assistance.
  • Superstars  have matured beyond the up-and-coming stage, and they are ready to engage with minimal co-production efforts from the host. They have resolved problems, can withstand crises, and expect to imminently graduate from the incubator. These companies can act as role models for up-and-comers and long shots.

Step 7. Manage Your Incubator

Given the long-term nature of incubators, they require strategic management. 

The U.S. Department of Commerce found that  successful incubators have adopted certain practices  such as crafting a written mission statement, selecting clients based on cultural fit, their potential for success, reviewing client needs at the entry stage, showcasing clients to the community and potential funders, and charging for rents and service fees.

These factors all stem from successful incubator leadership.

Incubator Leadership

When first creating an incubator, it’s crucial to identify and hire a strong entrepreneurial leader. According to a  white paper  by the Aspen Institute and National Entrepreneurship Network of India, cost concerns could derail the incubator at the outset if they inhibit hiring someone of the right caliber.

To give some idea of leadership experience, according to the U.S. Department of Commerce, on average,  incubator managers have 8.1 years of experience in the business incubation industry including 7.5 years  at their current position. Over 50 percent of the time of these managers’ is spent delivering client services, building internal and external networks for the program, and facility management.

A study by Monsson and Berg (2016) found that incubation managers had a  moderately positive influence on incubators  in terms of facilitating access to important actors, assisting with practical advice, and the daily management of the incubator program. According to the authors, the “modest role” played by managers reflects a preoccupation with operational tasks rather than a greater role creating partnerships and synergies.

Financial Commitment and Risk

Incubators and accelerators are a financial commitment. In addition to private funding and investors, public funding of incubators is common.

In Canada, for example, governments provide funding for incubators. However, in Canada,, Sunil Sharma, the chair of the board of the Canadian Acceleration and Business Incubation Association, expressed to The Globe and Mail the concern that  there’s already too much government money going to programs that support tech startups.

According to Sharma, “It’s time to really take stock of how much funding has been put into supporting entrepreneurs in Canada and really measure it against the outcomes that we should have been able to show by now.”

According to the U.S. Department of Commerce,  there is a significant correlation between the size of a business incubation program’s budget and program success ; that is, the bigger the budget, the greater the success. However, it is also important to look at revenue sources and how the incubator uses its resources. This research found that receiving a large portion of revenues from client rent and service fees is positively correlated with outcome measures, although the effect is only statistically significant for three client firm outcomes. On the expenditure side, the more programs invest in staffing and program delivery—relative to building maintenance or debt servicing—the higher the probability of improved client firm outcomes.

Incubation program budgets range from  revenues of $33,000 with expenses of $17,000 to $2.8 million in revenue with expenses of $2.5 million , according to the U.S. Department of Commerce, but data is scarce on this subject. The lack of quantitative data on the value of incubators emphasizes that the risks should be carefully weighed against the potential gains. 

Step 8. Conduct a Post-Program Assessment

The success of incubators and accelerators depends on how the program is managed after startups graduate. Networks and relationships make or break these programs. Successful startups give back to the program, and startups succeed partly because of continued contact from incubator hosts. See our piece on  post-program  strategies  for corporate accelerators  for more.

Measuring Incubator Success

“In addition, the business models of many for-profit dot-coms failed to consider that, on average, it takes slightly more than three years to successfully incubate a client firm—and perhaps up to six years or more for that firm to realize significant growth. However, interviews with former managers of dot-com programs suggest that their business plans speculated that clients would begin to turn a profit in 12 to 18 months—or even as few as six months. This flaw in the model most likely contributed to the rapid decline of the dot-com incubator.”  —  US Department of Commerce , 2011

Incubators have similar timeframes with corporate accelerators. While working with startups may imply faster growth, both accelerators and incubators start to create true value after they’ve had time to develop, generally within four to seven years. Incubators, in particular, are harder to quantify during their early stages. Compared to accelerators, the lack of time constraints and PR efforts limit short-term results. (We dive deeper into the time frame for these tools in our article on  corporate accelerator management .)

Combine this reality with the risks involved, and it can be difficult to get buy-in from the board. Corporate decisions are based on an annual schedule while, according to Dave McClure of 500 Startups,  startups live and die  within that period.

To secure buy-in, incubator leaders must think critically to align the implicit benefits of incubators with business goals.

Incubator Metrics and Kpis

The research is mixed when it comes to measuring the success of incubators, much of it claiming that past metrics and performance are either impossible to measure, or the studies suggest using varying metrics. The table below highlights some of the literature findings.

As evidenced by the past incubator studies, these tools are often studied through a policy lens. This is because the  majority of incubators are non-profits . While building local entrepreneurial ecosystems is good for the company in the long term, it’s not the best metric for selling these tools to corporate leadership.

Ayatse, Kwahar, and Iyortsuun’s 2017  review of existing incubator literature  found that there is no objective performance measure that can be applied across business incubators. Instead, firms and researchers must make up their own. Metrics identified during their research were the following:

  • venture capital funds
  • graduation from incubation program
  • firm survival
  • networking activity
  • innovative firms
  • organizational or firm growth
  • job creation
  • sales growth
  • profitability
  • patents registered
  • number of patents application
  • technology transfer
  • employment growth
  • technology growth or development
  • research and development productivity
  • ability to share knowledge and technology
  • high-tech employment.

The above bullet points can give incubator leaders some ideas for KPIs, but it is up to the individual organization to decide how to best serve business goals. For more on balancing business goals with startup engagement programs, see our article on  corporate accelerator management .

What Does Success Look Like for Corporate Incubator?

According to EY, studies show that approximately  90 percent of a company’s development efforts never result in commercialized products or services . This could imply that a successful incubator is nothing more than a random incident because there are few defined consistent metrics with which to measure or benchmark incubators.

Bakkali, Messeghem, and Sammut  suggest the balanced scorecard , developed by the Harvard Business School, as a particularly useful  tool to measure the success of incubators .

The balanced scorecard approach first determines what overall success of the company looks like (ROI, reputation for excellence, growth in market share, etc.) and derives measurable activities that reflect these goals. The activities are categorized by strategic focus, as seen in the diagram below.

business incubator revenue model

Image Source:  QuickScore , 2020

Bakkali, Messeghem, and Sammut (2013) explain that incubator managers insist on risk reduction because they focus excessively on short-term economic indicators. According to the authors, the balanced scorecard is fundamental to the learning process regarding incubator impacts.

What Does Success Look  Like for the Startup?

Incubators are proven to be beneficial for participating startups.  For instance, Eric Harwit, a Fulbright fellow, published a report in 2002 that found that 87 percent of firms that graduated from an incubator were still in business.

Hackett and Dilts (2004) offer more concrete metrics and define the outcome of the incubation process according to  five mutually exclusive outcome states  that are measured in terms of growth and financial performance at the time of incubatee graduation. These outcome states are the following:

  • The incubatee is surviving and growing profitably.
  • The incubatee is surviving and growing and is on a path toward profitability.
  • The incubatee is surviving but is not growing, not profitable, or is only marginally profitable.
  • Incubatee operations were terminated while still in the incubator, but losses were minimized.
  • Incubatee operations were terminated while still in the incubator, and the losses were large.

A white paper by the Aspen Institute and National Entrepreneurship Network of India (2013) provides in-depth information on the problems of measuring incubatee success. The paper discusses  exit factors as metrics  but emphasizes that what might be a successful exit for one incubator will be different for another. A high-growth technology start-up may consider raising a certain amount of capital as a successful factor for exit, whereas a medium growth start-up may consider positive cash flow and profits a successful factor for exit.

For this metric, the incubator would need to define its successful exit factors based on the type of start-ups that it would incubate. Other suggested exit factors are the following:

  • During a one to three-year incubation period—customers/user base, capital raised, product launched, valuation, revenue, jobs
  • At graduation after a one to three-year incubation period—revenue growth, valuations, jobs, total capital raised, social impact

What Does Success Look Like for Non-profit Incubators?

The goal of a non-profit incubator is to set up a robust entity that can sustain the creation of value in a local economy. Possible metrics include ongoing impact in the form of new entrepreneurs created, jobs created, and revenue to fuel local economies. According to the Aspen Institute and National Entrepreneurship Network of India (2013) white paper, however, these developments typically take between four to five years to mature and require a ifferent focus, resources, and outcomes along the way as the incubator progresses.

Over the long term, revenue and jobs are goals of an incubator but, according to the white paper, they may also be useful as active indicators to determine the immediate success of the startup.

Ultimately, tracking jobs, revenue, return on investment, and societal impact over a period of four to six years is ideal for measuring impact. This would include the period of incubation (1.5 to three years) and post-incubation (one to three years).

When comparing incubators, additional exogenous factors to consider are geographic location and the local economy—for example, the value of a company and the jobs it creates in a tier 1 town versus a tier 2 town—and the impact on the lives of the people in the community. The impact of a company in terms of education, livelihoods, and life expectancy might differ greatly depending on the location.

The Aspen Institute and National Entrepreneurship Network of India (2013) white paper outlines key challenges that incubators face to become successful—decision implications for partners, funders, and policymakers. Successfully implementing the right metrics and milestones would enable higher motivation, strong incentives, and the propagation of best practice knowledge for greater success of incubators as an industry.

However, classifying incubators and analyzing their metrics helps highlight some key challenges that must both be recognized and dealt with to ensure a higher chance of success.

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What Is an Incubator? A Complete Guide for Startups

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If you’re an entrepreneur looking to get your startup off the ground, you have probably heard the word “incubator” thrown around. More than just a buzzword, incubators can be a vital tool in a startup's rise to stardom. But what is an incubator in business and how does it work?

Startup incubators are specialized hubs that can help early-stage ventures and startups navigate some of the most challenging aspects of running a business.

By the end of this comprehensive guide, you will know all about the different types of incubators, how they can help your business, and how you can get your business into an incubator.

In this article:

How does a startup incubator work?

The pros and cons of a startup incubator.

  • What are the different types of startup incubators?

Could an incubator help my business?

  • What do incubators want from a business?

How can I get my business into an incubator?

Startup incubators are unique organizations that function as a springboard for early-stage businesses and startups with the goal of providing specialized tools needed for startups to grow and innovate.

The resources and services they offer can vary, but often include access to office space, mentorship opportunities, business education classes, and community networking events. The structure of an incubator is much like a corporate office space and can include mandatory meetings, strict deadlines, and even a direct supervisor.

The idea for incubators began just over 60 years ago in Batavia, New York. With a family-owned factory at his disposal, Joseph Mancuso, an emerging entrepreneur, saw an opportunity to help other like-minded individuals get their small businesses off the ground. From there, he began recruiting emerging enterprises to operate in the low-cost office space located in his massive factory.

Today, there are over 7,000 incubators across the world , according to the International Business Incubation Association. This means that there’s an incubator for every type of business in practically every corner of the globe. All you need to do is find one that fits your needs and apply.

Startup incubator examples

Incubators can come in all shapes and sizes and meet all types of different needs a particular startup may have. Whether you’re looking for seed funding, networking opportunities, or mentorship, there is a startup incubator that can help.

Some examples of incubators you may or may not be familiar with include:

  • Founder Institute is a global network that helps companies at every level, from startups at the idea stage to developed companies with a product and customer.
  • Entrepreneurs' Organization is a peer-to-peer network of founders and builders from more than 60 countries.
  • Harvard Innovation Labs is Harvard’s own entrepreneurial ecosystem of support for its students and alumni.
  • Endeavor is a global organization that focuses on businesses and startups in emerging and underserved economies.
  • LaunchVic’s The Good Incubator is a Melbourne-based nonprofit incubator helping people with disabilities create or grow their businesses.
  • Communitech Hyperdrive is a Canadian incubator focused on technology, with a network of 28 regional innovation hubs across the country.
  • MaRS is a Toronto-based hub that provides office space, advisory support, and even access to investors.
  • Plug and Play is a global platform that connects blue-chip companies with startups to promote innovation.
  • Station F is a Paris-based hub offering a number of perks, services, events and workshops.
  • Capital Factory is an Austin-based co-working and event space dedicated to entrepreneurs, providing local founders access to mentoring and accelerator programs.

Are incubators and accelerators the same?

While they have a lot in common, incubators and accelerators have some key differences to be aware of before committing to a program.

The primary differences between incubators and accelerators are:

  • Venture stage : Startup incubators generally cater to very early-stage businesses, often without a product or team. Accelerators, on the other hand, look for companies that are more built out. They generally require a business to have a minimum viable product and a team of their own.
  • Funding : Incubators come with a lot of perks, but they don't always invest directly into a business. For accelerators, however, seed funding is their bread and butter.
  • Time frame : Incubators offer fairly flexible timelines, typically ending only once a company has a product pitch ready for investors. Accelerators operate on a much shorter timeline. The entire goal of an accelerator is rapid growth and a fast turnaround on their investment in a company.

