A comprehensive explainer on Startup Incubators

Tech Word For The Week is a weekly series where we look to explain commonly used words in the tech ecosystem in a simple, engaging way.

There’s been a lot of fuss about getting into an accelerator/incubator program in the tech ecosystem. And rightly so, startups need all the help they can get, especially in their nascent stage.

Stakeholders in the ecosystem use the terms interchangeably, while some even confuse them together. But the difference between them is like a foetus and a child.

We have previously examined the tech word “startup accelerator” some time ago. So you can catch up if you have not read it before now. We’ll examine what a startup incubator is in this edition, how it differs from a startup accelerator and examine its pros and cons. Let’s jump right into it.

What is a startup incubator?

As the name implies, startup incubators nurture startups’ new ideas and crystallise the ideas into a working business model. They focus on startups who have disruptive ideas. They flesh out these ideas and provide the right environment, resources and people to make the idea blossom to a profitable business.

Like a human foetus which is yet unborn, incubators are havens which stimulate innovations for promising startups. They provide valuable resources such as mentorship, networks, capital, office space, etc. to get the business running.

Although not set in stone for all, the basic requirements to join an incubator are a revenue generating model, a functional product which leverages technology (or proof of concept), a reasonable level of users, management team and the potential to scale.

Incubators cannot be found only in technology, as they exist also in the science, medical and other fields. Oftentimes, incubators are run as non-profits and sponsored by Economic development corporations, Universities, community-based groups and governments.

Unlike accelerators which run like a 100 metre sprint race, startup incubators take a longer time. The average incubator program can take up from one to five year program.

Examples of tech incubators in Sub-Saharan Africa include CcHub, Injini Edtech Incubator, Start Idea Camp, Riversand i-Hub, Growth Africa, MEST incubator, etc.

How is an Incubator different from an accelerator

A crucial difference between an incubator and an accelerator is the length of the development process. For an incubator program, member startups spend more time in the program.

They expect to spend a significant amount of time (could run for years). Meanwhile most tech accelerator programs, only last within three to five months.

Another difference is that incubators provide physical office spaces which member startups can treat like a permanent workspace. Facilities such as power and internet subsidies are also offered which will save the fledgling startups a lot of running costs. These are usually not available in the typical startup accelerator programs.

One more difference between tech incubators and tech accelerators is the overall mission of the organisation. Incubators are mostly nonprofit ventures with a goal of kick-starting innovation in the regional economy. Some incubators offer funds or loans but they don't take a percentage of profits earned by companies they help to launch.

Conversely, tech accelerators are often for-profit businesses founded by venture capitalists or angel investors. They award funds or more upfront to founders in exchange for an equity stake — between 6 to 10% — in their companies.

Pros of Incubators

Focus on product development

Startup Incubators take away all mundane tasks such as office space, accounting, legal guidance and other administrative activities so the startup can focus on developing the product. Not only does this save cost but it accelerates the growth of the startup.

Constructive feedback mentoring

Incubators provide one-on-one meetings with serial startup founders, top business executives and industry leaders. With their experience growing startups, gaining investors, and entering markets they can help the startups keep focus and grow in the right direction.

Camaraderie of fellow entrepreneurs

Learning and building together with other founders and entrepreneurs is a major asset in business. These founders go on to later become the gatekeepers or movers of industries. So imagine what being their acquaintance could be for business.

Cons of Incubators

Time consuming

You may need to commit to a certain length of time (between one to three years) to the incubator. This could be detrimental to the growth of the startup as the founders will be distracted with training and workshops when they should be working on their startup.

Competitive

Popular technology incubators can be competitive to get into, and the application process may be demanding and hectic.

Key Takeaways

Startup incubators nurture startups’ new ideas and crystallise the ideas into a working business model.
The basic requirements to join an incubator are a revenue generating model, a functional product which leverages technology, a reasonable level of users, management team and the potential to scale.