Co-working spaces, Startup Incubators, Accelerators and Innovation Hubs
Coworking is an arrangement in which several individuals working independently or collaboratively in a shared office space with the convenience of a common infrastructure, equipment, utilities, and receptionist. There are various forms of Coworking spaces including, commercial enterprises established to lease space, cooperatively managed spaces, spaces sponsored by large corporations and non-profit organizations.
Startups often use a coworking space as a place for founders and their team to operate at a stage where cash is limited, and the option of a long-term office lease is not affordable.
One advantage of joining a coworking space is that you don’t have to give away equity in your company as Incubators and accelerators generally receive equity in exchange for their expertise.
Incubator and accelerator growth trends
From 2007 there has been a rapid increase in the number of incubators and accelerators, however, the trend seemed to have peaked in 2016 most likely due to the increase in Innovation Hubs.
The aim of a startup incubator is to help new startups succeed by helping entrepreneurs solve some of the problems commonly associated with running a startup. Startup incubators offer workspace, seed funding, mentoring, and training with the sole objective of helping entrepreneurs grow their business.
Startup incubators can be owned by public and private corporations, universities, educational institutions, government and civic groups. Some of the services offered by startup incubators include:
- Business mentoring
- Advisory boards
- Access to angel investors or venture capital
- Commercialisation assistance
- Networking opportunities
- Accounting/financial management assistance
- Intellectual property advice
- Legal services
- Marketing assistance
Incubators seek out ventures that are in their early development stages with the objective of assisting entrepreneurs turning their ideas into a profitable business from which the incubator may also have an opportunity to profit.
A non-profit incubator’s objective is to create new jobs and increase tax bases. Typically, non-profit incubators are operated by government institutions, whereas, University-based incubators can have a combination of non-profit and for-profit motives.
It is not uncommon to find that an incubator only supports certain verticals, e.g. digital, Agri-tech, media, financial etc. Acceptance by an incubator can often be based on geographic regions or require relocation to that region. Whilst resident at an incubator entrepreneurs can network with other entrepreneurs, building on their ideas, determining product viability and creating a business plan.
As with an Accelerator the incubator period may only last several months and end with a presentation to potential investors.
Points to consider when joining an Incubator
- Do they have a track record of producing successful companies?
- What is their success rate of companies attracting investors?
- Do they have mentors that are experienced in your sector?
- Do you need investment funds immediately to grow your business? If you do and you can demonstrate growth, then an accelerator may be a better option.
Accelerators expedite growth of existing companies with a minimum viable product (MVP). Incubators operate on a flexible time frame ending when a business has an idea or product to pitch to investors or consumers. The timeline for accelerators is a set few months during which the entrepreneur receives mentorship, funding, and networking help.
Accelerators have an extensive application process and are highly selective. They accept companies that have already demonstrated fast growth and have created a minimum viable product (MVP).
Accelerators employ a modified incubation model with a unique way of structuring incubation, growth, and investment initiatives. Accelerators operate on a fixed-term residency and provide education, monitoring, and mentoring to start-up teams. They facilitate introductions to venture capitalists, angel investors and corporate executives and prepare start-up teams for public pitch events to potential investors. This can be the end point for most companies if they fail to attract an investment.
Points to consider when joining an Accelerator
Founders of startups often perceive acceptance into an Accelerator as an achievement that will secure their success, however, there are some things you should consider before deciding to join one.
- Is the timing right? If you are still building a team, looking for key personnel or have not built a minimum viable product (MVP) then the timing may not suit your needs. In this situation an Incubator may be more appropriate.
- Accelerators assist startups rapidly work through the business building process in a few months as opposed to a few years. Is this sufficient time for your company?
- Is your current rate of growth sufficient to meet the accelerator’s criteria?
- An accelerator may require you to relocate which may not suit your needs as it is only for a few months.
- After leaving an accelerator do you think that you will still need support.
- Accelerators generally take equity in your company, which, depending on the outcome, may be problematic for further funding.
Innovation hubs are social communities or workspace or research centres that provide subject-matter expertise on technology trends, knowledge and strategic innovation management, and industry-specific insights. Innovation hubs can be open to everyone or operated as a closed facility that is owned by a corporation or organisation for their own benefit. Open Innovation Hubs are a gathering space for like-minded individuals interested in technology and innovation.
The following graph produced by ‘Startup Daily’ provides an indication of where Venture Capitalists are choosing to invest. It is representative of the balance of focus on the various sectors that can be seen in incubators, accelerators and innovation hubs.
The future of Incubators, Accelerators and Innovation Hubs
In 2005 Paul Graham founded Y Combinator which heralded the beginning of the startup ecosystem of entrepreneurs, angel clubs, incubators, accelerators, government and university initiatives, co-working spaces. Y Combinator supported startups including Airbnb, Dropbox, Reddit and Heroku, and their success encouraged an explosion of participants that set out to copy the Y Combinator model.
The U.S.-based International Business Innovation Association estimates that there are about 7,000 incubators worldwide actively engaged in the support of startups in retail, healthcare, finance, education, government, travel, logistics, mobility and many others.
Incubators are under pressure from Corporate, non-profit and industry Innovation hubs.
- Corporate innovation hubs focus on internal projects related to the vertical (industry sector) that they operate in. They prefer to have a majority equity holding in the startup.
- Non-profit innovation hubs can be established by government at many levels and focus on specific verticals that are in their perceived interest.
- Industry innovation hubs sponsor initiatives on behalf of a number of corporations that operate in a common vertical focused on their strategic needs.
Why Incubators are losing their appeal
As innovation hubs increase in number and reach there are some trends emerging regarding incubators, for instance:
- In many instances incubators do not provide sufficient support after the idea has been validated and the startup requires assistance to scale up.
- Investors are bypassing incubators and focussing on innovation hubs and accelerators.
- The end of the incubation phase is often to early for a VC to invest.
If you are considering approaching a coworking space, incubator, accelerator or innovation hub ask yourself the following questions:
- Have I progressed pass the idea stage?
- Do I have a minimum viable product(MVP)?
- Have I made any sales?
- Am I ready to apply for residence at an incubator?
- Am I prepared to relocate if selected?
- What professional assistance do I need?
- Do I have something that would interest a corporate innovation hub?
- Do I need investor funding?
- How much equity am I prepared to give up?
- Will the limited period in an incubator or accelerator be sufficient to get my idea or company up and running?
- Will I need assistance beyond the incubator and accelerator stage?
The answers to these questions will allow you to consider which, if any, is the most appropriate option for your needs.