Did you know that only 51% of businesses survive past the fifth year ? That’s a pretty surprising statistic and can be a jarring realization for many ambitious entrepreneurs.

Businesses fail for a number of reasons. Whether they’re lacking funding, struggling to keep up with rising costs, or the managers lack the necessary experience, keeping the doors open can be a tricky feat. But this is exactly the kind of help startup incubators provide.

There are many benefits that come with joining a startup incubator, though there are some downsides as well. Let’s have a look.

the-pros-and-cons-of-a-business-incubator

What are the benefits of a startup incubator?

Startup incubators can provide startups with a number of valuable tools, from workspaces to seed funding and more.

Here is a quick look at some of the tools a startup incubator can provide and how they can help your business:

  • Office space can help small companies save on rent and create unique networking opportunities with other enterprises.
  • Seed funding can assist startups in tackling bigger goals and taking their businesses to the next level.
  • Mentors can guide owners and managers to become more confident and efficient leaders.
  • Equipment and software vouchers can provide some extra financial relief for tech startups in particular.

What are the downsides of a startup incubator?

While the benefits of startup incubators are plenty, there are some downsides to consider before committing to an incubator.

Top startup incubators can be extremely selective. Incubators can provide great financial benefits, so making sure their investments are going to pay off is a top priority.

It’s estimated that there are as many as 305 million startups created every year , while there are only 7,000 incubators. That means you’re going to have a lot of competition.

Some incubators may require a commitment of up to two years, or even until you have a product that is ready to launch.

When joining a startup incubator, you’re committing to more than just the perks — you’re committing to a culture and way of doing things with which your company may or may not align.

What are the types of startup incubators?

There are a number of different types of startup incubators all specializing in different fields, offering different perks, and with different funding models. Rest assured, however, knowing that no matter what kind of incubator you choose, they all have one common goal: to help you grow your business.

Whether you’re looking for a nonprofit organization or a VC-run incubator, it's important to understand what each type of incubator does and what they might expect from you to ensure you’re choosing the right hub for your project.

The most common categories for incubators include:

University startup incubators

Nonprofit startup incubators, corporate startup incubators.

Now, more than any other time in history, students no longer have to decide between pursuing higher education and kick-starting a business. University startup incubators (UBIs) can help with both.

University incubators are usually university- or student-run and can receive funding from donations or venture capital support. They may also invest in students’ projects and use the proceeds to fund new endeavors. These programs can provide pupils with all types of assistance and mentorship, from access to costly technology to logistical solutions.

UBIs provide students with an opportunity to chase their dreams in a financially secure and safe environment. These startup incubators are rethinking the businesses of the future.

One of the top academic incubators in the world, University of California, Berkeley’s Berkeley SkyDeck , offers students’ companies up to $200,000 after being accepted. It also provides support with logistics, customer development, and even marketing and advertising.

Some startups set out to change the world without taking a profit. For this reason, nonprofit startup incubators are just as valuable as other incubators.

Nonprofit incubators are programs and work spaces that cater exclusively to — you guessed it — nonprofit businesses. These incubators leverage their networks, know-how, and resources to provide nonprofit startups with the tools they need to grow and accomplish their goals.

Resources can include things like office space or technology, which can prove to be a major benefit for nonprofit businesses that often struggle to secure these costly tools.

An example of a top nonprofit startup incubator is MassChallenge , a global organization helping early-stage companies solve some of the world’s most pressing challenges. Their program covers industries such as health and financial tech, sustainable food, and even space commercialization, just to name a few.

Corporate incubators are typically in-house programs or independent business units built to curate and develop ideas within their own company. These incubators, like others, focus on early-stage ideas, sometimes with the goal of creating an entirely new business or product. Corporate startup incubators have the advantage of leveraging business assets to create brand-new revenue streams and create a hub for innovation within their own company, all while helping employees feel like they’re part of something bigger. One of the most notable corporate incubators is Google’s Area 120 —a radical idea built to help employees pursue their own radical ideas. Google’s in-house incubator features over 120 teams working on all kinds of projects, from AI customer support agents to a new tool that helps creators easily dub their content to expand their audience.

Starting a business is hard work and incubators come with a lot of perks, though it is important to remember that not all incubators are the same and not all businesses are a good fit for an incubator. Determining if an incubator is good for a startup can be a tricky task. Before diving headfirst into a time-consuming and competitive incubator application process, you may want to ask yourself a few questions:

  • Am I ready to give up equity in my business?
  • Does the incubator I’ve chosen align with my business’s core values?
  • Can I commit to a rigorous schedule set by someone else?
  • Do I really want to answer to someone else?

By asking yourself these questions, you make a more informed decision as to whether or not the perks of a startup incubator are worth the cost.

No first-time entrepreneur has the business network of contacts needed to succeed. An incubator should be well integrated into the local business community and have a steady source of contacts and introductions.

It should come as no surprise that the resources startup incubators provide are highly sought after, and that entry to a startup incubator is a complicated and competitive process. But that doesn’t mean you can’t be prepared.

Here are a few tips that can help you in your application process:

  • Explore your options . The world is a big place, and with over 7,000 incubators scattered across the globe, it’s worth checking out different options.
  • Find the right fit . Think about your goals and what exactly you’d like from an incubator. Every incubator is different and finding the right match is imperative.
  • Be aware of the required milestones . Incubators typically help individuals create something from the ground up, but that doesn’t mean you’re applying to a program empty-handed. You should have an idea of what milestones you hope to achieve and a time frame in which you plan to meet your goals.
  • Create a killer business plan . Doing a deep dive into your business, your value proposition, and your projections will help you better understand what you’re looking for from an incubator. Additionally, it will help an incubator better understand exactly why they should accept your business.
  • Brace yourself for a grueling application process . Patience is the name of the game when applying for a startup incubator. The interview can be exhausting and time-consuming, so it’s important to remember why you’re there in the first place.

Startup incubators are some of the most sought-after programs in the startup universe. They can help build a business from the ground up, offering a number of huge benefits, especially for early-stage ventures.

Deciding which startup incubator is best suited for your startup can be a difficult task, but now you’ve got a better understanding of some of the ins and outs of the process.

It’s on you to make the next move, but we’re here to help. Building a business is a daunting task, and your tech stack shouldn’t make it harder. Apply to HubSpot for Startups today and gain access to all the tools you need to increase leads, accelerate sales, and streamline your startup.

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Business incubators: A guide for startups

business incubator revenue model

Startups begin with an idea that founders can then formulate into a business plan. However, building and growing a viable business is difficult and requires help from others. To address this, entrepreneurs often look to incubators to help fill the gap between ideas and a real product.

Business Incubators: A Guide For Startups

To decide if a business incubator is right for you, let’s dive into what it is and how it helps startup development. The article also covers how to choose the best one for your startup needs.

What is a business incubator?

A business incubator is a workspace designed to give a startup company the resources it needs to succeed. The perks of a business incubator vary from each program, but it often includes mentorship and other professional services. The goal of a business incubator is to turn a promising idea into a developing startup with a strong chance of success.

What is the role of an incubator?

Business incubators are often sponsored by universities or non-profit organizations. Private ventures may also fund incubator programs. Startups can spend a few months or a few years in an incubator before they “graduate.”

Incubators play many roles in startup development. They aim to nurture early-stage companies into sustainable businesses. Incubators provide a range of support, depending on the program. They may help your startup company with:

  • Office space — Incubators are frequently housed in a shared workspace with other startups in the program. The office space and equipment are either included or offered at below-market rates. Utilities like internet services are also part of the incubator
  • Mentorship — One of the key benefits of an incubator is having top mentors available to you. They can provide guidance and share their expertise to help you navigate challenges
  • Education and training — Incubators offer workshops and other programs to help a startup develop the skills it needs to succeed
  • Access to investors — Some incubators may arrange pitch meetings with investors to help companies secure funding. Other incubators may offer funding in exchange for equity in the company. Some incubators are prestigious with a high reputation which can gain your company favor from investors
  • Networking — Incubators provide a space for startups to meet potential partners, mentors, and investors. Through networking, startups gain a wider network of support and potential business opportunities
  • Revenue growth — Achieving revenue growth is easier when your company participates in an incubator. It can lower overhead costs and help you connect with investors
  • Professional services — Many incubators provide professional services like legal counseling or accounting. These services can help your company get started on a positive note
  • Support from other entrepreneurs — Sharing your incubator experience with other startup companies means you can learn from each other. The inspiration may help you launch your company quicker and more smoothly

Why do startups need incubators?

As you begin to take the first steps to developing your business idea, you may wonder if applying for an incubator is the right choice. Your startup could indeed develop into a successful venture without an incubator. However, a business incubator can provide many opportunities that you wouldn’t get otherwise.

For starters, an incubator can provide tailored support for your startup. As your business plan evolves, your mentors are right there with you to provide guidance and structure. They can also provide advice on how to avoid common pitfalls in your industry. Mentorship is a valuable tool, and you shouldn’t overlook it.

What is the difference between incubators and accelerators?

Incubators and accelerators are often used interchangeably. To be fair, they both provide support to companies, but incubators and accelerators have different key characteristics. If you’re not sure if you should join an incubator or an accelerator, evaluate these factors:

  • Venture stage — If you have a minimal viable product (MVP) and a business model, then an accelerator is a better fit for you. If you have an idea and a detailed business plan, then an incubator is ideal
  • Founding team — Accelerators prefer a fully functioning team when evaluating companies. Meanwhile, an incubator is more willing to work with solo entrepreneurs or minimal team members
  • Funding and equity — Accelerators often provide funding in exchange for capital. Incubators are less likely to have this arrangement and charge a fee instead
  • Timeline — Accelerators are often intense programs that take a few months to complete. Incubators have longer timelines and it’s not uncommon for startups to stay for a couple of years or more. However, the timeline will vary from program to program
  • Application process — Both incubator and accelerator programs need proof that your idea or product has high potential. For an incubator, you’ll need a strong business plan. An accelerator application will need you to prove product-market fit and a developed business model

The biggest difference between an incubator and an accelerator is the venture stage. Incubators are more willing to work with early-stage startups, even if all they have is an idea and a business plan. Meanwhile, accelerators expect you to have an MVP and already be operational on some level.

Successful startups from incubators

Incubators often give startups the resources they need to succeed. Here are some examples of startups that went through an incubator and are successful today:

Don’t think you need a fully developed product and business model to have success. Popular startup program Y Combinator says on average, 40 percent of the companies it funds are just an idea.

How to choose the right incubator

There are many incubators available to startups. The International Business Innovation Association (INBIA) estimates that 1,400 incubators are running in the U.S.

It’s not hard to find an incubator, but it’s difficult to get accepted. Top-tier competitive programs can have an acceptance rate of 1-2 percent . For comparison, the Harvard University acceptance rate for the Class of 2027 is 3.4 percent.

Beyond creating a competitive application, a startup needs to choose an incubator that fits its needs. Not all incubator programs are alike, so it’s essential to evaluate a program’s value before applying. Here are a few things to consider:

  • Do extensive research — Make sure you have looked at an incubator’s resources, structure, and services. Is it what you need to succeed? If you are willing to relocate, you may also want to consider incubators in other areas. You’ll also want to consider the experience of the mentors and the weekly time commitment of the program
  • Consult alumni — No one knows the value of an incubator better than the alumni. You may want to consider contacting companies that the incubator has helped
  • Assemble your team — While incubators may consider a solo applicant, you may also want to consider finding a co-founder or other team members. It’s essential to prove to incubators that you have the skills necessary to build your idea
  • Prepare a pitch — Incubators want to know why you think you can succeed. Prepare a well-researched pitch that shows why you are different and how you are a match for the program

Key takeaways

Incubators are a valuable resource for startups with a developed idea that need guidance on what to do next. You don’t need an MVP to apply for an incubator, but you should prepare a strong business plan and a solid pitch. Your goal is to show that your idea has potential.

Choose an incubator that has the resources that are best fit for your needs. The lessons, personalized feedback, and networking opportunities are crucial for building your company.

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How startup incubators make money

  • April 2, 2019

Andrew Outhwaite has spent the last year travelling around our State assisting incubators and accelerators. All 90 of them. In his first solo post for //SN, he examines their varying business models…

This guide is for startups, sponsors, mentors and anyone working with or providing services to startups. Understanding what is a good incubator, how they measure their success and how they make money will mean you are intelligent and effective in your selection and working relationship.

There are now more than ninety different entities offering incubation services to startups in Western Australia.

