Tag Archives: initial stages

How to choose the right incubator to fuel your entrepreneurship goals?

A big trend I have noticed in the last few months is that almost every Venture Capital (VC) company in India is looking to either invest in or build an “incubator”, which can help early stage entrepreneurs. There are already several of them in India, including Morpheus, The Startup Center, CIIE at Ahmedabad and others. I would imagine that by December of 2012, we will have at least 10 very well funded incubators all looking to guide, mentor and help young entrepreneurs through their initial stages.  This will go a long way to help the startup ecosystem in India.

The flip side to this is the amount of choice that startup entrepreneurs will now have. I can easily see many entrepreneurs spending days and months trying to figure out which incubator is the best for them. The answer to the “right one” depends on multiple criteria including your background, what space you wish to build a company in, how big do you wish to build your company into and other related factors. Outside of these criteria, there are others that are dependent on the incubator itself.

Most Indian incubators offer a combination of some cash and mentorship in exchange for 8%- 12% of your company. Some incubators require you go to their office location and spend 3-6 months with them, yet others will prefer you stay at your own office / location. Some do offer design talent, technical resources, and others offer a bevy of informal advisors.

So how does an entrepreneur evaluate incubators? I decided to put together a simple (not comprehensive, initial cut) spreadsheet of the list of things to consider before you decide on your incubator. I would imagine an entrepreneur would use this sheet to write down things that are important to them in an incubator by and then rank their choices by their evaluation of each incubator.

While I personally believe the top 3 criteria are (a) ability for the incubator to help your company gain momentum (customers, hiring, resources, etc), (b) ability for the incubator to help you raise money and (c) quality of the network the incubator possesses which provides you access to other entrepreneurs, venture capitalists and resources that you might need to scale.

Here is a simple spreadsheet I put together and if you believe you need to add more criteria, feel free to drop me a comment on my blog.

 

# Criteria Notes Importance Incubator 1

1

Background of the incubator founders This is the most critical factor. If you have incubator founders, who have not successfully built and sold companies before, then it’s a warning signal.
Do they have an entrepreneurial background that’s proven?

2

Amount of capital the incubator has raised Not very relevant, but it gives you a sense of how many companies they might fund

3

Number of companies in each batch Fewer companies in each batch is usually better because each company gets more mentorship and time with the incubator executives

4

How many companies have they funded so far? This gives you a sense of their track record as an incubator.

5

How many of their companies got follow on investment? This is another critical metric for most founders. You are going to an incubator for experience and help with funding. If most of their companies do not get follow on funding, that’s not a good sign

6

How deep is their network of venture and angel investors? You want to understand the relationships the incubator has with follow-on investors so it makes it easy for you to raise the next round

7

How good is their existing portfolio of companies and their founders? The existing cofounders of their portfolio company will be great resources to network and advice

8

How much time do they provide to each company per batch At the early stage you need a lot of time with the mentors on all aspects of the business. If their time is unavailable then the value of the incubation is limited

9

Have they successfully helped a company grow in your space? Its important to see if they have a portfolio company in the same broad space as yours. For e.g if you are an eCommerce company, look for others they have funded so they know the issues and can help you early to avoid obvious mistakes

10

What is the deal offered? How much money will they give you, what % of your company will they take from you are important parts of the structure

11

How long is the program? Most incubators have 3-6 month programs, which should give you enough time to get your company to a seed / series A stage of investment

12

Can you work out of your office or do you have to relocate to the incubator’s city / office? Some of the incubators require that you move to the city where they HQ are located so you have access to their resources, others will let you work from your own office