Incubators are hot. There are more than a thousand in the U.S., and the proliferation is causing some tech-industry watchers to fret. The flock of incubators is spawning a glut of wanna-be entrepreneurs ready to quit their jobs, commit their lives to a 10-week incubator program and end up with nothing but broken dreams and a souvenir hoodie.
But that’s their problem. Your problem – if you’re building a cool startup and you don’t have millions from Andreessen Horowitz – is how to choose the incubator that will nurture your company and launch you toward fame, fortune and a Facebook acquisition.
If you do have a startup, odds are you went to college. And, depending on what you got up to on weekends in your dorm room, you probably remember the application process. You should select an incubator the same way.
“Incubators are the new grad schools for entrepreneurs,” says Naval Ravikant, who knows a thing or two about the startup process. He founded Epinions and Vast.com, invested in Twitter and FourSquare, and now runs AngelList and Venture Hacks. “There are incubators like Stanford and MIT, and there are incubators like University of Phoenix. They give different levels of help, and they have different prices – they ask for different amounts of equity.”
Of course, the choice is not entirely up to you. If you want a spot at one of the top incubators, your innovation must be good enough to qualify. You don’t just waltz into Harvard Business School – and you don’t just pull up a chair at TechStars or Y Combinator. (In fact, getting a seat at a superior incubator is three times harder than getting into Harvard Business School.)
But let’s say you’re good enough to go anywhere. In that case, your selection process is easy. Choose from the handful of first-rate incubators. (Here’s the Forbes top 10.) “Go to one of the elite incubators, and you’ll be looked upon more kindly by investors and potential employees once you graduate,” says Ravikant. “These programs make it easier to land funding and recruit employees.”
But suppose you’re not TechStars material. Then you can’t simply rely on reputation to choose an incubator. You have to do your homework. Ravikant suggests asking the important questions: “Who are the mentors? Are they successful entrepreneurs? And what are the class sizes? Is it six startups to a mentor or 30? And look at demo day. Demo day is like career day at school. At school, you look at which recruiters show up. At an incubator, look at which investors show up. And ask how the incubator’s graduates have done, how many get funded.”
If you don’t get your first choice, don’t worry. You’ll soon have many more incubators to choose from. Though some bemoan the incubator boom, it’s not likely to slow any time soon. The economics are just too compelling. Incubators typically take between 5% and 8% ownership in their participating companies in exchange for a 10-week program. They graduate dozens of companies. And even if the majority of those graduates fall on their faces, incubators still produce a better economic outcome than just about any investment channel outside of big-time venture capital.
That’s a good thing, Ravikant says. “Finally, we’re seeing some innovation in the venture business.”
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