Incubation is offered in the form of accelerators, mentoring programs at co-working spaces, university courses with academic credit, hackathons with prizes, hardware prototyping labs and pitch competitions. They include national programs targeting researchers , specific programs for social ventures , and free ideation workshops in the wheatbelt .

The number and size of incubators are growing too.

The Federal government has recently invested around $2 million across WA to grow these services, and the State government the same amount or more. This investment represents ten times the investment in any previous years in the past decade.

Before we dive into revenue , a few words on their costs .

The categories of costs are usually similar across incubators: rent, staff, expert facilitators and mentors, materials, marketing and other costs of sales, cash for prizes or equity, software platforms, travel.

The size and proportion of those costs are likely to be highly variable between them. A CBD-based accelerator that offers co-working, investment and overseas travel positioning itself as an global leader in its sector has very different costs to a half-day training program that ‘pops up’ encouraging people in rural areas to progress their nascent ideas. The differences in scale and proportion of revenue are just as significant.

Now, let’s break down the revenue models into four basic understandings, two categories and eight varieties within them. This should be enough for you to makes sense of the emerging incubator landscape..

We’ll start with four fundamental understandings:

1. Understand that running an incubator of any kind is, generally, incredibly marginal and challenging.

There are few harder ways to make money or remain viable than to provide highly-expert advice and world-class learning design to a large number of unknown individuals with untested ideas, no revenue, have variable commitment …and most of whom will fail.

Anyone who is offering incubation services is likely taking a far higher risk, with more significant commitment, and being more generous with their time than any of the entrepreneurs in the ventures they are serving. Remember this when dealing with them.

2. Most are – one way or another – trying to make money (and profit) from delivering the incubation program and provide broader benefits.

Profit is necessary for the services viability, sustainability and growth.

For some, profit is far less important than the public benefit: they may have some allocated or attracted funding to provide incubation services to make their town, sector, company, or state better, more innovative, more diverse or stronger. Those with public benefit may take a loss on program delivery, but that’s OK because their success metrics are not short-term nor monetary.

3. Most organisations offering incubation services have multiple revenue streams.

Universities, co-working spaces, chambers of commerce, government agencies and consultancies all do things other than incubate startups.

Some make money by directly selling the incubation services to startups, sponsors or others. Others may make money indirectly, meaning their incubation services generates leads or sales for other services. Having other revenue streams linked to their incubation services means they can take a loss on program delivery because it’s an investment.

4. Government grants aren’t recurring or sustainable revenue.

Some incubators attract government grants. Grants in this area are usually a co-investment in specific projects or limited aspects, with set timeframes, intend to achieve particular outcomes like reaching regional areas or lifting the quality of mentoring through bringing in international experts.

Grant funding is nearly always once-off, for only a year or two, and will need to be replaced by other revenue to sustain the reach and quality of the service. For this reason, the revenue models below does not include grants.

Now, on to how incubators specifically make money.

As you read this, try to get a sense of how the scope, motivation, time frames and focus of each will be different because of their revenue focus. This will help you understand and work effectively with different incubators.

Direct ways incubators earn revenue include:

a) Corporate, government or investor sponsorship.

A company, government or investors may pay for the incubator to run so they can be the first to see, invest in or access the startups and their ideas. They outsource their pipeline and hard work to a third party (the incubator), so they can focus on getting the benefits. Aspects of what Unearthed do are an example, and more so with Slingshot.

b) Profit from liquidity events by ventures in which they have equity.

The incubator, or usually in this case an accelerator, may be run by a VC firm who is seeking a return (ten times) on their investment later (ten years). For them, an accelerator is their pipeline and way to de-risk and filter their investments early. Plus Eight does this, as do Blue Chilli.

c) Participants paying for participation.

The incubator charges participants. Startups pay because the incubator can aggregate quality advisers, content and connections that would otherwise be too expensive or inaccessible to an individual. You pay to do Ignition , but scholarships are also available and the whole thing is subsidised.

d) Royalties from IP commercialisation or licencing.

Some incubators – often universities or research entities – take a percentage of earnings from the innovations they incubate. Such fees can pay off very well over the long term but are more relevant to deep technology innovations, requiring specific legal arrangements, lots of patience and cash reserves.

e) Industry groups, corporate alliances, or government agencies pay.

Sometimes groups or a sector want access to startups and innovations but don’t want to own or control the process; they want to access the market intelligence on what’s emerging or get solutions to their problems. Ministry of Data and Perth BioDesign are examples in WA.

There are many more variations within these and versions of ‘direct’ models, but those above give you a taste of it.

Indirect ways incubators can earn revenue include:

a) Selling more of other services to the startups.

Chances are if you have been through a program you will develop relationships and affiliations that make it attractive to rent a desk, office space, prototyping lab access or pay a membership fee to stay part of that network. Bloom attract members and coworkers through Launchpad.

b) Increasing density and attractiveness, so increase sales to others.

Even if the incubator doesn’t sell the incubated startup a desk or membership, the fact that they run programs for startups may increase their glow as a hub for innovation. For universities and corporates, positioning as ‘innovative’ helps attract clients, students, talented staff and researchers. The Web in Port Hedland has become a hub for more than startups, and Rise probably helps position KPMG.

c) Selling the lessons, talent and processes to others.

Those running the incubators see dozens or hundreds of startups, so can become very expert at advising them and others seeking help with their innovations. Whether it’s tools, templates, methods, books, consulting hours, professional services, grant writing or others, all those sales can make running an accelerator worthwhile.

Again, there are many variations on indirect models, but that’s some ideas to start with.

So, hopefully those understandings, the distinction between direct and indirect revenue, and the examples will help you select from and work effectively with startup incubators.

And, if you benefit from incubation, don’t forget to thank the hard working, risk-taking, entrepreneurial people and organisations providing the service!

Special thank you to Mark Phillips , Brad Twynham and Dan Smith who contribute to discussions of these models and distinctions.

Main photo : Andrew Outhwaite from We Are Arising, speaking at the Incubator Facilitator Forum. Photo Credit: Katie Bawden.

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Startup incubators, Startup incubator business model, Meaning of Startup Incubators, Startup business incubators, Ebizfiling

  • Posted On November 21, 2022
  • Posted By By Zarana Mehta
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Importance of a Startup Incubators

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Meaning of Startup incubators and Different types of Startup incubator business model

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Introduction

In the startup ecosystem, a startup incubator is a widespread and important term. With the number of startups growing at an exponential rate each year, incubators play an important role in assisting and guiding startup founders through this difficult journey. This article will answer all of your questions about the meaning of a startup incubator, different types of startup incubator business models, and the importance of a startup incubator.

Meaning of Startup Incubators

A startup incubator is a programme that assists early-stage or seed-stage startups in growing and sustaining themselves by providing them with the necessary space, equipment, and support. Incubators typically help startups in their early stages with little to no traction and make them more competitive when seeking venture capital.

Incubators typically provide startups with free office space, utilities, computers, equipment, and access to incubator services and events. They may also provide mentorship, business coaching, and other services, as well as the opportunity to network with people who can assist in the growth of their business. Some incubators are even linked to accelerators, which provide funding and other resources to help companies grow faster.

Furthermore, startups that enter an incubator maybe given preferential treatment when applying for venture capital funding. This is due to the fact that venture capital firms or angel investors frequently have connections with startup incubators.

The length of time a company spends in an incubation programme can vary greatly depending on a number of factors, including the type of business and the level of business expertise of the entrepreneur. Life science and other firms with lengthy R&D cycles require more time in an incubation programme than manufacturing or service firms that can immediately produce and market a product or service.

Incubator clients typically stay on a programme for 33 months. Many incubation programmes establish graduation requirements based on development benchmarks such as company revenues or staffing levels, as well as other credible parameters for determining whether a candidate is worth investing in.

  • Creating jobs and wealth, as well as encouraging talented individuals to launch their own businesses
  • Developing a work ethic and entrepreneurial culture in a community or country
  • Commercialization of technology and other forms of rapid innovation
  • Developing or accelerating the expansion of local industry clusters
  • Business creation, retention, and ongoing assistance
  • Encouragement of female or minority entrepreneurship
  • Identifying potential business opportunities for spin-in or spin-out
  • Community revitalization and easy access to capital

Types of Startup incubator business model

While all incubators strive to help startups in their early stages, they are classified into the following types:

For-profit development organizations

Some companies create incubator services in order to profit while assisting startups or creating an investment opportunity for themselves. They typically make investments or provide funding to startups in exchange for equity.

Non-profit organizations

The most well-known incubators are non-profit organizations run by academic institutions, NPOs , government agencies, and other organizations to assist young students or economic development in society.

Advantages of Startup incubator business model

Learn and grow

The best business incubators provide you with access to a network of mentors, coaches, and educational programming focused on business innovation. Entrepreneurs, accountants, human resource professionals, angel investors, lawyers, researchers, and others may serve as mentors.

Help in providing structure environment

Incubators provide a structured environment in which you can immerse yourself in your work. You can establish good work habits to get your business off the ground, whether you have daily workshops or scheduled work time.

Helps in accumulate funds for business

An incubator can put you in touch with venture capitalists who maybe interested in funding your ideas. Acceptance into a reputable programme can impress investors while also demonstrating your abilities and drive.

It is critical to have a solid idea of what you’re going to do, an explanation of how you’re going to do it better than competitors or other prospective entrants, and a clear vision of how you’re going to grow when starting a business, but this is not enough without a very clear and written plan for yourself and others detailing how your vision will become a reality.

As investors read through hundreds of business plans, your idea must stand out. It must be innovative and creative, it must be solidly supported by good research, it must conform to reality and not include unrealistic expectations, and it must outline a clear path of how you intend to achieve your goals and provide a good return on investment. If all of these conditions are met, many investors today are ready, willing, and able to provide you with all of the funds, consulting advice , and other services and support that you require.

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Developing innovative business models and sustainable revenue streams

On June 29th Frontier Incubators hosted their second event in a series of webinars, which aim to connect leaders from global accelerator and incubator programs with program managers who are seeking to serve entrepreneurs in the Asia-Pacific. This webinar explored the appropriateness of equity models for financing accelerators, the role of corporate sponsorship, and techniques for raising grant funds for incubator programs. Read on below for six key insights from the discussion from global leaders Fledge, Miller Center for Social Entrepreneurship, and Villgro.

Key insights and strategies for sustainable revenue streams

1. when working in a context where there is little track record of exits, pure equity models will not sustain your accelerator..

The webinar opened with a discussion of when it is appropriate or beneficial to apply an equity model in the financing of accelerators. Luni from  Fledge  highlighted the difference between revenue based equity models and revenue share agreements, and outlined that benefits of the former financing strategy for their own accelerator, which operates globally across many different economic contexts. Luni explained, “we don’t believe that the highest purpose of starting a company is to exit.”

A  revenue based equity  model is where the incubator invests money, let’s say $100K for example for 5% equity, and is paid back via 4% of the revenue of the company being used to buy back the equity stake of the incubator until there is a 2X repayment of $200K. At the end of this process the incubator makes back the investment that they made into the company and the company has a clean balance sheet when it goes for additional investment.

business incubator revenue model

2. Hardware and product companies require too much reinvestment for revenue share agreements to work well — but service based businesses are well suited to this model.

Paul from  Villgro  explained that in the case of early-stage and prototype tech companies, revenue share agreements can be an appropriate model, but for investment in new products the process requires a different strategy. He described that when following the “long road” of hardware development, launch, and reinvestment, “waiting for a revenue share payout for 5–6 years does not make sense.” ( Click to tweet ) A  revenue share  model is one where the incubator receives 0.5%-2% of the revenue of a company for a set period of time. There is no equity exchanged in this model.

Pamela from  Miller Center  offered an alternative lens for viewing the relationship between equity and investor, and offered insight into the “Variable Payment Obligation/Venture Debt” model, innovated by her colleague John Kohler. Pamela explained “we are working with for-profits and not-for-profits who are all serving the poor. Everyone cares deeply about the communities they work in, some of them are family run businesses, so the idea of selling out to another organisation is anathema to them.” ( Click to tweet ). The  Variable Payment Obligation  is a combination of debt and equity. The key difference is that it is Free Cash Flow dependent. This means that if the company does not have enough cash in the bank, they do not make the payment on the debt that month. This is put in place to avoid the scenario where a company ends up going out of business to repay its loan obligations.

business incubator revenue model

3. Corporate sponsorships are not quick fixes — they require years of investment in building relationships.

As Pamela succinctly described, corporate sponsorship dollars are “not short-term wins.” Corporate Social Responsibility (CSR) departments were viewed as having robust potential, but required long-term investment to ensure alignment between the corporation and social entrepreneurs in the accelerator/incubator program. Ragini from Villgro echoed this sentiment, and emphasised the need to examine the synergy between the corporation and entrepreneurs. Ragini explained how successful CSR partnerships provide corporations “access to the startup community and people doing the work.”

business incubator revenue model

4. Private foundations can act with the speed and commitment that aligns well with fledgling accelerators and incubators.

