How Business Incubators Help Your Startup Find Financing

Every entrepreneur needs a little help at startup. Finding the cash to launch a new business idea is a big part of that. For those startups lucky enough, or smart enough, to be in a business incubator, finding launch money is a bit easier.

There are more than 1,000 business incubators in the United States. Incubators nurture startup businesses and young companies until they are big enough to leave the nest and make it on their own. At many incubators that includes help locating startup capital.

There are three primary ways an incubator will help you find funding:

Direct Investment

Most for-profit incubators trade the use of their office space and mentoring services for an equity stake in your company. Although no cash changes hands, an established office and some “adult supervision” can be among your most important investments.

What’s it worth? Figure rent at $300 per person per month and coaching at $100 per hour. Many incubators can provide the equivalent of your first $10,000 investment or more.

Direct Solicitation

To raise money, you have to meet investors. To meet investors, it helps to be introduced by a reputable source. That’s where an incubator can help a great deal. Because incubators are constantly forging connections in the banking and investment world, they can speed-dial the investors, angel groups, and venture capitalists who will be most interested in your business plan. You won’t waste time sorting through intermediaries or people who don’t invest in startup businesses; instead, you’ll benefit from the incubator’s vast rolodex of investors who meet your criteria.

What’s it worth? A well-connected incubator staff can save you months of searching. Knowing who can invest (and who can’t or won’t) puts you ahead of the game before you even start. Investment banks and other intermediaries often charge 5 percent to 10 percent of the money you raise. Some have monthly fees of up to $5,000. So letting an incubator cut through all that can put you tens of thousands of dollars ahead.

Indirect Coaching

Coaches, mentors, and executives at an incubator will help you develop a business model, plan, and capitalization that will appeal to investors. If you’re at an incubator, you’ve already made a choice that says you are serious about business. Taking the advice of the executives there will build a foundation that attracts investors and communicates your real value to them.

What’s it worth? Writing an investor-ready business plan, with a fundable model and appropriate investor documentation, is a huge step. Outside consultants charge anywhere from several hundred dollars to $20,000 or more. Having the attention and help of an experienced business person? That’s priceless.

Need more data? The National Business Incubation Association has a great website including a list of its member incubators you can search in your area.