How Early Stage Startups Can Leverage Startup Incubators

I want to start this guide with two important points. 

First, Incubators are for startups. Not ideas. 

Second, incubators are organisations that bet on you by investing in you in exchange for equity. If they don’t, they’re just a real estate business. 

I learnt these two points the hard way. 

Let me explain the critical mistakes I made to give you more context and ensure you avoid making them too. 

When I was younger, just starting my entrepreneurial journey, I took part in an incubator. 

But I went with an idea on a napkin. I didn’t have a fully formed vision for my product, I simply wasn’t ready. It was one of the reasons I failed.

Incubators are for startups that already have a formed idea, have some market validation behind them and are ready to take it to the next step. 

My second mistake was going to an incubator that didn’t invest in the startups they worked with. 

I went somewhere that took my money in exchange for office space and free beers in the afternoon. I wasn’t working with an incubator. I was joining a co-working space.   

There is little value in that when you’re first building your startup. In my opinion, businesses like that shouldn’t even be called incubators.

It’s vastly different from going to an actual incubator that will invest in your startup for two reasons: 

You’re going to learn from industry leaders who have a wealth of experience in what they’re doing and a vested interest in your success; You’re going to learn from other founders in your cohort because if the incubator thinks they’re also worth investing in they must also be doing something great.

Yes, at an “incubator” where you pay for the privilege of office space you’ll also meet other founders. 

However, there’s no guarantee that those founders know what they’re doing because the “incubator’s” main focus is filling empty desks. 

Whereas an incubator's focus should be on guiding and investing in young startups that have potential. 

With that in mind, here’s some more information on what an incubator is, how it can help you in your entrepreneurial journey, and the list of the best ones from around the world.

What is a Startup Incubator? 

A startup incubator is a collaborative organisation designed to support new startups that are looking to validate their formed product vision (hence the name incubator). 

Incubators provide a number of services designed to help you at the MVP stage – like access to startup capital.

That being said, incubators aren’t for everyone. If you have access to capital and other vital resources to help you get your MVP off the ground, you may not need one – and save some equity. But we’ll delve into that later in the article.

Before we get to the list of the best incubators, let’s dig a little deeper into how an incubator can help you. 

How a Startup Incubator Can Help You

Here’s a rundown of the top three ways startup incubators help entrepreneurs succeed: 

1. Mentorship 

There are a plethora of hurdles on the road to startup success. While some of them will be unique to your specific business, there are many that are common among all startups. 

If you choose to work with a startup incubator, you’ll have access to successful entrepreneurs who’ve faced many of those hurdles already. 

As Warren Buffet once said: 

It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes.

Connecting with these entrepreneurs will help you avoid common mistakes altogether – which will save you a lot of time as you build your MVP.

They can help you with everything from business basics and presentation skills to marketing advice, product expertise and connections to strategic partners. 

This leads me to the second benefit, opportunities for funding. 

2. Opportunities for Funding 

Getting your startup off the ground is an expensive endeavor. Most startup incubators will provide you with funding opportunities at key points in your collaboration with them. 

For example, Y Combinator offers a standard deal of $500k to every startup they work with. This investment is made on two separate safes in return for a percentage of the company. 

But, as I’ve already mentioned, startup incubators provide connections to strategic partners. This includes investors. 

Most incubators have a network of both angel investors and venture capitalists who can assist with further fundraising opportunities. 

3. An Entrepreneurial Environment

The final benefit of working with a startup incubator is the opportunity to work in an entrepreneurial environment. 

This starts with a workspace. Most incubators will offer you space in a shared co-working or even a dedicated office for you and your founding team. That being said, some of the biggest incubators don’t offer a physical space – Y Combinator is a prime example here. 

This agreement lasts for the duration of your collaboration with them. That being said, some incubators let you stay in the space for months or even years after the collaboration ends. 

Aside from the financial benefits, having a workspace surrounded by other startup founders is a great way to immerse yourself in the entrepreneurial environment. 

However, incubators don’t only offer this resource as part of the package. Many will also offer cloud computing credits, discounted SaaS subscriptions and other products and services to make life easier. 

Finally, it’s common to take part in a Demo Day as part of working with an incubator. 

This gives you the opportunity to showcase your product, pitch your idea and network with investors, advisors and other key stakeholders. 

What to Assess Before Joining an Incubator

If the Model Fits Your Needs

Not every startup fulfils the growth targets often demanded by startup incubators. And that’s ok, there are plenty of startups out there that are still very successful without seeing rapid growth. 

Instead, they focused on steady growth. Take Bandwidth as an example. The now giant communications company bootstrapped for 15 years and still achieved a successful IPO.

The Amount of Equity You’re Selling

Most startup incubators work off fixed equity percentages. By nature, that means they’re overpaying some companies and discounting others. 