Paul outlined three types of grant makers that Villgro work with:

  • Private foundations
  • Governments funding rural development
  • Corporate foundations

Paul emphasized the agility with which private foundations can respond to the needs of emerging accelerators and incubators. Paul championed the role of private foundations, and celebrated their capacity to engage in multi-year commitments. He explained, “private foundations — we love them!”

5. To support building deeper relationships with funders, find a pathway to build relationships with their board of directors — and engage those leaders to visit your program.

Both Ragini and Paul highlighted the importance of fostering relationships between funders and the programs they are supporting. Paul outlined the benefits of working with private-funders where connections with boards, rather than just program officers, was a tangible goal. He acknowledged the positive impact of “getting the opportunity to present to the boards. Getting them to come in country and spend time with your companies.” Similarly, in the context of corporate sponsorship, Ragini explained that the success of these relationships is predicated on consistent engagement including “seeing some of their team come in and contribute in the corporate sector/space.”

Pamela also highlighted a shift in the Miller Center’s model, where the organisation has begun to “partner with corporations to align with their business objectives.” She describes, “we are talking to high net worth individuals who understand that entrepreneurship is a path out of poverty and to mitigate climate change.”

6. If you are seeking to work with government, it can help to partner with a larger organisation who manages the contract and to provide support as a subcontractor.

The complexities of working with government was highlighted in the discussion, but these relationships were also acknowledged as offering rich rewards. Paul offered a roadmap for maximising the benefits of government funding: “you need to be patient, and stand patiently for the bureaucracy and plan ahead of time for the reporting — since that is so critical to the relationship.”

Pamela identified the opportunities for smaller more flexible bodies to partner with a larger organisations to share resources, particularly in relation to resouring the reporting on projects. She emphasised how it “can help to partner with someone who has the infrastructure to support that reporting process.” This sentiment was echoed by Luni, who identified how new opportunities emerged from partnerships, and highlighted the importance of developing and maintaining relationships with a variety of different organisations — including universities and foundations.

We hope the webinar series has sparked your interest in Frontier Incubators program.

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Incubators, Accelerators, Venturing, and More

Related Expertise: Innovation Strategy and Delivery

Incubators, Accelerators, Venturing, and More

January 25, 2017  By  Michael Brigl ,  Alexander Roos ,  Florian Schmieg , and  Drake Watten

Most corporate-executive suites are packed with all manner of state-of-the-art technology. But one low-tech instrument is in demand in nearly all of them: a periscope. Not a literal one, perhaps, but CEOs would no doubt welcome the ability to see around corners and spot the approaching forces that could disrupt their businesses or give them an innovation advantage over their peers. In this report, The Boston Consulting Group takes a close look at tools already in use at some of the corporate world’s innovation leaders to identify and explore new pathways to growth, including business incubators and accelerators, corporate venture investing, and strategic partnerships. Drawing on our extensive experience in the field, we offer insights into their most effective applications and describe how they can best be used in concert for maximum strategic advantage.

Innovation is high on most CEOs’ agendas—some 77 percent of those we surveyed in 2013 said it was their top strategic priority or one of their top three priorities. (See “Looking Back at Lessons from Leaders: The Most Innovative Companies 2013 .”) Corporate leaders are urgently concerned about innovation for one simple reason: growth through innovation is the surest, straightest route to superior performance. In the Americas, for example, innovative companies generate three-year total shareholder return premiums of 6.7 percent over their industry peers; the ten-year premium is 2.9 percent. The spread is even wider in Asia, where innovators enjoy a 14 percent three-year premium and a 6.9 percent ten-year premium over their peers. (See Exhibit 1.)

LOOKING BACK AT "LESSONS FROM LEADERS: THE MOST INNOVATIVE COMPANIES 2013"

 The aim of BCG’s report Lessons from Leaders: The Most Innovative Companies 2013 was straightforward: to identify and analyze what gives successful innovators their edge in performance, growth, and shareholder returns. After extensive analysis and interviews with the leaders of innovative companies, we identified five key success factors that differentiate the most innovative organizations from the rest of the pack:

  • The Commitment of Senior Management. The report cites examples of CEOs and other corporate leaders who spearheaded their companies’ innovation efforts, instituting “fundamental changes in corporate culture, systems, and practices” in order to promote innovation throughout the organization.
  • The Ability to Leverage Intellectual Property (IP). The most innovative companies do more than defend their most valuable ideas. They use their IP to establish competitive advantage, regularly culling their patent portfolios, structuring their organizations in order to incorporate IP considerations at every step of the product development process, and generating incremental revenues by selling and licensing IP.
  • Strong Management of the IP Portfolio. The most consistent innovators actively manage their mix of incremental and “new to the world” innovations and have in place rigorous processes for identifying and promoting high-potential projects—and for halting them if and when their promise fades.
  • A Customer Focus. The most highly regarded innovators recognize that innovation does not occur in a vacuum. They constantly interact with their customers. This helps ensure demand for their products at the time of market entry, deepens their relationship with their customers, and prevents them from overspecifying or overengineering products beyond what customers need or are willing to pay.
  • Well-Defined and Well-Governed Processes. The most consistently successful innovators have strong processes for reviewing projects in development and ensuring their timely completion. They use transparent criteria as the basis for decisions; draw clear distinctions among governance, portfolio management, and project management; and recognize the importance of being effective along all three dimensions.

Not every company that embodies the five attributes just described will enjoy a long run as a leading innovator. But such organizations are the ones that are most likely to ingrain innovation as part of their corporate makeup. There is no surer formula for lasting advantage, sustained growth, and corporate longevity.

business incubator revenue model

Those premiums reflect the centrality of innovation in today’s environment. In search of game-changing new ideas, many companies are broadening their quest for growth-driving innovation beyond their internal R&D efforts and M&A activities. These additional activities and tools can yield sizable strategic and financial benefits and expose companies to a wider range of new ideas than they could generate internally.

An Inventory of the Innovator’s Tool Kit

Used in concert, the innovation discovery tools that we identified enable companies to take a holistic view of growth that encompasses core, adjacent, and noncore activities; that accommodates diverse methods of collaboration and start-up support; and that allows for different rates of development in different spheres. (See Exhibit 2.) Some forward-looking companies are already using all or some of this suite of tools to gain an edge in today’s hypercompetitive environment. Energy companies are experimenting with new business models in the new renewable-energy field. Automotive companies are expanding their product portfolios and broadening their ecosystems through investments in mobility systems and new financing models. Pharmaceutical companies are branching into new business areas such as nutrition products. In each case, companies are leveraging their business-incubation, venturing, and partnership activities to widen their search fields and find innovations in corners of the business world that they had not previously explored.

business incubator revenue model

When correctly applied, these tools enable companies to engage with other organizations in various stages of development, from start-ups still in product development to companies in their early growth stages to mature enterprises. They also enable companies to commit to a range of time horizons with varying levels of financial investment.

Below, we analyze each innovation tool and describe how innovation leaders in six industries—automotive, chemical, consumer goods, media and publishing, technology, and telecommunications—apply them to maximize their innovation capabilities. (See Exhibit 3.)

business incubator revenue model

Catch Early-Stage Innovation with Incubators and Accelerators

In the quest for innovation, many companies have recently raised their game by means of incubators and accelerators. These tools allow them to engage with early-stage start-ups either over a relatively lengthy period of intensive business development or through a shorter-term structured curriculum. In this respect, they differ from venture investing, which focuses on more mature start-ups, and from strategic partnerships, which facilitate the rapid introduction of new products or services leveraging mature technology.

Incubators enable companies to support and collaborate with a handful of promising start-ups for as long as three years. Sponsoring companies make equity investments of as much as 25 percent and afford the start-ups access to corporate resources and facilities. The start-ups selected for incubation have significant interactions with their corporate sponsor, at both the corporate and business-unit levels.

Accelerators, in contrast, enable rapid screening of a large number of start-ups focused on a particular technology or region. Support takes the form of a structured business-development curriculum for a fixed term (typically, three months). The start-ups invited to participate in the accelerator are usually on the verge of launching revenue-generating activities, and the corporate sponsor promotes their development by granting them access to office space, technical support, high-quality mentoring, networks of other start-ups, and funding sources. In return, the company gains early access to promising ideas and companies. The corporate sponsor typically makes no equity investment in the start-ups, and interaction at the corporate and business-unit level is limited. Some companies, though, will take small equity stakes (5 percent or less) to lock in access to an especially promising venture.

How Companies Are Using Incubators and Accelerators

BCG analyzed the top 30 companies (as measured by market value) in each of the six innovation-intensive industries singled out for close study. (See Exhibit 4.) We found them to be among the early adopters of both tools, with 19 of the 180 companies establishing incubators or accelerators in 2013 alone. In all six industries, 43 percent of the top 10 companies have established incubators or accelerators, compared with 23 percent of the top 30.

business incubator revenue model

Many of these companies have opted to locate their incubators and accelerators in one of four widely recognized innovation hot spots: Silicon Valley, Berlin, London, and Tel Aviv.

Others, though, concentrate their incubation and acceleration activities near their corporate R&D units or near or within certain target markets. This strategy is especially common among telecommunications, publishing, and technology companies, although some players in those industries prefer the big-four innovation hot spots.

Companies focus their search for innovation on different industries and targets, in alignment with their overall business strategies. Although telecommunications, technology, and media and publishing companies target and invest in a wide range of start-up companies, for example, automotive companies generally restrict their searches and investments to mobile solutions and innovative transportation support. (See Exhibit 5.) E-commerce and media and publishing start-ups draw investment funding from telecommunications, technology, media and publishing, and consumer goods companies, whereas telecommunications players dominate the field of home automation and security.

business incubator revenue model

Chemical companies are a case apart. In general, they favor incubators over accelerators, because the time horizons associated with incubation align more naturally with the industry’s long and costly product-development cycles. Most chemical companies locate their incubators near their own R&D infrastructure to facilitate access to corporate labs and testing facilities. When a start-up in the incubator develops a marketable product or service, the corporate sponsor usually steps in to provide the resources needed to scale up.

Which Tool? It Depends on the Need

Analysis of companies active in accelerators and incubators shows that they generally employ one of two models, referred to here as the tight-focus and wide-angle models. (See Exhibit 6.)

business incubator revenue model

The tight-focus model is designed to strengthen the core business of the company sponsoring the incubator or accelerator. Often targeting innovations in business adjacencies as well as the core itself, the incubator or accelerator is located in physical proximity to corporate R&D facilities to promote cooperation between the R&D and incubation units.

Most companies that follow the tight-focus model opt for incubators rather than accelerators because the comparatively large equity investments involved in incubation promote especially close cooperation between the sponsoring company and the selected start-ups. The tight-focus model is employed by automotive, chemical, and some consumer goods companies because their competitive environments demand that they continually come up with better versions of their core products.

Accelerators, in contrast, emphasize the transfer of expertise and best practices, rather than cash, to promote business development. Companies that are seeking innovation of any kind, regardless of its proximity to the core business, generally opt for this tool and follow the wide-angle model, which is designed to capture new thinking across a broad spread of domains, especially mobile solutions, IT, and Internet-based solutions. To give themselves access to a variety of innovations in a short amount of time, companies generally locate their incubators in one of the four start-up hot spots. Technology, media and publishing, telecommunications, and some consumer goods companies often employ the wide-angle model because their industries are fast-changing, and disruption can come from virtually any direction. They therefore cast as wide a net as possible.

Companies need to keep several success factors firmly in mind when setting up a business incubator or accelerator. As with any large-scale corporate initiative, such programs need senior leadership’s visible, active backing and continuing engagement. The objectives of incubation and acceleration programs should be fully and clearly defined and documented, as should the company’s path to harvesting and commercializing outside innovation.

Strengthen the Corporate Core with Venture Investing

The most promising alumni of an incubator or accelerator are often targeted for investment by the sponsoring company’s venture-capital unit. Such units are typically the cornerstone of any corporate effort to access outside innovation. Of the 42 companies in our analytical sample that have formal business-incubation programs, 39 also have corporate venture-capital units. In most cases, companies first develop venture units, then proceed to build from there, installing incubation or acceleration units to complement their venturing activities.

In recent years, many companies have turned to venture investing to locate and acquire innovation in areas adjacent to their core businesses. (See “Looking Back at Corporate Venture Capital: Avoid the Risk, Miss the Rewards .”) Today, almost 50 percent of the top 30 companies (as measured by market capitalization) in our sample of six innovation-driven industries are actively engaged in venture investing, and companies in industries across the board have stepped up their investing markedly or entered the arena for the first time.

