Entrepreneurs need resources to grow their ideas, and an entire industry has emerged to do just that – funding, guidance and support are all offered by countless organizations looking to catapult startups to success. Venture capitalists and angel investors provide financing, coworking spaces and incubators often provide a location, and accelerators provide the path forward for entrepreneurs looking to turn an idea into a mammoth company.
Regardless of how good an idea is, entrepreneurs have to join communities to achieve their full potential, according to Cliff Holekamp, co-founder of Cultivation Capital, a VC firm that works with several incubators and accelerators in the St. Louis area.
“The common thread between those different organizations is getting connected to a community that you need to leverage if you’re going to be successful as an entrepreneur,” Holekamp said.
As an entrepreneur, getting out of your comfort zone may not be a challenge. Getting into the right community, however, can be more difficult. Holekamp recommends defining your needs at the outset of your business and identifying the places where your industry is thriving. If you’re starting an agtech company, for example, St. Louis is a great place to start. If you’re working on a company in biotech, Boston may be a better place to find the right resources.
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Holekamp, who also is an academic director for entrepreneurship at Washington University in St. Louis, prioritized location and industry presence over capital. The right location can put you in a high-growth community and open your business to the most valuable talent in your industry.
“I’m seeing talent drive location these days more than capital,” he said. “People are viewing capital as more available and less of a threat to the business than signing the right employees.”
When it comes to finding the right accelerator or incubator, it’s important to understand what each offers its fledgling startups, and how location and overall resources play a factor.
The term incubator has become misleading in recent years. Harj Taggar, who worked with San Francisco-based accelerator Y Combinator from 2010 to 2014 and was a part of a couple of businesses that were accepted by the program, said that incubator really refers to early startup collectives in the late ’90s and early 2000s.
These companies would hire talented teams for slices of equity in the parent company. These teams would focus on building certain services with guidance from the parent organization. Incubators have largely gone away because of talent-retention problems and an unsuccessful business model, according to Taggar.
“Incubators aren’t the viable way to build meaningful companies, because the best talent won’t go to them,” Taggar said. This is because the model doesn’t allow for creative ideas to flow, and it doesn’t provide an attractive enough offer.
As incubators broke down, two types of organizations emerged: the coworking space and the accelerator. Coworking spaces provide flexible office options to startups and other businesses. Bob Cerone, CEO of Cognos HR, a PEO company that provides services to accelerators and startups, said coworking spaces offer some similar advantages that incubators offered through targeted communities. These communities bolster each startup with access to seminars and other resources on how to better run a business.
The community aspect of startup and industry-focused coworking spaces is invaluable, according to Holekamp. Not only can you glean important knowledge for your own company, but you can build your network and talent pool. As companies get acquired and fold, you can bring on people you’ve established business relationships with, thus driving your company forward.
“By coworking and picking a community and bringing them into close proximity, you are increasing an entrepreneur’s personal network and, therefore, you’re increasing their connectivity to resources,” he said.
Accelerators provide a more hands-on approach compared to coworking spaces or incubators. Taggar, who is also CEO of employment platform TripleByte, said this is apparent even in terminology alone.
“Incubator implies that you’re coming up with an idea and hatching it, and accelerator is like you already have an initial thesis and we’re here to increase success,” he said.
Accelerators are usually short-term programs – between three and six months – where seasoned entrepreneurs provide guidance and resources to startups. This can come in many forms. Taggar highlighted two: specific product advice and tactical business operations.
With Y Combinator, Taggar highlights Airbnb’s example where accelerator founder Paul Graham helped Airbnb prioritize bigger, better-quality photos in their platform. This piece of advice pushed Airbnb forward and increased bookings at the beginning of its lifecycle. Similarly, Y Combinator provides tactical business advice on how to hone a pitch, develop funding and pitch investors.
Holekamp spoke to this point, saying different accelerators focus on different business aspects, depending on where a startup is in its lifecycle. While some accelerators only accept businesses that have nothing more than an idea (like Y Combinator), others are looking to work with mid-stage companies. Holekamp said in these instances, the accelerators focus on expanding a business’s network while providing other resources.
Compared to coworking spaces or “incubators,” accelerators can be harder to join. They often include an application process and may only select the companies with the most potential. Keep in mind that accelerators usually take equity in your company for its services, although it likely won’t be a major stake.
Many cities have organizations that provide similar services to accelerators and coworking spaces but operate much differently. The Glimpse Group, based in New York City, is an example of one of these companies. Dubbed the “startup of startups” by founder Lyron Bentovim, Glimpse is a startup collective that acts as both an accelerator and a holding company. Glimpse has acquired 10 AR and VR startups, all of which own equity in Glimpse based on the value of their original company.
For companies that are accepted by Glimpse, team members continue working on their solutions and products as if they were independent startups, although they are all on Glimpse’s payroll and not their own. If a company exits, Glimpse will provide 10 percent of non-diluted funds to the members of the organization it releases as well as a payout to the other companies based on the amount of equity they own in Glimpse. Glimpse focuses on raising capital for the group and providing back-end support for each business. Bentovim said that this allows startups to focus on what they do best – building their products – instead of wasting time on funding or mundane employment tasks.
“Nobody goes and starts a company because they feel like dealing with lawyers,” he said. “You’re taking away pieces that you actually don’t like, you’re doing it better for them, and you’re increasing the likelihood of success.”
Bentovim came up with the unique model after years of business experience. Glimpse’s model allows for companies to join and exit, share resources and receive money as members of the group exit and leave. Bentovim hopes this model of resources sharing will push Glimpse to become a major software provider. While no company has exited yet, Glimpse is growing.
Whether joining an accelerator, coworking space or a new organization in your city, it’s important to find the resources you need to grow your business. Holekamp says location should drive your decision-making so you can find the right talent and the right community to set you up for success. Cerone said it’s important to partner with the organization that is going to provide you with the most value.
“If the accelerator or incubator are doing a good job, they’re constantly inundating these folks on how to grow a business, how to look for money, how to better manage their business and how to scale their business,” he said.