One unique form of mentorship that’s open to entrepreneurs is incubators. Incubators combine traditional investing with a streamlined mentoring process to help take beginning entrepreneurs to a successful exit.
What is an incubator? Is incubator mentorship right for you? Let’s take a look.
==> Incubator Basics
An incubator is a business coaching program run by a very successful former entrepreneur. Typically, the incubator will provide $10,000 to $30,000 in funding and take between a 2% and a 10% stake in the company.
Once you’re in the incubator program, you’ll have access to their facilities and network. You’ll be able to work out of a shared office for free and take advantage of their in house legal and accounting services.
You’ll start your company at the same time as an entire group of other entrepreneurs. This helps create a sense of team spirit, of taking on a big task together.
In addition to access to the primary mentor, you’ll usually also have access to a whole range of other successful individuals. Incubators might bring in other successful entrepreneurs as mentors or speakers. They might also bring in alumni of the program to talk about their successes and give advice.
==> The Downsides to Working With an Incubator
There are a few downsides to working with an incubator that you need to be aware of.
First of all, they’re very industry focused. The majority of incubators focus on the tech industry; though there are also incubators for green tech, biotech and industries.
Most incubators are looking for quick equity cashouts. That means that generally speaking, incubators want to help you build out your idea then have your company acquired for a large sum in a short period of time. If you’re looking to build up your company for the long haul, going with an incubator might not be your best bet.
==> It’s a Very Specific Business Model
Incubators work under a very specific business model. They fund a group of businesses, while expecting a good portion of them not to succeed. The ones that do succeed need to bring in enough revenues to cover the lost investments, as well as the overhead costs of the incubator itself.
If your business fits under the model that the incubator’s looking for, then you’d be hard pressed to find a better mentorship structure. You’ll have access to experts in every realm of business development, from incorporation and getting started to eventually selling your company.
If you don’t want to sell or if you don’t want to run a hyper-accelerated growth company however, then a startup accelerator might not be your cup of tea. Make sure you understand what you’re getting into before you dive into the world of incubators.
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I’m speaking on Friday about angel instveing and I’ve got a couple of observations which tie in with this post.1. I think that this Enterprise Development (ED) fund will be a game-changer for entrepreneurship in SA. Why? Because the eco-system was given 12 18 months to develop before the fund itself was brought online. 2. One thing we must be a little careful of is too many small / half-assed things. (Said as nicely as possible). There are a lot of incubators popping up across SA (many trying to be short-term for-profit offerings.While the innovation is good, one area I think we can do a lot more work is building a more closely knit community it is not all about money but access to resources and networks that could go along way to building something real and relevant.PS if you ever get a chance, do yourself a favour and get a trip around Raizcorp (www.raizcorp.co.za) and you will begin to understand what a well resourced incubator is really capable of.
Gerrit, thanks for the cnmoemt. I didn’t mention the Innovation Hub because I personally don’t think it’s as focused as what I am talking about. However, I could be wrong and I will get in touch with the Maxum Incubator and hopefully they will let me see first hand how things are done. I don’t want to be too short sighted now do I?