Before joining an incubator, you have to see if the capital they invest is worth the percentage you’re giving up for your specific scenario. 

Profiles of the Mentors

A large part of the benefit of joining a startup incubator is the mentors you’ll meet during the experience. If those mentors aren’t entrepreneurs themselves, with a fantastic track record avoid that incubator. 

In my experience, many incubators are full of wannabe angel investors who are posing as startup mentors. I can’t overstate how important it is that you don’t get trapped in such a programme. 

How Easy it is to Get In 

A quick Google will tell you how competitive the startup incubator ecosystem is. 

You’ll read that places are limited and there are thousands of other founders just like you fighting for a coveted spot. 

With that in mind, if a startup incubator is easy to get into it probably isn’t a great programme to join. 

Put simply, places like Y Combinator didn’t get their reputation from an easy application process. 

Is there “Industrial Value” in the Programme

You have to evaluate how valuable the programme is to your specific industry. 

While seed capital is important, it might be worth going with an incubator that offers less than the average if they can introduce you to the right contacts in your industry. 

Let’s say you’re an aerospace startup for example. On one hand, you have an incubator that can offer a warm introduction to Nasa, Boeing, SpaceX (or SurfAir’s founder and friend of Altar, Wade Eyerly), but only invests $40k of seed capital. 

On the other, you have an incubator offering $150k of seed capital, but they can’t offer you a warm introduction. 

The former may be more advantageous in your situation.

Should You Work With a Startup Incubator? 

To answer this question, I recommend first looking at what you need from a startup incubator.

If you think it will enhance your startup journey and the knowledge, capital, network and resources are worth giving up the equity, go for it. 

Just make sure you choose the right incubator for you. 

On the other side of the coin, if you can bootstrap your startup and already have a wealth of industry and product knowledge, good connections within your market and can find all the resources you need yourself, maybe an incubator isn’t for you. 

If you do go down the route of working with an incubator, make sure you get the most out of the experience possible. 

Take this example from a successful entrepreneur, Giacomo De Lorenzo. I sat down with him recently as part of our content series The Startup Journey: 

“Our incubator was extremely helpful, but not all of the startups that were part of the programme made the right use of them. 

They weren’t calling them twice a day. Whereas I knew I had that opportunity so I took it, and it was very valuable for us. 

So embrace that ability to ask for help, it’s one of the most valuable resources you have. You’ll be surprised how many people will be happy to help.” 

Last but not least, here’s the list of the 7 best startup incubators from across the globe. 

The 7 Best Startup Incubators Worldwide

1. Y Combinator

• Founding Date: 2005
• Location: Silicon Valley, California USA
• Application Info: Online Application Form
• Funding amount: $500,000 for 7% equity 
• Startups Funded: Over 3,000
• Portfolio Companies: Twitch, Reddit, Product Hunt

2. Seedcamp

• Founding Date: 2007
• Location: London, UK
• Application Info: Online Application Form
• Funding amount: Around £200,000 ($271,000) for 6% – 7% equity 
• Startups Funded: 430
• Portfolio Companies: Revolut, Wise (formerly Transferwise), Hopin

3. Amplify LA

• Founding Date: 2011
• Location: Los Angeles, California, USA
• Application Info: Online Contact Form
• Funding amount: $100k for 10% equity
• Startups Funded: 70+ Portfolio Companies: FloQast, Clutter, Bitium (acquired by Google)  

4. 500 Startups

• Founding Date: 2010
• Location: San Francisco, California, US with locations across the globe
• Application Info: Learn more here about locations and applications 
• Funding amount: $150,000 for a 6% stake
• Startups Funded: Over 2,500 worldwide
• Portfolio Companies: Udemy, Talkdesk, Canva

5. AngelPad

• Founding Date: 2010
• Location: The US in San Francisco and New York
• Application Info: Apply online via landing page
• Funding amount: $120,000 for 7% equity
• Startups Funded: 150Portfolio Companies: Postmates, Buffer, AllTrails

6. Bethnal Green Ventures

• Founding Date: 2012
• Location: London, UK
• Application Info: Contact the team
• Funding amount: £30,000 for 7% equity 
• Startups Funded: 167
• Portfolio Companies: Fairphone, Commonplace, DrDoctor

7. Techstars

• Founding Date: 2006
• Location: Techstars is situated across 12 countries in 33 cities including London, Paris, Stockholm, Berlin, New York, LA and Toronto
• Application Info: You can find and apply to your location of choice here.
• Funding amount: $120,000 convertible note, $20,000 of which is contributed by TechStars for 6% equity
• Startups Funded: 2,500+  
• Portfolio Companies: Digital Ocean, Chainalysis, DataRobot

 Thanks for reading. 

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