A New Era of Tech Incubators?
More support for early-stage startups
By Rachelle Crum
If you thought tech incubators were a thing of the past, think again. In multiple cities around the world, new incubators are cropping up while longstanding ones are churning away and even expanding.
Some have long lists of successful companies they’ve nurtured over the years. Others are around as a result of economic stimulus efforts and/or to capitalize on recent Web 2.0 trends. And some focus on specific criteria, such as startups run by college students or select areas of technology, while others have broader interests. But no matter what differentiates them from each other, these incubators have one common goal: to foster the growth of early-stage startups.
Along with offering office or desk space, incubator owners mentor startup founders and introduce them to key networks of executives, provide some funding, and potentially help them raise additional funds, among other benefits. Sometimes this is in exchange for a small stake in the company.
An incubator invests a maximum of $100,000 in micro-seed funding in an individual startup, according to startup adviser and entrepreneur Dave McClure, who runs a small-seed fund operated by the San Francisco VC firm Founders Fund.
However, that amount can be substantially less these days, he pointed out, as “we’ve seen smaller and smaller amounts required to get companies off the ground.”
This lowered cost structure is one of three main factors that makes today a prime time for incubators and the new companies they help along, McClure said.
The second factor is the increased number of distribution opportunities online, including social networks and digital video sites. “There’s plenty of different channels for people to acquire customers,” noted McClure, who also leads a tech entrepreneur travel group called Geeks On a Plane and promotes the Startup Founders Visa program, which works to improve the US immigration policy for entrepreneurs.
And the third factor is the popular success of incubators and incubator-like groups, which helps to increase the visibility of this path for startups.
McClure himself ran a very popular incubator program last summer on behalf of Facebook: the fbFund REV. The program focused on social websites, applications and platforms. Nearly two dozen startups took part, and several had founders from other countries, including Greece, Kenya, and South Korea.
Startups, then CS degree
And then there’s Y Combinator, a 5-year-old firm that runs an incubator-like, sought-after accelerator program minus the office space. Based in Mountain View, California, the growing company invests about $20,000 in each startup.
That’s funding UC Berkeley student Jessica Mah is hoping to be awarded post-graduation. Mah’s no ordinary coed. A couple of months away from earning her bachelor’s degree in computer science, she is cofounder of the financial software site Indinero and earlier cofounded the internship search site InternshipIN. She also serves as president of the university’s Computer Science Undergraduate Association, which hosts Y Combinator’s annual Startup School and runs the TEDxBerkeley conference.
Oh, and she and fellow Indinero cofounder Andy Su have two incubator programs under their belts: one run by Lightspeed Venture Partners and the other within Berkeley's Center for Entrepreneurship & Technology Venture Lab.
Mah actually learned of the Lightspeed program at a Berkeley IEEE Student Branch gathering. Even though Mah initially “just went for the sushi,” she joked, the opportunity to raise much-needed funding for Indinero was invaluable.
Plus, the other startups in the Lightspeed program became the company’s first customers as they fit directly into its customer criteria.
Incubators in general represent “great training grounds for students” and provide excellent experience and mentorship, noted tech entrepreneur Vivek Wadhwa, a visiting scholar at Berkeley, executive in residence at Duke University, and senior research associate at Harvard Law School.
Networking groups such as TiE (The Indus Entrepreneurs) are also very beneficial, Wadhwa added. “TiE offers some mentoring types of events, which are useful.”
TiE started out in Silicon Valley and has expanded globally in the last two decades to 54 locations in 13 countries.
And while all of this incubator activity (and much, much more) is ongoing in Silicon Valley and the Bay Area, groups in other parts of the world are just as busy.
In Beijing, IEEE Fellow Kai-Fu Lee, PhD, is heading the incubator Innovation Works, which he founded in September. The group is focused on helping establish the next wave of high-tech firms in China. Taiwan’s Chunghwa Telecom and YouTube cofounder Steve Chen are among its investors. The telecom company recently got on board with the effort and invested more than $9 million in the group.
Lee is a longtime leader, having previously served as a Google vice president and president of Google China. Earlier, he spent several years at Microsoft, Apple, and Carnegie Mellon University, where he received his PhD.
Other hot spots
Meanwhile, incubator activity is also strong in various other metropolitan regions, including the Big Apple.
Brad Hargreaves, a Tipping Point Partners entrepreneur-in-residence who has founded several startups, prefers the hustle and bustle of New York over Silicon Valley any day.
“The startup scene is in the process of maturing in New York City, which makes it an incredibly exciting place to do business,” he said.
Hargreaves graduated from Yale University with a bachelor of science degree in molecular biology. He was a founder of the Yale Entrepreneurial Institute.
Tipping Point – which, like Y Combinator, has been around for 5 years – combines elements from venture capital, incubators, consulting firms, and merchant banks. The company incubates “solutions that can solve complex and interesting problems using Internet and mobile,” pointed out its founder and CEO, Art Chang.
The opportunity offers Hargreaves “an exceptional way to meet people that I wouldn't have an opportunity to meet otherwise,” he noted. CW (15 March, 2010)