C HAPTER 4: I NCUBATORS : A N A NGEL I NVESTOR ’ S B EST F RIEND ?
AN EVOLVING MODEL While incubators have undergone tremendous evolution, there are still important developments underway to better align the interests of incubators, investors and innovative businesses. In the original, rent-driven business model, incubators had little incentive to push start-ups to develop and outgrow the incubator, as this would truncate revenues. Today's incubator is more likely to incorporate a model that allows for a return of value to the incubator at a subsequent stage, thus providing an incentive to encourage the new company's growth. The Exceler@tor, for example, uses a warrants model to achieve this. Incubators are also looking at new business models that allow them to generate revenues by providing training and continued access to services for their alumni. This could be done by taking a further equity or royalty position in the new business. Such an approach provides the incubator with much greater incentive to push the start-up to develop, leverage training and resources and grow the business, which in turn aligns the start-ups more closely with the interests of investors. To attract investors, start-ups should be seen as ready to take on the challenges and realities of the business world. VCs sometimes consider incubators as negative selectors because the comfort of the incubator could prevent the aggressive growth of the business. If start-ups feel that their welcome at the incubator is never-ending, with cheap access to resources, they may become complacent and not push their businesses forward. To this end, incubators must set and enforce ongoing performance expectations and strict exit policies. They should also ensure that start-ups are paying appropriately for the resources they consume and meeting regular payment schedules. In some cases, substantial increases in monthly rent or service charges are advisable. A specific challenge in university-run incubators is ensuring that decisions are based on business considerations. It is not unusual for a founder to maintain an academic mindset, instead of a competitive, commercial frame of mind. This will inevitably inhibit growth and commercial success. The incubator must ensure this issue is dealt with firmly, otherwise it will create problems for investors trying to instill a returns-driven approach to these businesses. CONCLUSION The mission of most “not for profit” technology-based incubators is to increase the survival rate of graduates and foster their acceleration in the commercial market space. Angels with limited technology knowledge and networks can significantly benefit by working with incubator management to: • identify likely incubator investment opportunities • rapidly complete the engagement process • maximize return on the investment, and • take full benefit of the resources and networking opportunities available through this special resource. By forging strong partnerships with incubators and by sharing common goals, angels can identify superior opportunities among incubated companies and enjoy higher returns than they would otherwise receive by investing in individual opportunities alone.
33
Powered by FlippingBook