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How startup incubator works?

How startup incubator works?

A start-up incubator is a program designed to help new and young start-up businesses succeed. They help the newly started business by providing workspace, seed funding, mentoring, and training. These Incubator programs help the entrepreneurs to grow and get traction in the market by getting involved at all stages of a start-up’s development, from idea stage to final revenue generation stage.

Some of these Incubator programmes often taken a small equity stake (Minority stakeholder) in the companies within the programme, so as to offer reduced costs on their technology and product development, and to help with any technical and business development queries.

Start-up incubators are mostly non-profit organizations, which are run by both public and private sector entities. Incubators are often associated with universities, and some management schools (for example Sharda University, India) allow their students and alumni to be a part of these programs.

Sharda University offers scholarships upto 40 lacs to student start-ups through various programmes like Next Startup, Syncubator and Xcelerator and has always supported our honourable PM’s ‘AatmNirbhar Bharat’ mission.

There are three main ways in which the incubator programs help the start-ups:

By investing in start-ups directly

Some of these Incubator programmes often taken a small equity stake (Minority stakeholder) in the companies within the programme, so as to offer reduced costs on their technology and product development, and to help with any technical and business development queries.

By connecting start-ups to investors

The Successful incubators are already connected to big networks of venture capitalists and angel investors, and can introduce the entrepreneurs to the most suited one according to the business idea and requirements.

By providing mentorship and exposure

At some of the incubators, already experienced and successful entrepreneurs act as mentors to guide the entrepreneurs to make a business plan that's attractive and ready for investors. Also, the incubators guide them through various stages of a business cycle.

Incubation stages: The incubation stages comprised of:

  • Pre-incubation Stage (duration is 3 to 6 months)
  • Incubation Stage (duration is 6 to 12 months)
  • Accelerator Stage (duration is 3 to 6 months)
  • Pre-incubation Stage: This is the ideation stage (which lasts from 3 to 6 months typically), in which the entrepreneur tries to understand the technical feasibility of the idea proposed and also makes efforts to understand the steps required to develop the idea into a marketable technology or a product.
  • Incubation Stage: Incubation stage lasts from 6 to 12 months where start-up companies graft product development and prepare themselves for marketing. The primary aim of the entrepreneur is to develop a market viable prototype of an innovative offering which can drive the market and is easy to pitch before an investor.
  • Accelerator Stage: The Accelerator Stage lasts from 3 to 6 months and the focus of this stage is rapid growth, and to sort out all organizational, operational, financial and strategic difficulties that the business may face in current and near future.

The various ways in which the incubators earn profit are:

  • Company, government or investor sponsorship: A company, government or investors often pay for the incubator to run so they can be the first to see, invest in or access the start-ups and their ideas.
  • Profit from investing in equity of the ventures: The VC firm may run the incubator, and seek a very high return by holding and selling off their equity portion long period after a long period of time.
  • Royalties from Intellectual Property licensing: Often universities and research organizations benefit by taking a percentage of earnings from the innovations they incubate.
  • By imparting the lessons, talent and processes to other start-ups: The incubators help the entrepreneurs, who seek their help, by providing the lessons they learned from their experience, industry networks and processes.

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