How to Choose An Incubator

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“Today, there are about 1,200 business incubators in the United States. Most cater to a variety of businesses, according to Linda  Knopp, director of policy analysis and research at the National Business Incubation Association.

Supporting such programs, most of which operate as nonprofits, has become a staple for many local governments and universities seeking to attract and retain entrepreneurial talent.

There have also been profit-making programs like Idealab, a technology incubator started by the serial entrepreneur Bill Gross in 1996 in Pasadena, Calif. (CitySearch was an early success).

More recently, there has been a rise in so-called virtual incubators like Entrepreneur Commons and Open Coffee Club, which are really social networks that try to provide the mentoring and collaborative benefits of an incubator without the physical space.

The following guide breaks down the four most common types of incubator and offers tips on identifying which might be best for you.

The Classic

PROGRAM Like Mr. Mancuso’s original, these incubators operate out of a shared building where tenants have subsidized rent, access to computers, office equipment, staff members and experts.

COST Fee-based, ranging from a few hundred to a few thousand dollars a month, which covers expenses like office space, equipment rental and kitchen access.

EXIT RULES Most programs expect tenants to “graduate” within three to five years.

EXAMPLES Cambridge Innovation Center (Cambridge, Mass.), TechColumbus(Columbus, Ohio).

BEST FOR First-timers or those looking to connect in new industries.

HOW IT WORKS It is based on shared knowledge, said Tim Rowe, founder and chief executive of the Cambridge Innovation Center, which houses 300 early-stage companies in a facility owned by the Massachusetts Institute of Technology. Tenants pay from $250 a month to $1,100 a month per person with no limit on how long they can stay.

GRADUATES SAY David Rose has founded two medical device companies, Ambient Devices and Vitality, at the Cambridge center: “There is a viral energy and camaraderie. You can get a lot of good advice simply by walking into the elevator.”

QUESTIONS TO ASK Can you break the lease? What kinds of companies are current tenants starting? Will the incubator give you contact information for former tenants? What kinds of experiences do staff members have? Will you have contact with outside professionals?

The University

PROGRAM Offers access to equipment and experienced staff.

COST Typically free (some programs offer grants) but limited to current students or alumni.

EXIT RULES Many programs expect the company to graduate when the student does.

EXAMPLES ARCH New Business Incubator at the University of ChicagoDarden Center for Entrepreneurial Leadership at the University of Virginia.

BEST FOR Student entrepreneurs looking to spend the summer or school year fleshing out an idea with the help of professors, fellow students and alumni.

HOW IT WORKS Budding entrepreneurs at the University of Virginia’s business incubator, for example, are given a $13,000 stipend and coaching and feedback on their business plans. Participants can also attend lectures and workshops on topics like intellectual property and accounting.

GRADUATES SAY George Aspland, Scott Roberts and Adam Rodnitzky graduated in 2008 from the Booth School of Business at the University of Chicago. Unlike many of their classmates who turned their M.B.A.s into jobs on Wall Street or with big companies, they decided to start a business together and enrolled in the ARCH incubator. Within a year, their company, ReTel Technologies, had a plan to use crowd- sourcing to analyze surveillance videos. “Our time in the incubator helped us reorient and come up with a plan we could execute,” Mr. Rodnitzky said.

QUESTIONS TO ASK Does the program offer a stipend? What restrictions come with the money? Who are the professors and the staff members who will be advising you and what kinds of experiences do they have?

The Niche

PROGRAM Most niche incubators offer facilities and advice at a reduced cost to companies with a specialized focus – for example, food or social entrepreneurship.

COST Typically fee-based although some programs take equity stakes.

EXIT RULES Most operate like the classic model.

EXAMPLES Blue Ridge Food Ventures (Asheville, N.C.); Sparkseed (San Francisco).

BEST FOR First-timers who require specialized instruction or access to specialized equipment.

HOW IT WORKS Many aspiring food entrepreneurs think they can make a few dollars selling cookies made with their grandmother’s secret recipe, said Mary Lou Surgi, executive director of Blue Ridge Food Ventures, but most do not have the equipment or the wherewithal to build a business. At Blue Ridge, they can also take classes offered by Ms. Surgi: “Most people that come here have never even thought of things like food safetyor how to market and distribute their product.”

GRADUATES SAY Jeannine Buscher and Sarah Schomber, the founders of Buchi, which makes fermented and unpasteurized tea: “We could never have afforded the kind of place we have now two years ago,” Ms. Buscher said. “It’s hard to say what kind of business we would have today if we didn’t have Blue Ridge Food Ventures to help us get started.” They started out in Ms. Buscher’s dining room but now brew their bottled beverages in a 6,000-foot-facility of their own.

QUESTIONS TO ASK What kinds of companies are current tenants starting? Will the incubator give you contact information for former tenants? What kinds of experiences have staff members had? Are they knowledgeable about the specific kind of business you are considering?

The Accelerator

PROGRAM Most accelerators, which are run by groups of experienced business owners and investors, require entrepreneurs to move to a facility for a specified amount of time. Eventually, they are given the opportunity to market their businesses to investors.

COST Typically a 6 percent equity stake in return for about $18,000 in seed financing.

EXIT RULES Programs usually last for 90 days, although companies can continue to use the program’s network of mentors.

EXAMPLES TechStars (Boston; Boulder, Colo.; New York; Portland, Ore.), Y Combinator (San Francisco); Joystick Labs (Raleigh, N.C.)

BEST FOR Fast-growth companies that want to attract investors.

HOW IT WORKS You get 90 days of intense focus from a team of experienced entrepreneurs and investors, said Brad Feld, co-founder of TechStars. While TechStars aims at technology companies, Y Combinator accepts a wide variety of companies. The Brandery, in Cincinnati, provides 90 days of feedback on a company’s marketing and advertising strategies. Joystick Labs accepts only entrepreneurs interested in building gaming companies.

GRADUATES SAY Lina Chen, chief executive of Nix Hydra Games, moved from Shanghai to Raleigh to connect with smart, ambitious people at Joystick Labs. “I felt that participating in the program would save us time and money in the long run because of the kind of people who would be helping us grow our company,” Ms. Chen said.

QUESTIONS TO ASK How much equity do you have to give up to participate? How much investment capital do you receive in return? Who are the mentors you will be working with? How many of the program?s graduates have raised money or found a buyer? Can you contact them? Where will you live while participating in the program?”

Please click here for the full article from the New York Times Business Section.

Click here to learn about American Underground, the entrepreneurial cluster located in Durham’s historic American Tobacco Campus.

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