LOOKING BACK AT "CORPORATE VENTURE CAPITAL: AVOID THE RISK, MISS THE REWARDS"

BCG’s 2012 publication Corporate Venture Capital: Avoid the Risk, Miss the Rewards made the case that venture investing, once the fringe activity of a handful of players in a few industries, has taken root across the corporate landscape. In industries with a long history of venture investing, such as pharmaceuticals, telecommunications, and technology, more than half of the 30 largest companies have venture-investing units in place.

Once prone to boom-and-bust cycles, corporate venture units are lasting longer, investing more, and, increasingly, co-investing across industry lines. Recognizing the competitive advantage that innovation confers—and wary of missing out on a disruptive innovation that could render their current business models obsolete—companies are establishing venture business units at an ever-accelerating clip, and industries that formerly ignored the venture-investing world are jumping into the game and scrambling to catch up.

Industrial companies, for example, are spreading their investments widely but maintaining a strong focus on related industries, committing capital to clean technology, information technology, and health care. Increasingly, their investments, once largely confined to the U.S., are heading offshore.

The report identifies the ground rules followed by the most successful corporate venture operations:

They have the full backing of senior corporate management, which is actively involved in designing the venture unit, formulating investment strategy, and implementing processes to capture the full strategic and financial value of their investments.

The strategies of the venture units are tightly aligned with the parent company’s overall business and innovation strategy, and ideas gleaned from venture investments flow by well-marked routes into the larger corporate innovation pipeline.

Exemplary corporate venturing units also have clear and consistent investment parameters, with well-defined search fields and risk tolerances, and they accept the occasional failed investment as inevitable.

Most of all, the best corporate venture units, as well as the leaders who guide them, understand that greater than the risk of failure is the risk of not investing at all.

The objectives of corporate venture investing have shifted in recent years. As companies have gained venturing experience and sophistication, best-in-class venturing units have concentrated on accelerating the growth of their start-ups and their own business units. Following from this change in focus, best-in-class venture units now establish clear guidelines that spell out the strategic needs of the business units and align venture search fields and targets with those needs. The search fields focus on areas where one or more of the business units can offer a start-up a competitive edge and a value creation plan.

That plan follows a clearly delineated logic, typically centered on one of four value- creation models that vary with the maturity of the start-up:

  • Under the first model, the start-up and venture capital unit jointly establish proof of concept. That entails testing and confirming not just the technical feasibility of producing a product but also the ability to create a robust supply chain and to recover capital investments, among other considerations.
  • The second model involves the development of a robust business plan. The corporate investor trains a business lens on a start-up’s technology or product and identifies a sustainable business model to monetize it.
  • Under the third model, the venture investment creates value by accelerating or deepening a start-up’s market penetration. The investment speeds product development by reducing production time and cost while improving quality.
  • The fourth model creates value by accelerating the commercialization of a product or products through, for example, supplier agreements with the host business units of the corporate investor. The objective of the investment is to increase the speed and depth of the market penetration of the start-up’s products.

Whatever the underlying model, the company needs to ensure that the value of the partnership is clear to the start-up and that the right people are involved at the right time in the process. It’s equally important to track business milestones through rigorous KPI reporting and to ensure transparency through regular internal and external communication with the start-up and within the company.

Strategic Partnerships Answer the Need for Speed

Companies seeking short-term product development, commercialization, and rollout of outside innovations typically opt for strategic partnerships with already established start-up companies. The typical strategic partnership involves creating a new legal entity to hold the partnership’s assets and oversee operations. The corporate partner’s typical investment is in the $10 million to $50 million range, usually financed with some combination of equity and debt. In some cases, the deal is funded by external investment. The start-up partner is usually a late-stage, revenue-generating company.

Because financial rather than strategic concerns motivate most partnerships, companies entering into these arrangements should clearly define their financial expectations, such as 12- to 18-month revenue goals, return-on-capital benchmarks, and a firm timetable for recovery of all invested capital.

A growing number of large companies are forming strategic partnerships to close knowledge gaps and drive value creation for both partners. Such arrangements enable companies to leverage the assets of other companies in order to drive near-term commercial growth. Through partnerships, companies can address new customer populations, expand the market for existing or contemplated products, share distribution or sales channels, and fine-tune new business models.

When executed effectively, strategic partnerships enable each partner to expand or more deeply penetrate its market with products or services that complement its own product portfolio, without having to invest in noncore activities. Partnerships are especially valuable to companies seeking quick entry to a particular market or business line because of technological disruption, new market entrants, or aggressive moves by competitors.

Appropriate governance structures are crucial to any partnership’s success. The deal should spell out in detail the roles, responsibilities, and obligations of each partner and identify the business units on each side that will be accountable for the partnership’s operations and results. Partners are typically active owners, governing through either majority control or, in the case of minority shareholders, a board seat. Exit transactions usually involve either public offerings of shares in the partnership or the buyout of one partner and the subsequent integration of the partnership’s financial results into the acquirer’s books.

Several factors are key to the success of strategic partnerships. Most activities should take place at the business unit level, with one unit driving the choice of partner and taking responsibility for the partnership’s performance. Business unit leaders should be able to clearly articulate how the partnership will generate a tangible benefit—in the form of improved customer satisfaction, new-customer adoption, or higher revenues—within one year. And the deal should grant the company exclusive access to the partner’s product or service for a period long enough to give it a competitive advantage.

Fine-Tuning Performance

Five success factors distinguish high-functioning suites of innovation discovery tools from less effective ones:

  • Close strategic alignment with the company and relevant business unit
  • True partnership between newer innovation tools and corporate R&D, M&A, and individual business units
  • Strong company backing in good times and bad
  • Effective organization design
  • Effective leadership and the right mix of personnel

Strategic Alignment

We have observed that the design and use of innovation tools at best-in-class companies are closely aligned with overall corporate and business-unit strategy. This alignment is apparent in the goals of the innovation search and the fields on which the search is focused. Thus, if the company is seeking outside innovation close to the core over the medium term, venture investments are probably the most suitable tool. If it seeks a specific product or technology that is still under development, an incubator (using the tight-focus model) is likely the best tool for the job. If it’s looking to take the pulse of the entrepreneurial sector, an accelerator can provide a relatively rapid overview. And if it needs to roll out a specific product or service within a narrow window of opportunity (whether to harness a potentially disruptive force or to recover ground lost to rivals), partnerships are the most suitable tool.

Companies should also assess which innovation support capabilities they should build up in-house and which they should “rent”—for example, by partnering with an existing accelerator program. The further the innovation is from the corporate core, the more carefully the company needs to consider whether its capabilities and culture can successfully support activities that require a significant investment in expertise, management time, and oversight. The full suite of innovation tools is not always needed. Instead, companies should carefully assess each tool’s relevance to their business and its capacity to contribute to strategic goals.

True Partnership Between Internal and External Innovation Centers

A culture of cooperation, rather than rivalry, should characterize relations among the R&D department, business units, and external innovation centers . Companies should foster regular communication and close cooperation among units and put in place incentives that encourage collaboration. Managing the interfaces between various departments and making individual managers accountable for each start-up relationship will be critical to success.

Strong Company Backing

Leading innovators recognize the importance of providing their innovation-focused units with robust backing. They are quick to offer marketing assistance, scaling expertise, management skills, sourcing advantages, and physical infrastructure to the start-ups they are nurturing, viewing the deployment of these resources as vital investments in the development of new business models. Support comes straight from the top—CEOs make it a key topic, modeling the behavior they expect from the rest of the organization and structuring innovation support activities to reflect their importance.

Effective Organization Design

In our research and experience with innovation efforts, we have found that a company’s strategy or innovation unit is often the most logical home for its innovation-support activities. At the same time, though, we find no correlation between any one specific organization setup and successful innovation. Organization design should be customized to suit the company’s particular innovation needs and capabilities and each department’s readiness to take on innovation support tasks.

Effective Leadership

Companies should assemble their innovation-leadership team carefully, choosing executives who combine an entrepreneurial mind-set with a deep understanding of the company’s culture and structure. Their ability to operate comfortably and productively in both the start-up’s and the sponsoring company’s environments enables them to serve as an effective conduit between the company, its investment targets, and the wider world of start-ups and early-stage ventures.

Climb Aboard the Innovation Train—or Wind Up Under It

In our 2012 report on corporate venture investing, Corporate Venture Capital: Avoid the Risk, Miss the Rewards , we addressed the inherent risk of venture investing and innovation support in general, concluding that the greater risk was not to invest at all. Our work since then has only strengthened that conviction. Surveying the landscape of corporate innovation activities, we find that in one industry after another, the leading innovators are stepping up their efforts, as can be seen in the rapid proliferation of incubators and accelerators in 2013. A handful of companies have assembled nearly a full suite of innovation tools and restructured their internal R&D departments to maximize their efficiency. Some leading companies, for example, have set up small, agile, high-performing project teams, reporting directly to the CEO, to work on “tentpole” projects.

As the innovation leaders step up and fine-tune their activities, the distance between them and their slower-moving rivals is widening. The seeds they sowed in 2013 will soon begin to bear fruit, increasing their lead on the competition. The wider their lead, the greater will be the appeal of these leaders to innovation-minded researchers and entrepreneurs, and the better will they be able to recruit key talent from the ranks of innovators with which they are in contact.

If emerging competitors are threatening parts of your business, if technology or regulations are reshaping your company’s value chain, or if your competitors are experimenting with new innovation tools, inaction is not an option. Rather than enter the field simply to keep up with corporate fashion, however, companies should carefully consider the kind of innovation they wish to source and match it with the appropriate innovation strategy and tool. That requires companies to clearly define their innovation goals. Each company will have unique and specific needs and should design its innovation suite with those in mind.

That exercise cannot start soon enough. The train is leaving the station, and companies that don’t climb aboard will miss out on the growth that these innovation tools can unleash.

Acknowledgment

The authors wish to acknowledge the valuable contribution of Global Corporate Venturing and its editor, James Mawson, who made available to us GCV’s extensive databases of corporate venture-capital units and deals. You may contact him by e-mail at [email protected] .

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How Do Business Incubators Make Money | 6 Ways Incubators Make Money

How Do Business Incubators Make Money

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Startups can earn millions, but only if handled well. Business is a game of mind and luck; however, assisting the growth of startup incubators plays an essential role on a larger scale.

Incubators provide various services such as training, support, and advice. They also offer the opportunity to solve problems involved in startup companies. As an essential part of the startup process, incubators should be able to string along with their startups without help from external sources.

Furthermore, they should have the ability to offer best practices for startups so that their employees can develop into successful and innovative individuals.

So, we are here to provide in-depth detail on the role of the Incubator, its importance, its types, and how business incubators make money? 

How Do Business Incubators Make Money

How Do Business Incubators Make Money

There are five basic ways of making money through business incubators;

  • Large companies desire to associate themselves with innovative corporations to be a part of their marketing plans and mission. Large companies pay an annual amount to attain these incubation services. Some innovative companies even charge startups for associating their incubation.
  • Incubators can provide incredible returns; making money is challenging, yet expert advice eases the path of earning . For unknown startups, there is a world-class plan. The Incubator’s mission is to educate the startup to make 
  • Achieving. 
  • Universities and co-working departments do several kinds of activities. Some directly sell the incubation faculty to startups to make money ; however, this is also sold to sponsors. The business that provides incubation services has several revenue resources. 
  • How do business incubators make money through Government Funding? The government grants are not for the long term, and it’s not a recurring source of revenue. The incubators accept government funding as grants in a specific field and, on the other hand, use the funding as a co-investment in various aspects of projects. Incubators may achieve goals by bringing the foreign experts and grant money.
  • Fundraising for better later returns is an extensive earning source for incubators. Owning a percentage of the company through raised money eventually returns a profit.

Types of Incubators

Types of Incubators

The incubation types vary according to their roles and business strategies. There are several incubators. Some of the famous ones are;

Virtual Business Incubator

The virtual business incubator is one of the most trusted and old incubator models. After the innovation of the dot com bubble, the virtual business incubator was introduced.

This model allows companies to receive advice o phone calls without any physical involvement at the shop. The new model of this virtual Incubator has benefited the entrepreneurs and related small business people to get advice about their startups . 

Start-Up Studio

The Startup Studio is a business incubator with interacting portfolios of companies. This model is also known as a startup factory. These incubators strive to build up multiple companies in succession by forming long-term relationships with the founders, and innovators in specific industries and disciplines.

