Financial Benefits of Incubators

The use of incubators is fairly common in startup companies. Entrepreneurs across the world use the services offered by incubators. This is because many entrepreneurs feel that being a part of a group that has similar objectives increases their chances of success. The use of incubators is fairly common in high-tech industries.

In this article, we will have a closer look at what incubators are and the various advantages that they provide to an entrepreneur.

What is an Incubator?

A business incubator is an organization that is created for the purpose of helping startup organizations in developing their business. Incubators are not created for the purpose of earning profits. Instead, they are opened by organizations that are considered to be stakeholders in the advancement of science and technology.

Incubators help the company by providing shared working spaces, networks, linkages, and other such facilities. Some of the incubators have potential capital which they invest in companies that they find promising. They may also have contacts with venture capital firms and angel investors which allows them to arrange funds for the entrepreneur even if they do not want to directly invest in the company.

Incubators can be actual physical spaces where several businesses are co-located or they could be a virtual network. Also, incubators work with businesses that are at the seed funding stage. Similar organizations which work with more established startups are called accelerators.

Advantages of an Incubator

Many successful startups and unicorn companies have grown out of incubators. There are several entrepreneurs who vouch for the benefits which are provided by incubators. The advantages of incubators have been mentioned below:

1. Credibility: All businesses are not accepted at incubators. Businesses have to send a proposal to the incubators. These proposals are then screened and only if the incubator feels that the business has potential are they allowed to set up shop at the incubator. Hence, if any business has been accepted at an incubator, it earns a reputation. Investors are more inclined towards investing in such businesses and employees are also keen on working with them. This credibility is very useful for the business in the long run.

2. Lower Costs: Administrative expenses and overheads can cost startup businesses a lot of money. Expenses like rental space and other facilities can be expensive for an individual startup. Incubators provide entrepreneurs with the ability to bargain collectively.

   For instance, an accounting firm may charge more money to an individual firm. However, if they know that they will obtain the business of many firms, their rates tend to be lower. Other overheads such as rent for audiovisual equipment, conference rooms, electricity bill, printing infrastructure, etc. also gets split amongst various businesses.

   Hence, it can be said that incubators help companies to lower their operations costs. The cost structure as well as the flexibility provided by the incubator is quite valuable to the startup firm.

3. Focus on Core Product: Incubators provide startup businesses with a readymade office infrastructure that they can use on a pay-as-you-go basis. Hence, a lot of the founder’s time which is spent in managing the day-to-day operations of the firm is freed up. As a result, the founders can focus on the core aspects of their business.

   The ability to maintain such focus is extremely important for entrepreneurs since it allows them to build a competitive edge in their industry. Incubators allow companies to outsource all their non-critical tasks and focus on the critical ones.

4. Access to Networks: As mentioned above, incubators often have tie-ups with investor networks. Also, a lot of these incubators are set up in universities or other institutions which provide influence to the startup. For instance, a startup firm can tap the alumni network of a university in order to increase its sales. Access to these networks can prove to be very valuable for a startup.

5. Access to Expertise: Since incubators are usually set up at universities, businesses that are present in the incubator get a lot of help from academicians. Academicians, as well as their research assistants, are often working on cutting-edge technology.

   These academicians often pair up with incubators to test the commercial viability of their application. Colleges and universities also have a large educated workforce who are willing to work as interns and can add value to the startup’s business without leading to a corresponding increase in costs.

The fact of the matter is that incubators have been used all over the world because they offer certain distinct advantages to entrepreneurs.