Every entrepreneur is looking for funding or guidance at some point in their career. They have a few choices to turn to for assistance.
One of the first avenues many entrepreneurs seek out are grants or contests sponsored by a government agency (or large corporation that provide participants with funding). Unfortunately, these opportunities are typically slow moving and even worse, to the small businesses seeking the assistance, the grants tend to be awarded to larger more established companies. Forbes recently published an article citing that 90% of all available funding grants went to large corporations.
A better opportunity for new businesses is to seek out Accelerators, Incubators and Factories (AIFs). These are groups that can provide the critical funding and strategic insight that entrepreneurs are seeking. However, working with AIFs is also not easy, as they can be extremely selective, given their finite resources. So, the competition to work with them is even greater. Moreover, AIFs tend to seek out startups that show potential for rapid growth.
Below is a summary of what Accelerators, Incubators and Factories offer to new companies.
ACCELERATORS
Accelerators strive to work with companies to speed up their success quickly and get the venture to the next level of funding or business launch.
Accelerators look to work with early stage companies. They offer these companies a specific process that is designed to propel the company to reach the next level of their evolution. This process occurs within a specific time frame and the accelerator also provides market insight and mentoring to the start up. This insight allows the start up to better position itself when presenting to venture capitalists, angel investors or bankers as it continues to seek growth and increase the company's valuation.
Typically, accelerators will make a seed investment into the company and will seek an equity stake of 5-7% for this investment. Some of the top accelerator groups include: Y Combinator, Techstars, Angelpad and DreamIT Ventures.
INCUBATORS
Incubators nurture the development of entrepreneurial companies, helping them gain their footing during their start up phase.
Incubators will typically provide startups with various business services and office space for a specific time frame. In addition to offering office space, incubators will also offer mentoring and business services that may be appealing to new companies. However, the real advantage of being in an incubator is the proximity and synergies that occur when you're surrounded by other starts up. You'll be able garner insight and network relationships that might further the speed up the company's growth cycle.
For the services and office space that the incubators provide they will seek to take an equity stake in the resident company, generally in consideration for favorable rent terms.
FACTORIES
Factories are structured educational and development programs. Furthermore, factories typically offer short courses or a series of workshops for tuition like fees.
Unlike Accelerators and Incubators, factories do not have a rolodex of premium mentors or seed investors that they can offer to new companies. Although they do provide exposure to fellow entrepreneurs and mentors who could eventually become collaborators. The benefit of a factory is that the course work that they offer provides new companies with a proven structure and process that has yield success for others.
The benefit of using a factory is that it expedites the time to market for a new company. Also, the entrepreneur typically does not have to give up any equity in your enterprise.
Ready for Action?
As part of a thorough self-evaluation, every entrepreneur needs to assess what they, as well as their teams, are lacking, and what these expediting offerings can provide to their business. They will then need to make a final decision it terms of whether the cost of engaging one of these groups is worth the dollars and equity that they will have to part with.
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