The model of this Incubator is also known as “Parallel Entrepreneurship.” The startup studio trend was popular in 2008 and continued to blossom. Now there are more than 65 studios around the world. The venture builder incubator is the same as a startup studio; however, it builds companies internally. 

Kitchen Incubator

It is the only Incubator that is focusing on the food industry. Exceptional food always takes time and money to produce. On average, the food entrepreneur has to invest a lot of money before making the product; therefore, they do not make a profit for some time. 

The kitchen incubator plays an essential role in educating the culinary entrepreneurs to make good sales and market the product. These incubators also have opportunities for entrepreneurs to manage all their stuff in low-space kitchens. 

Public Incubator

An incubator that focuses on public good is known as a public incubator. These incubators are also called social incubators. Social incubators act similar to all the incubators; they provide special entrepreneur tools required to expand the business.

Some businesses avoid their social responsibility while others, such as charities, must have the ability to do more business to survive.

Medical Incubator

The Incubator provides medical services and biomaterials. These incubators play a role in giving good advice to medical startups. The type of Incubator is ideal for enhancing innovation and entrepreneurship in the medical field.

Seed Accelerator 

The seedling incubators concentrate mostly on early-stage businesses. Seed incubation, sometimes referred to as seed acceleration, are cohort-based initiatives with paid mentoring.

The typical incubation, which is frequently government-supported and publicly sponsored, concentrates on a broad range of businesses. Seed incubators are very expensive and available to anybody.

What Kind of Help does Incubator provide?

Incubators offer diversity in several resources and kinds of assistance. You need to make sure you select an incubator that is according to your startup’s needs. The Incubator helps to solve your business problems and grow your business with strategy and planning. The incubators try to make you successful because they will get their return profit when you earn.

The thing that separates an incubation program from research and other technology facilities is that the incubation program includes business assistance services and focuses on the health of the startup. 

Read also – Start an Online Clothing Business .

Frequently Asked Questions

How much does it cost to start a business incubator.

According to the models of Palo Alto, Montreal, Toronto, and New York, we have concluded a particular assumption of business incubators’ cost. 

If you have invested 20k in 10 startups with an assumed post-money of 2.2M, this means that you own 9.1% in 10 Startups with a monetary valuation of $220k.

So, if we are planning to deploy $200k, it must provide approximately $100k in services for the basic startup. 

The fully estimated cost, including the additional food and event costs, is $340,000/cohort.

How are business incubators funded?

The incubators are usually funded through direct socialization with angel investors, venture capitalists, and other related investors. The incubators mainly concentrate on early-age startups and business programs.

They work on a fee basis. The universities and affiliated municipal organizations also fund the incubators.

Are incubators for profit?

The incubation services aim to earn 3x more time than their investment. If one is running Incubator at $1000000, then the Incubator need one of the company to exit at $300000000. However, Incubator can be for-profit if it has access to financial capital through financial programs.

The Incubator makes money when the startup gets 6% big and is also more successful. But some programs can take up to 50%.

How do incubators help startups obtain funds?

Business incubators can help businesses to grow. The Incubator helps the startup grow well early through proper advice, resources, and contacts. The incubators can get funds from the Government or can get from the university. The entrepreneur can also start an incubation program as a non-profit venture. 

How much do incubators earn?

Incubators earn significantly when a business rises to a size of 6% of the market capitalization. The YC receives 7%, the acceleration receives 500%, and thus the company receives 5%.

How much does a startup incubator cost?

Most accelerators and a few incubators provide funding for startups ranging from $10,000 to $150,000. 

Are business incubators successful?

The business incubators are worthy and even successful. According to research, the business programs and the early age startup are more successful, positively affecting the business’s growth associated with incubators.

However, those who are not in a role with incubators usually take time to be successful.

Are commercial incubators totally free?

No, the business incubators are not free. Some charge for their services, and some take an equity stake in the startup. So, incubation services are not free until specially provided by Government for the betterment of businesses. 

What is the incubation period in business?

The incubation period of the business is the time from having a well-reasoned concept to the actual artifact, which is the company’s existing product.

What do startup incubators do?

The startup incubator provides many services for business growth in the initial half. The benefits are in the form of suggestions and advice and also in the form of funding and marketing. The incubators play an essential role in increasing startups sales and benefits. Startup grows well on incubations.

The business programs and the startups that are difficult to handle for a single person are perfectly maintained by incubators. Unlike all the other business services, the incubators do not serve all the programs.

Also, you need to register for the incubation services. Once you meet the eligibility criteria, your startup will select. So, the process is not as easy as it seems. The incubation center’s time grooming you and your business depend on the business type and its experts. 

On the whole, incubation services play an essential role in increasing the life span of a startup and, most importantly, marketing the business and increasing sales. So, I hope you will have gained quality knowledge about  how do business incubators make money? 

If you have liked the article, let us know in the comment section below.

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Business incubation process and firm performance: an empirical review

  • Open access
  • Published: 17 January 2017
  • Volume 7 , article number  2 , ( 2017 )

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  • Fidelis A. Ayatse 1 ,
  • Nguwasen Kwahar 2 &
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Industrialization is central if any economy is to be successful and the policy attempts at industrialization involve creating systems and institutional arrangements that can help accelerate the process of industrialization. Business incubation is also a system and an institutional arrangement to help nations industrialize by developing the SME sector. This paper hopes to understand how the business incubation process influences firm performance. The methodology adopted is a comprehensive and extensive review of literature on the incubation phenomenon. The review found that firm performance is greatly enhanced when a firm avail itself to an incubation program. Revenue growth, employment or job creation, venture funding, networking and alliance building are the performance indices most impacted by the business incubation process. The paper recommends that prospective candidates for incubation should develop their market, management and financial plans to increase their chance of being selected as tenants. Also, firms are encouraged to access the value-addition services of incubation as this greatly increases their chances of firm survival, revenue growth, employment and job creation, financial resources and networking and alliance building. Furthermore, tenants should not overstay their tenancy in an incubation program as doing so reduces their chances of survival upon graduation.

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Introduction

New venture creation and indeed established ventures operate with the intent of being successful but failure is ever present due to the environment ventures operate in. Evolutionary theorists argue “that the forces of selection that eliminate uncompetitive firms are a necessary phenomena that contributes to the maintenance of healthy populations of organizations” (Aldrich, 1999 ). However, the forces of selection alone cannot be allowed to determine the number of organizations operating in an economy. This has therefore, given rise to attempts at reducing the likelihood of venture failures requiring not only the development of a favorable business environment and climate, but also establishing strong institutions that will assist businesses reduce the likelihood of failure. To help venture survival, governments have developed a unique institutional arrangement called business incubation designed to help business survive and grow in the contemporary competitive environment (European Commission, 2002 ).

The success story of the business incubation process on firm performance has been established. Incubators as cost-effective instrument of entrepreneurial promotion (EC, 2002 ) have impacted positively on firm survival, turnover, employment and job creation (Weinberg et al. 1991 ; Mian & Suny, 1996 ; Headd, 2003 ; Al-Mubaraki & Busler, 2011 ; Voisey et al. 2013 ; Sehitoglu & Ozdemir, 2013 ) with the success of the incubation program dependent on its practices (Lewis et al. 2011 ). However, studies conducted by Schwartz ( 2012 ) and Amezcua ( 2010 ) have reported that incubation has not contributed significantly to the survival, employment and sales growth of incubated firms notwithstanding the time spent in the program. The conflict arising from these findings form the basis for this empirical review.

A review of empirical works focusing on the impact of business incubation process on firm performance is the focus of this paper. The goal is to establish the efficacy of this question: how does the business incubation process influence firm performance? What specific business performance indices are most influenced by the incubation process? Indeed, is entrepreneurial venture creation and promotion facilitated by the incubation framework? These are the questions that this review hopes to answer. This will contribute to our understanding of the incubation phenomenon and its likely impact on firm performance. The benefits of this review would benefit university and research scholars, business incubator managers, policy makers and government and indeed businesses among others on the importance of incubation in contributing to firm performance. Generally, the results and recommendations would contribute towards our understanding of the business incubation process and how it impacts firm performance.

To achieve this objective, the paper is divided into three major parts. Part one focus on the literature review covering the concepts of business incubation, business incubators, business incubation process and firm performance. Part two focuses on the methodology of the study with part three focusing on the empirical review of the related works based on the objectives of the study. Lastly, the paper provides the conclusion and recommendation.

Literature review

Literature review would attempt an understanding of the basic concepts underlying the business incubation phenomenon. This section therefore, attempts to elucidate on the concepts of business incubation, business incubators, business incubation process and firm performance. The objective is to highlight and illuminate the concepts relevant to our understanding of the incubation phenomenon. The review gives us the opportunity to understand what the incubation phenomenon is, who or what an incubator is and most importantly, what the incubation process is.

The Campbell et al. ( 1985 ), Smilor ( 1987 ) and Hackett and Dilts ( 2004a ) models of the incubation process provide a comprehensive perspective of what the incubation process is. The Campbell, Kendrick and Samuelson model is the first attempt at modeling the incubation process with Smilor extending the model by incorporating a network dimension to the model. Hackett and Dilts model gains input from the real options theory in explaining the incubation phenomenon. However, the success of any incubation program is dependent on the practices adopted by such an incubation program. Incubators size, age and local environment have an influence on its success. However, incubator’s best practice is perhaps the most important determinant of its success. Such understanding and exposition therefore, informs the decision to include same in this section.

Concept of business incubation and incubators

Business incubation is a unique institutional arrangement that is primarily concerned with developing entrepreneurial culture in a community. However, the onus remains on the entrepreneur to make the business survive, as they are prone to be affected by what Levakova ( 2012 ) calls the ‘incubator syndrome’. To Brooks ( 1988 ), the whole concept of incubation is attitudinal in that incubation fosters a community attitude of encouraging and supporting emerging firms to be successful with its success dependent on three fundamental factors: “an entrepreneurial and learning environment, ready access to monitors and investors, visibility in the marketplace” (European Commission, 2002 ). Levakova ( 2012 ).

The concept of business incubation is founded on the premise of increasing the survival and growth of firms by developing mechanisms that will ensure the early identification of those firms that have great potentials for success but are constrained by resources. The concept ensures that firms overcome what is called the liability of newness and the liability of smallness thereby creating innovative firms that are competitive, profitable and sustainable (Salvador & Rolfo, 2011 ). The incubation phenomenon is therefore, considered an enabling technology “that capacitate the functionality of critical and possibly strategic technologies” (Hackett & Dilts, 2004c ). Generally, the incubation concept aims at achieving some fundamental objectives which include to create new jobs and businesses, foster a climate of entrepreneurship, commercialize technology, diversify, revitalize and accelerate growth of industry and local economies, reduce company mortality rate, reduce unemployment, increase university-incubation interaction and foster technology development (Bizzotto, 2003 ; Mutambi et al. 2010 ; Al-Mubaraki & Busler, 2011 ).

The objective of business incubation is achieved through business incubators. Incubators are major actors in the entrepreneurial ecosystem by linking talent, technology, capital and know-how (Todorovic & Moenter, 2010 ; Bejarano, 2012 ; Levakova, 2012 ; Al-Mubaraki et al. 2013 ). However, definitional challenges exist on what constitute business incubators or business incubation (Bergek & Norrman, 2008 ). Sources of this definitional challenge arise from the confusion of virtual incubators with traditional incubators that provide in-house tenancy, the inability to properly define the incubation process or define it but fail to identify with whom the incubation process occurs and the use of the terms such as science parks, technology centers etc. interchangeably (Bergek & Norrman, 2008 ; Hackett and Dilts, 2004a ).

The general idea of what research scholars see as business incubators is that they are institutions concerned with speeding up the growth, financial and operational stability of entrepreneurial start-ups by offering them targeted services and support (EC, 2002 ; Bergek & Norrman, 2008 ; Mendoza, 2009 ; Levakova, 2012 ; Moreira et al. 2012 ; Masutha & Rogerson, 2014 ) with a strong emphasis on knowledge agglomeration, resource sharing, innovativeness and competitiveness by creating an environment which help start-ups deal with the challenges of entrepreneurial pursuit (Phan et al. 2005 ; Akcomak, 2009 ).

Bringing a network dimension to the concept, Weinberg ( 1991 ) views incubators as inter-organizational or social partnership organizations that are concerned with addressing “socially-relevant” purposes by harnessing the strength from diverse organizations. Mian ( 1996 ) and Bollingtoft and Ulhoi ( 2005 ) championed the concept of a network incubator “based on territorial synergy, physical proximity, relational symbiosis and economies of scale” with the overall aim of leveraging entrepreneurial initiative and know-how in creating and operating successful companies. In their contribution, Bergek and Norrman ( 2008 ) observe that research scholars disagree on whether a business incubator is an organization or a general term likened to an entrepreneurial support environment. To scholars such as Brooks ( 1988 ), Weinberg et al., ( 1991 ), Lalkaka ( 2001 ), and Phan et al. ( 2005 ), incubators are registered organizations that provide affordable office space, offering targeted support services with the sole purpose of nurturing small fledgling firms into healthy businesses.

