Accelerators and Incubators Roles in Startups’ Successes
Aligning with the right ones is like rocket fuel, but how do you know which is right?
There are many incubators and accelerators around today. The value the right one can add to your startup is incalculable, particularly for first time founders or those moving into a new industry. The rubric for figuring out which is right is an equally under-defined calculation. Founding teams and their startups are different and their needs change over time; and not all incubators and accelerators are created equal. Align things right and it is rocket fuel behind your business, get it wrong and things can stagnate, or worse. Often I see founding teams over index on branding (which is tied to marketing prowess, not necessarily quality!) The company my brother and I founded went through a couple different ones (StartX, MMRI, JLabs, QB3 and Bonneville Labs). And I’ve had the privilege of involvement from the perspective of advisor, mentor, founder, board member and manager in StartX, CLSI’s FAST, Ikigai Accelerator and Blockbuster Tokyo. Each very unique.
There are many flavors (and almost as many debates on proper taxonomy). From my perspective, an “accelerator” has its success directly linked to the startups beyond branding/image, i.e. their upside is correlated and delayed. They will often invest capital and/or resources into the business for equity in return. Whereas “incubators’’ generally do not have an equity stake (i.e. their upside, if any, is during residency), and there are hybrid and mixed models too (more than 500 entities in the US today). The models are neither good nor bad, but understanding how they work will help you choose the best for your situation, set expectations and let you figure out how to maximize value extraction. For example, it may “feel” expensive in the short term to give equity away, but knowing the accelerator is going to be pushing for your success long after you “graduated” is reassuring. Conversely, if you have reasonable capital today, do you need to give away a big chunk of equity?
Who is behind it really matters too! VC’s or Angel groups (Flagship Pioneering, Versant, YC, MBC Biolabs, IndieBio, etc.), nonprofits or universities (Stanford BioDesign, MIT Idea Lab, Harvard’s Blavatnik, Berkeley SkyDeck etc.), Big Company, “branded” incubators (JLabs, Bayer CoLaborator, Takeda iPark, Illumina Accelerator, etc.), for profits (too many to list), real estate entities (Alexandria’s Launch Labs, Mitsui Fudoson’s LinkJ, etc.), “commune” type (the now closed Atherton Blackbox Mansion for example), entrepreneurial community (StartX), consultant groups (these I’d generally try to avoid unless there are very clear reasons, like expanding your business into a new country), global reaching ones (CIC and 500 Startups) and government backed ones (C3i, Blockbuster Tokyo, NSF I-Corps, etc.). Hybrids exist too like UCSF’s Qb3, MIT’s The Engine and Singapore’s A*Star that have multiple founding stakeholders involved, though most function as centers of gravity for a range of stakeholders. Why this matters is to answer the question, “what’s in it for them question?”
Fundamentally, they all have a business model and you need to understand it. If you take one thing out of this blog, it should be this point. Before you choose one to go with you should completely understand their business model. Are they getting rent? Is it the equity piece? Future rights? Do they have a bunch of sponsors? Is it supported by tax dollars? A combination thereof? Connect this with the flavor as well. For example, for profit versions often have a lot of sponsors; what they are “selling” is early looks at the startups and their technology (i.e. like with Facebook, you are their product). This is great if you are looking to partner with those companies, but might be problematic if you want to keep in stealth mode from them. But you can always control what you disclose. In biotech, there are a bunch of branded options (JLabs, Bayer Colaborator, etc.) that provide access to people and resources in their organizations — a huge, huge value, but this can come at an optics cost if you do not ink a partnership or would prefer to be working with their competitors. With all of this, there are no rights or wrongs only things that align well or poorly with your business strategy.
Alignment is key (to just about everything in the startup world) but you also need to match the offerings with what your startup actually needs. If you plan on being in there for a year or more, do you know what you don’t know? Meaning your business will evolve over time, does the accelerator or incubator have the capacity to evolve with you? One challenge we faced at Bell Biosystems was that the incubator was not able to do in vivo experiments and as we grew, we needed to do these. Totally solvable with a Contract Research Organization, but the cost to us was that it slowed us down. When we were ready to sell our research products we found that the zoning and facility infrastructure were misaligned also and we moved out. Prior to those two obstacles, it was a great experience and accelerated our progress incredibly, but as we knocked down milestones and were attacking new ones it changed from an accelerant to a hindrance. Take home message, think through what you want both today and tomorrow.
