Are incubators worth the tiny investment they give you?


2

Outside of the big incubators like YCombinator and 500Startups, there are tons of smaller ones that only invest small amounts ($10K-ish) and take around 5% equity in your early stage startup.

Are these incubators worth giving the 5% equity?

What some good lesser known incubators?

Funding Equity Incubators

asked Apr 17 '15 at 13:11
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Robert Dotson
12 points

1 Answer


2

I'm hoping somebody who actually went through one of these "lesser incubators" can weigh in, but here's my take. (My experience with these has only been reading about many, to talk with one, and I ended up not going through them.)

I like the idea of incubators. The thought of getting $10K for 5% equity (sometimes it's $25K for 10% or other numbers) feel like an easy way to break the Startuper's Chicken and Egg Problem. (You don't have enough money to quit your job and work on your idea, and because your idea is still nascent, your idea can't bring in any money which would allow you to quit your job to grow it further.)

It's usually enough money that if you've only got one or two people, and you're insanely frugal (ramen and rice, yum) that you could actually make it stretch a few months. In that few months, with 100% dedication to getting your idea off the ground, you could both validate your idea and get an MVP running that can start bringing in more money, hopefully to the point of being Ramen Profitable (or Ramen Sustainable) allowing you to begin iterating and making it better until you're genuinely successful.

That's just from the financial side. Even a lesser incubator can get your business off on the right foot. Yeah, you might not get the dinners with Paul Graham, but there are plenty of people who can teach you a lot about how to validate, pivot, and build MVPs. They'll introduce you to investors, other startupers (enthusiasm is incredibly contagious), and potential customers. It's hard to quantify the value of that, but it's definitely value that you wouldn't get as easily elsewhere.

So I'd say you look at your financial situation to decide whether it's worth it. It definitely can be an effective way of breaking the cycle, giving you enough reason to jump ship from your current job and hopefully have some time to make stuff happen. Depending on what other options you have for breaking the Chicken and Egg problem (friends and family, personal savings, a loan, evenings and weekends) and the cash amounts and percentages, it may be well worth it.

Or it may not.

After talking with one incubator that works local to me, I decided they weren't a good fit. They were 100% about getting me to the "next level", defined by them as the $1M to $5M investment from a capital venture firm (that they also owned, or from one of their buddies). That's not the direction I wanted to go. CV has too many strings attached, and wants too much equity for my liking (of course, it's not like I've been super successful yet, so...).

My point is, even if you think the math works out for you, make sure you find an incubator that suits your style. There are tons of them all over the place. You're better off going it alone than going with one that has wildly different goals for your company than you've got for it.

answered Apr 18 '15 at 18:08
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rbwhitaker
3,465 points

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Funding Equity Incubators