Concept of business incubation process

Business incubation program, as a tool for promoting innovation and economic development (Bergek & Norrman, 2008 ; Al-Mubaraki & Busler, 2011 ), is designed to be capable of adding value to incubated companies with the intent of increasing the survival rates of such incubated companies (Bizzotto, 2003 ; Moreira et al. 2012 ). The value adding activities are generally regarded as the business incubation process with several models developed to explain the phenomenon. Bergek and Norrman ( 2008 ) cautions on the limited scope to which most of the incubation models are conceived as focusing primarily on results neglecting the interrelationship of the value added activities to other incubator activities.

Earlier researchers of the incubation phenomenon such as Campbell et al. ( 1985 ) are acknowledged as the first to develop a business incubation process model. The Campbell, Kendrick and Samuelson model has four basic ‘services’ or value addition activities, foci areas where incubators contribute to firm performance. The value addition activities starts with diagnosis of needs, which is applied to prospective incubatee’s new business proposals. When the diagnosis is successful, the successful companies selected for incubation (called incubator tenants) are monitored. The incubator tenants also enjoy additional value addition activities by way of capital investment and access to expert networks with the prospect of venture capital. The tenants then graduate from the incubation program as successful growth ventures or businesses. Hackett and Dilts ( 2004b ), Moreira et al. ( 2012 ) in critiquing the model observes that the model is developed with the fundamental assumption that all incubated companies will survive. The Campbell model is further limited to private incubators only with it not considering the capabilities of the potential entrepreneurs, environmental barriers and a lack of a selection criterion in the selection of potential incubatees.

Smilor ( 1987 ) extended the Campbell model with an emphasis on the external environment (incubator affiliation and support systems) to the neglect of the internal processes occurring inside the incubator. He conceptualizes the incubator as a system that confers ‘structure’ and ‘credibility’ on incubatees while controlling a set of assistive resources. The incubator operates a network of support ‘services’ or value-addition activities with affiliation to the private sector, universities, government and non-profit. The incubator has internal support ‘services’ or value-addition activities in four basic ways: secretarial, administrative, business expertise and facilities. Both the external and internal support systems are designed to achieve the following objectives: economic development, technology diversification, job creation, profits, viable companies and successful products.

A model of business incubation process as developed by Hackett and Dilts ( 2004a ) is based on the concept of ‘black-box’. The process is primarily concerned with what happens inside the incubator (its internal dynamism) with a link to its environment. The Hackett and Dilts model conceives business incubation as the selection of incubatees from pool munificence of prospective candidates who ‘enter’ into the black box of incubation. The incubatees undergo value addition activities in three ways: selection performance (which is also an aspect of selecting prospective incubatees), monitoring and business assistance intensity and resource munificence. The incubatees are then outputted from the ‘black-box’ of incubation as graduated companies having an outcome that is either success or failure. The Hackett and Dilts model has control variables of population size, state of the economy, incubator size, and incubator level of development. In summary, their business incubation process model comprises three fundamental activities: selecting weak but promising firms to be admitted to the incubation program, monitoring and assisting those that would be successful and lastly providing the requisite resources to help them develop and graduate from the incubation program as financially viable and freestanding firms.

To them selection performance refers to the degree to which the incubator behaves like an ‘ideal type’ venture capitalist when selecting emerging organizations for admission to the incubator. The selection from the pool munificence of candidate companies is done taking into consideration four characteristics: managerial characteristics, market characteristics, product characteristics and financial characteristics. It means candidate companies need to be evaluated in the light of these characteristics. Monitoring and business assistance intensity is also another value-addition activity or service offered by an incubator. As defined by Hackett and Dilts, monitoring and business assistance intensity is the degree to which the incubator observes and helps incubatees with the development of their ventures including helping them to learn from low-cost failures and containing the cost of potential failure. This is achieved through time intensity of assistance provided, comprehensiveness of the assistance provided and the quality of assistance provided. The last value addition services of the Hackett and Dilts model is what they call resource munificence which they define as the relative abundance of incubator resources, measured by the following: resource availability, resource equality and resource utilization.

Hackett and Dilts define the outcome of the incubation process as five mutually exclusive outcome states “measured in terms of incubatee growth and financial performance at the time of incubatee exit.” The outcome states are: the incubatee is surviving and growing profitably, the incubatee is surviving and growing and is on a path toward profitability, the incubatee is surviving but is not growing and is not profitable or is only marginally profitable, incubatee operations were terminated while still in the incubator but losses were minimized and incubatee operations were terminated while still in the incubator and the losses were large.

Concept of firm performance

The concept of firm performance and its measurement has bases in the fields of economics, management and accounting (Tangen, 2004 ). The simple objective of performance measurement is to ascertain how well an organization is functioning and is being managed given a set of criteria and standards. A broader view of the concept ensures that the interest of the organization’s publics is considered with effectiveness and efficiency being the two fundamental dimensions of performance (Moullin, 2003 ; Khan et al. 2011 ).

Neely, Gregory and Platts ( 2005 ) define a performance measurement system as the process of quantifying the effectiveness and efficiency of an organization. To Khan et al. ( 2011 ), performance measurement is the process of assigning “value to objects or events in such a way as to represent quantities, qualities or categories of an attribute.” The quantification of the performance of organizations has been based traditionally on financial criteria with dimensions such as annual sales, annual profit, number of clients, and growth among others. However, supporters of the multiple-objective school argue that performance measurements should incorporate the different stakeholders of an organization – a systemic perspective (Malina & Selto, 2004 ; Wu, 2009 ). Kennerley and Neely ( 2003 ) therefore, submit “that financial performance measures are historical in nature, provide little indication of future performance, encourage short termism, are internal rather than externally focused with little regard for competitors and customers.” Contemporary performance measurement systems have therefore, being expanded to include both financial and non-financial criteria (Laitinen & Chong, 2006 ) making it multidimensional in nature.

Performance measurement in incubation literature is also multidimensional. There is no acceptable performance measure in incubation literature (Phan et al. 2005 ) leading to incubator researchers using different performance measures. Furthermore, the definitional challenge of what incubators are has also contributed to compounding the problem of identifying a single acceptable measure of performance in incubation literature. From review of business incubation literature, the following performance indices are used: revenues, finance, venture capital funds, graduation from incubation program, firm survival, networking activity, innovative firms, organizational or firm growth, job creation, sales growth, profitability, patents registered, number of patents application, alliance, technology transfer, employment growth, technology growth or development, research and development productivity, ability to share knowledge and technology and high-tech employment.

Summary of literature review

Business incubation is a policy tool that facilitates entrepreneurial development by creatively initiating and implementing programs that focus on providing targeted resources and services. These services, which are designed to add value to entrepreneurial ventures, are structured to provide targeted and specific benefits for the incubated businesses. The Campbell, Kendrick and Samuelson, Smilor and Hackett and Dilts models of value addition activities by incubators focus on providing targeted services to firms that are selected from a pool of prospective firms. Selection is an important element of the incubation process, which is an activity distinct to incubators and this activity is present in the three models discussed in this review. The Campbell, Kendrick and Samuelson and Hackett and Dilts model focus on internal network of support provided for the selected firms for incubation while the Smilor model focus more on the external network of support from government, universities, non-profit and the private sector. In all of the models, the business incubation support infrastructure is in the form of resources, expert networks, business, secretarial, and administrative support and capital investment.

Earlier research studies on the incubation phenomenon are generally classified as incubator development studies, incubation configuration studies, incubatee development studies, incubator-incubation impact studies and studies that theorize about incubators-incubation (Hackett & Dilts, 2004a ). However, the focus of this review addresses the following questions: does the value addition activities by business incubators have any impact on the firm performance? In other words, does business incubation process have any influence on the performance of the incubated or graduated firms? In what specific ways does the performance of the incubatees or graduated firms impacted? What performance measure is most impacted by the business incubation process? These are the questions this review hopes to achieve.

Study methodology

The methodology adopted for this review was based primarily on review of articles related to the business incubation process and firm performance. The choice of the articles reviewed and included in this paper especially under the empirical review section was dependent on whether the article is empirical in nature. Non-empirical articles were used for the literature review section while empirical articles were used for the empirical review section. The inclusion of only empirical articles in the empirical review section is to highlight the major findings reported by the studies, which will help in achieving the study’s objective of assessing the influence of the business incubation process on firm performance. Furthermore, the time frame covered the period of 1999 to 2012. Only one article was selected in the period before 2000. Nine articles were selected within the period 2000 to 2009 and seven covering 2010 to 2012. Therefore, 41% of the articles selected covered 2010 – 2012 and 53% covered 2000 – 2009. The selection of the papers was therefore, reasonably spread over the period under study.

The selected articles proxied business incubation process as selection of prospective incubatees, monitoring of the firms selected for incubation, provision of business assistance, professional management services and capital/finance to the tenants, and access to incubator internal and external expert networks while firm performance is proxied by firm growth, firm survival/failure, employment/job creation, research and development productivity, research and development expenditure, revenue/sales growth, patents, venture funding and networking/alliance capability. The choice of the inclusion of the empirical studies is therefore, based on the business incubation process and firm performance indices as defined above.

An Internet search of the keywords business incubation, business incubator, technology business incubator, university incubator, network incubator, virtual incubator and firm or new venture performance provided the articles used for this review. The online database used for the Internet search included Google Scholar, EBSCO HOST, Science Direct, Springer Link, Wiley, JSTOR, Emerald, GALE, Pro-quest e-Library and ICAST Gateway. These databases produced journal articles, conference papers, working papers and academic theses, with the selection of an article dependent on the appropriateness of such a article to the objectives of this review. In other words, an article inclusion is dependent on whether it fits the overall objective of the review.

The search returned thirty-one (31) studies on the business incubation process and firm performance with only about twenty-two (22) including some aspects of the variables defined in this study that can satisfy the stated objectives. Nine (9) out of the thirty-one (31) were rejected due to the fact that their variable definition and objectives was in contrast to the objectives and variable definition of this study. Out of the twenty-two (22), five (5) had similar research design with this study but could not be accessed and hence excluded. Its exclusion has not affected the research conclusions. Therefore, a total of fourteen (14) articles were rejected with only seventeen (17) studies used. Out of the seventeen studies, thirteen (13) are journal articles, two (2) each for thesis and discussion papers. The seventeen (17) studies were included because they had similar research design and variable definition with this study and were considered relevant in achieving the stated objectives of this review.

Empirical review of related works

This section summarizes empirical works carried out on the incubation phenomenon with an emphasis on empirical studies that focus on the business incubation process. About seventeen studies have been listed as assessing the impact of the business incubation process on firm performance. The stakeholder’s theory explains that different stakeholders desire to achieve their objectives by identifying with a particular organization and given the numerous stakeholders that a firm deals with, such a firm is expected to at least strive to satisfy the aspirations of its stakeholders. Since the majority of incubators are publicly funded, the stakeholder’s theory is relevant in justifying the diverse incubation outcomes or the firm performance measurement indices employed in incubation impact studies. A tabular presentation best captures the major highlights of the empirical studies reviewed and included in this paper. The Table 1 in Appendix below therefore, summarizes the studies reviewed. It covers the author of the study and the medium through which the research was published, the research question or objectives, methodology employed and variable definition, sample size definition and finally the major findings.

Summary of empirical review

The empirical review focuses on entrepreneurial support mechanisms that are called business incubators. The common denominator for the reviewed works indicates a significant impact of the incubation phenomenon on business performance with the impact showing either a positive or negative relationship. Firm survival/failure, sales/revenue growth, employment/job creation, venture funding/capital and networking/alliance in that order are the most used business performance measures used in business incubation research. Other measures such as technology transfer, firm patents and R & D productivity are less used as measures of firm performance. It is also worthy of note to highlight that the incubation studies attempt to prove that firms participating in incubation programs outperform those that do not assess incubation services with models developed to determine the impact on firm performance with incubation process dimensions defined as selection practices of incubators, monitoring and provision of business assistance, professional services and resources/capital to tenants and exposing tenants to the incubator’s internal and external expert network resources.