What about the offerings and value to startups? There are many, they are varied and often the onus is on you to extract them. Most can help create and refine business plans, particularly the accelerators (as they win only when you win). Obvious and immensely important are the ready made networks you get dialed into. Investors and partners are often touted (sponsor and advisor lists, our companies raised $X, hit $Y enterprise value, etc.), but those self reported, unaudited stats and should be taken with a grain of salt. From my experience, the fellow entrepreneurs are the most valuable and often overlooked; who are they, where are the people and companies that were in there five or ten years ago? Are they angel investing, are they still involved, are they mentoring the next generation? These are better metrics to assess the network value.
My CEO mentor told me once to “strive to only make original mistakes” in building my company. In order to do that you need to talk with others around you about the issues and concerns you are having. There is (wrongly placed) concern about sharing challenges with prospective investors and directors. Entrepreneur to entrepreneur discussions are typically more open. It’s highly likely that someone has had similar challenges and can provide you with their insights…but only if you share them! This type of transformation support is the essence of accelerating your entrepreneurial endeavors; this is the “secret sauce!” Networks are living creatures, there is a give and take and best to be an active participant investing in supporting others. A good — and bad — network will last you a lifetime and it may be 10+ years later that an opportunity to help or be helped comes. Grow these like a plant, water and nurture long before you try and harvest, the fruits will be bigger and better.
Economies of scale come from most incubators and accelerators, you can leverage shared equipment, purchasing discounts, submarket rents, outsource the housekeeping efforts and focus your team more on value enhancing activities. These are great, support capital efficiency, accelerate progress and are frequently marketed by the incubators as they are trying to fill their square footage. But let the buyer beware! Early on at Bell Biosystems, we moved into a “fully equipped” lab incubator. Rent was a little higher than the others, but we anticipated a huge benefit to be able to move forward with experiments without the capital or time sink to build out the lab. We checked their equipment list and they had almost everything we needed! The rub, after moving in we found that not all of it actually worked. And when we brought this to their attention, they gave us the phone number for a repair guy that we’d need to pay. Three months later, we moved out since rather than paying to fix their equipment we bought our own and found a good sublet that a couple of other startups joined us in (essentially a commune style incubator).
If your business is in a specific sector, there may be an incubator for that, like SeaAhead for the “blue economy” or Bill Gross’ Idealab for energy among other sectors. Getting into one of these can be like getting into an Ivy League school vs the local community college. Super useful for first timers or someone pivoting into a new sector. Perhaps you are looking to break into or out of a specific geographic area. Blockbuster Tokyo helps Japanese startups connect with the world and global ones enter Japan. I’ve also seen startups find customers, partners and even merge with others creating a more valuable entity, all driven in part by the luck of being in the same batch. Lots of soft value that can help you achieve your business goals.
There are down sides too! The most common concern I’ve heard prospective tenants mention is IP leakage risk. While theoretically possible, I’ve never seen it. Everyone else is massively busy working on their own technology with limited resources and the odds that they walk by the conference room at exactly the moment you discuss the crown jewels insight is effectively zero. That said, it is a real risk and you should protect your IP. But it is more likely that someone hacks into your computer or email. Moreover, if you are too close lipped you lessen the opportunity to get some of the values discussed above. What I have seen happen are HR issues. Folks poaching your rockstars and sadly I’ve witnessed a handful of harassment issues. But these are not unique to an incubator and hopefully they never happen to you. As you build your organization in both size and time, unfortunately, the probability increases — perhaps someone in the network can help you navigate it.
The time vampire or distraction risk in incubators is real, particularly those with open spaces or a business model that incents them to parade consultants, service providers and others through. Make sure that you and your team are well equipped to manage these. But this needs to be balanced, because you may want to get some expert help too, it’s part of the give and take. Lastly, branding matters. Not all incubators and accelerators are created equal (there are annual rankings). While there is benefit in “logo” shopping, there is a downside to incubator hopping. Serial entrepreneurs actually rarely use incubators or accelerators, unless there are very clear and specific values to their businesses and they are extremely selective when they do. “Incubator hopping,” while saving capital, makes your company’s trajectory less exponential, they should be used as a springboard. At the end of the day, you are going to get out of these what you put in and, like everything, focus decisions through the lens of what is best for your business.
Prime Movers Lab invests in breakthrough scientific startups founded by Prime Movers, the inventors who transform billions of lives. We invest in companies reinventing energy, transportation, infrastructure, manufacturing, human augmentation, and agriculture.
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