The findings of this review shows that out of the seventeen (17) studies reviewed, only three (3) disputed that business incubation process does not contribute positively to improving tenants or graduated firm performance. An overwhelmingly fourteen (14) studies support the proposition lending credence to the argument that incubation creates an entrepreneurial spirit that supports businesses and promote new venture creation, impacting positively on economic growth and development. Specifically, findings from the review indicate that knowledge flows from external networks helps tenants to avoid failure and increases their access to networking resources, graduation from the incubation program and assessing funding. Also, the review shows that participating in an incubation program helps firm survival even after graduating from an incubation program with other benefits such as job creation, profitability and sales growth. Indeed, the evidence indicates strongly that participants in an incubation program outperform nonparticipants in terms of firm survival and sales growth.

In terms of business assistance and advisory, the evidence from the review shows that participants in an incubation program derive immense benefits in the areas of revenue and firm growth, patents application, obtaining finance or capital and establishing alliances. It is also important to point out that the time spent in an incubation program and indeed the age of the incubator also contributes to firm survival. A major theme in incubation literature is the screening of prospective firms and findings from the reviewed empirical studies conclusively show that incubators focus on three primary factors in carrying out screening activities: market, management team and financial factors in that order. However, focusing on only one of the factor is counterproductive implying that a business incubator needs to evaluate prospective incubatees using the factors together. In that way, the probability of survival is higher compared to when the factors are considered separately.

Contrary findings on the benefit of incubation indicate that firm survival is not improved neither is technology transfer, employment and venturing achieved when firms avail themselves to an incubation program. This evidence is not strong enough to vitiate the argument that business incubation encourages entrepreneurial spirit and significantly contribute to enhancing firm performance both within and without the incubation program. Therefore, following from the empirical review, it can be safely and convincingly submitted that business incubation process indeed contributes to improving the performance of firms right from the time they are domiciled within an incubator to when they successfully graduate from incubation as financially independent and viable entities. This is the contribution that this review adds to the literature on business incubation process and firm performance.

Conclusion and recommendation

In contemporary society today, business incubation is regarded as an important tool that has the capacity to support businesses to survive and grow. This paper has sufficiently addressed the fundamental questions raised in this review. Evidence shows that the incubation process improves firm performance. Arguing further, the review shows that the most impacted performance measures in incubation research in the order of importance is firm survival, revenue growth, employment or job creation, venture funding and networking and alliance building. Clearly, this review supports the efficacy of incubators as framework to enhance tenants or graduated firm performance, supporting the view that incubation is a tool that supports entrepreneurial promotion and new venture creation. Indeed, the evidence supports incubation as powerful instruments that must be encouraged and supported as an important component of the entrepreneurial ecosystem, as a framework for business support and the proliferation of new ventures.

To expand and promote incubation as a confirmed promoter of entrepreneurial promotion and SME proliferation, all tiers of government must be encouraged to promote the establishment of incubators and build their capacity to support emerging and new ventures. This recommendation derives from the fact that as confirmed promoters of entrepreneurship, the more capacity is built for incubators and the more support from government, the more equipped they will be able to contribute to entrepreneurship promotion. Indeed, emerging businesses with new ideas would greatly benefit if they participate in the incubation program as participation increases significantly their chances of survival, revenue growth and job creation.

Furthermore, this review encourages new and emerging businesses to avail themselves the business assistance, monitoring, expert networks, resource munificence and advisory services provided by incubators as these value addition activities have the potential of improving their ability to source for finance, improve patents application and the building of alliance. The study also recommends that incubator’s capacity to leverage knowledge flows from its expert external network should be deepened so that incubatees and prospective incubatees should benefit to increase their chances of survival. Also, the study recommends that tenants should not overstay their tenancy in an incubation program as doing so reduces their chances of survival upon graduation. Finally, prospective incubatees to increase their chances of acceptance in an incubation program should creatively focus on improving their market, management and financial proposals since incubators focus on these factors in the selection of businesses to be incubated.

Further research should be conducted to illuminate the blurry aspects reported by few scholars concerning firm participation in an incubation program which they claim does not contribute to firm survival. More comprehensive research studies in this dimension would be helpful. Empirical research would definitely throw more light in this direction. Furthermore, more studies in the area of technology incubators or university incubators not having a significant impact on the transfer of technology would also benefit incubation research.

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Acknowledgment

We wish to acknowledge the contribution made by Mr. Msoo Mee, Executive Director of the Benue Business Incubation Program, Benue State, Nigeria for his inputs during the development of this manuscript. His contribution is highly relevant given his practical experience with the incubation program and process in Nigeria. I also wish to acknowledge Dr. S. Kpelai of the College of Management Science, University of Agriculture for his insight during the development of this manuscript. Their contribution is highly appreciated.

This study is funded by the Federal University, Wukari, Nigeria.

Authors’ contribution

FAA modified the topic and structure of the work while NK read through the work with some modifications and inputs to the content of the work. IAS conceived the idea of the study and carried out the research and write-up of the work. All authors read and approved the final manuscript for submission to the Journal of Global Entrepreneurship Research.

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Ayatse, F.A., Kwahar, N. & Iyortsuun, A. Business incubation process and firm performance: an empirical review. J Glob Entrepr Res 7 , 2 (2017). https://doi.org/10.1186/s40497-016-0059-6

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Long-term strategic partnership

Venture management and strategy advice

Supply of one or several types of financing and search of complementary financing

Personal networks

Hosting and administrative assistance

Durability – lack of stability of resources

Quality of management and services provided – highly dependent on the quality of the manager

Legitimate inside the institution

Legal status, governance, independence, and operational flexibility

Income sources

Management quality; lack of business coaching expertise

Strategic position of the incubator for the corporate structure

Management independence and ability to mobilize internal resources

Durability of the mission of the incubator

Sourcing of top-quality projects

Level and conditions of the incubator payment in comparison with provided services

Valorisation of the incubator's participation at the entry and the liquidation

Regular development

Increasing territorial coverage

Testing of the concept in numerous companies

High levels of consolidation and restructuring of the sector

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International Edition

IMAGES

  1. Exploring The Business Incubator Models: A Comprehensive Guide

    business incubator revenue model

  2. Exploring The Business Incubator Models: A Comprehensive Guide

    business incubator revenue model

  3. Evolution of the Business Incubator Model 11

    business incubator revenue model

  4. Startup incubator business model

    business incubator revenue model

  5. Revenue Model Framework: How To Innovate Your Pricing

    business incubator revenue model

  6. Exploring The Business Incubator Models: A Comprehensive Guide

    business incubator revenue model

COMMENTS

  1. Exploring The Business Incubator Models: A Comprehensive Guide

    What is the Business Model of an Incubator That Provides Office Space for Startups? How do Incubator and Accelerator Business Models Work? What Business Model for an Accelerator Incubator Generates the Most Profit? Conclusion Definition and Objectives of Business Incubators

  2. A Comprehensive Guide to the Startup Incubator Business Model

    Apr 20, 2023 A Comprehensive Guide to the Startup Incubator Business Model Discover the ins and outs of the startup incubator business model with our comprehensive guide. Are you an aspiring entrepreneur looking for the perfect environment to grow your business idea? Look no further than the startup incubator.

  3. How Do Startup Incubators Make Money (If At All)?

    Contents show What Are Startup Incubators? A startup incubator is a program designed to help early-stage or seed-stage startups grow and sustain themselves by providing them with the space, equipment, and support they need.

  4. Business Incubator Model

    Business Incubator Model - Everything You Need to Know Do you want to start a business incubator? If YES, here is everything you need to know about the business incubator model plus example of successful companies. Business incubators are organizations that are geared towards helping startups and early stage organizations speed up their growth.

  5. Guide To Build And Manage A Successful Business Incubator

    Figure 1: Comparison of startup support institutions Image Source: Source: Cohen (2013) and Hathaway's adaptions (2016) Incubators share some characteristics with corporate accelerators: they interact with startups; provide physical space; and offer education programs, mentorship, and networks.

  6. Rewiring Business Incubators For Success

    The number of business incubators created to support startup entities has grown over the years, and I can see why: The National Business Incubator Association told Business News Daily...

  7. What Is an Incubator? A Complete Guide for Startups

    Startup incubators are unique organizations that function as a springboard for early-stage businesses and startups with the goal of providing specialized tools needed for startups to grow and innovate.

  8. Business incubators: A guide for startups

    Table of contents What is a business incubator? What is the role of an incubator? Why do startups need incubators? What is the difference between incubators and accelerators? Successful startups from incubators How to choose the right incubator Key takeaways Startups begin with an idea that founders can then formulate into a business plan.

  9. Startup Incubators and Accelerators: Operating and Revenue Model

    Startup Incubators and Accelerators: Operating and Revenue Model Venkatrangan Gokul · Follow 2 min read · Mar 13, 2020 This is based on my extensive observation and interaction with many...

  10. How Startup Incubators Make Money

    3. Most organisations offering incubation services have multiple revenue streams. Universities, co-working spaces, chambers of commerce, government agencies and consultancies all do things other than incubate startups. Some make money by directly selling the incubation services to startups, sponsors or others.

  11. PDF For-Profit Business Incubation Strategies

    While nonprofit incubation programs often operate as a program of a city or county eco-nomic development organization, a university de-partment, or community development organization, for-profit programs, like BIC, generally follow one of three basic models: Those that seek returns from rent and service fees

  12. Startup incubator business model

    Advantages of Startup incubator business model. Learn and grow. The best business incubators provide you with access to a network of mentors, coaches, and educational programming focused on business innovation. Entrepreneurs, accountants, human resource professionals, angel investors, lawyers, researchers, and others may serve as mentors.

  13. Developing innovative business models and sustainable revenue streams

    A revenue based equity model is where the incubator invests money, let's say $100K for example for 5% equity, and is paid back via 4% of the revenue of the company being used to buy back the equity stake of the incubator until there is a 2X repayment of $200K. At the end of this process the incubator makes back the investment that they made ...

  14. Incubators, Accelerators, Venturing, and More

    The tight-focus model is designed to strengthen the core business of the company sponsoring the incubator or accelerator. Often targeting innovations in business adjacencies as well as the core itself, the incubator or accelerator is located in physical proximity to corporate R&D facilities to promote cooperation between the R&D and incubation ...

  15. How Do Business Incubators Make Money

    The virtual business incubator is one of the most trusted and old incubator models. After the innovation of the dot com bubble, the virtual business incubator was introduced.

  16. What is a business incubator?

    A business incubator is a program that gives very early-stage companies access to mentorship, investors and other support to help them get established. Business incubators work with early-stage companies to get them to move beyond their embryonic phase. They provide support and coaching for new businesses that have a promising idea, as well as ...

  17. Business incubation process and firm performance: an ...

    The review found that firm performance is greatly enhanced when a firm avail itself to an incubation program. Revenue growth, employment or job creation, venture funding, networking and alliance building are the performance indices most impacted by the business incubation process. ... A model of business incubation process as developed by ...

  18. How Businesses Can Benefit From Incubator And Accelerator Programs

    6. Resources And Exposure. Startups can significantly benefit from incubators and accelerators, which offer access to valuable resources, mentorship, networking opportunities, validation and ...

  19. Guide to Revenue Models: 6 Types of Revenue Models

    Guide to Revenue Models: 6 Types of Revenue Models. A revenue model gives a business a framework for generating income, and a yardstick by which they can measure their long-term profitability. Understanding the mechanics of a revenue model can help determine a company's success. A revenue model gives a business a framework for generating ...

  20. What Is a Business Incubator and How Does It Work?

    Updated July 3, 2023 Business incubators help new businesses and startups overcome the challenges they encounter by using an innovative program that promotes business development, learning and cost savings. Entrepreneurs may benefit from being a part of the mentorship, training and motivation provided by these programs.

  21. Mastering the Business Model Canvas for Entrepreneurs

    Revenue Streams: Outline how your business will generate income. Example: Subscription fees, à la carte meal options, and affiliate marketing partnerships. ... Creo Incubator's Business Model Course is designed to guide you through creating a comprehensive and actionable business model canvas. This course will give you the skills and knowledge ...

  22. Business Incubators: Comparison of Four Different Models (by Rahul

    Monitoring − access to new technologies, business models, and new markets. Profits. Profits by selling stock from a portfolio of companies allowing to risks to be spread. Targets. Small commercial craft or service companies. In some cases, high-tech companies. Projects internal to institution prior to company creation.

  23. PDF THE CULINARY INCUBATOR BUSINESS MODEL

    p12). To maximize revenue, incubators often try to schedule multiple users in the kitchen when possible. In contrast to many other business incubators, culinary incubators can't simply match client headcount to available office space. The need for specific equipment, the potential for

  24. Can OpenAI create superintelligence before it runs out of cash?

    Essential digital access to quality FT journalism on any device. All discounts based on monthly full price over contract term. Cancel subscription renewal anytime. SAVE 40% ON YEAR 1 540 € 319 ...