Incubators, accelerators, or business incubators, these structures have many names but all have the same objective: to lend a hand to entrepreneurs in a country where the entrepreneurial culture is at best in its early stages.
Each in their own way, they provide valuable assistance to creators of projects by providing personalized support, facilitating the financing process and offering a network of partners, some of which are significant. The aim is simple: to avoid staying at the idea stage and to enable start-ups and small businesses to develop.
But as you can imagine, most of these structures are not free. It is therefore advisable to be aware of this before deciding to be accompanied.
Indeed, apart from public incubators with other objectives, they all aim for a return on investment, like any business wishing to survive and grow.
The development of the local economy or the improvement of the reputation of an institution are often major issues for a publicly funded incubator.
Services and objectives being different, giving you a price list would be of no interest here.
Let’s rather try to understand the business model of startup incubators to properly analyse their prices and the expected return on investment.
Whether you are an entrepreneur, a project owner or a whole team working on a startup, incubation can greatly help you in your development.
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Incubators : A profitable business model?
These remuneration models correspond to all support structures, whether they are incubators, accelerators, business incubators or incubators.
However, their services are very different, and will play an important role in your choice.
This model corresponds exclusively to public structures, with the rare exception of aid sometimes provided to certain private incubators.
Among those benefiting from this model, we can mention the local authority incubators and the more specific “allègres”. The purpose of the latter is to encourage the exchange of technologies developed in public laboratories with innovative business start-ups.
This method of financing involves certain differences with private incubators or accelerators.
The most notable difference is that the director and the various members of the team must spend a significant part of their time establishing links with local and regional public partners, since there are no shareholders who already have a substantial network.
The case of a university incubator is slightly different as it is an integral part of the institution’s cost structure. Thus its budget cuts into part of the school’s budget, without increasing it, except for exceptional subsidies.
It will then be very dependent on the university director’s policy towards entrepreneurship.
Charging for services
Equipment, rent, experts… Some incubators choose to charge their incubatees for all or part of the services offered. This model is very popular with business incubators, as they primarily offer access to a place to work. The support they provide is often informal, consisting of discussions with experienced managers and other entrepreneurs.
Indeed, incubators and accelerators offer access to a wide range of informational, financial and technical resources depending on their field of interest.
Smartfood in Paris, for example, offers its incubatees a culinary laboratory equipped with industrial production machines, making it easy to conduct feasibility tests.
As far as prices are concerned, they vary enormously depending on
- Payment methods: Some choose to charge at the start of the programme, others by the month or by the year, and some even choose to charge only for “successful” companies, based on criteria set in advance (turnover to be exceeded for example).
- Services offered: The size of the premises, the tools provided, the presence of experts, access to a network and even the city.
So you can go from 100 euros a month, to 1000 euros at the start, to 10,000 euros at the end.
There is no real average or basis on which to base your decision, and it is up to you to find the best value for money according to your means and what the incubator offers. However, this price is always much lower than the actual price of the services offered and is never a bad investment.
One of the most common models used by accelerators and many incubators: in exchange for funding and support, the structure takes a share in your capital.
This rate is nowhere the same and is usually the result of a negotiation with the project leader. It generally varies between 3% and 10% but there is no absolute value and depending on the resources invested, this figure can rise.
Accelerators are particularly familiar with this type of financing, as they are often risk capitalists seeking to make their investments profitable.
It is true that spreading your capital around before you have started to make a real profit is frightening, but it should be noted that this ensures that you will receive very good quality support. You will also have access to all available resources, especially the team’s network. The network has an interest in doing everything possible to ensure your success
If you are a project owner at an early stage of creation, this may not be the best choice for you.
These accelerators and some of the incubators are more for those who are already at a certain stage of development and want to grow their business very quickly. A model that is therefore more geared towards high-potential start-ups than local very small businesses.
Importantly, it goes without saying that venture capitalists seek to reduce as much as possible the risk involved in this type of investment. Thus, the incubators making this choice will have a sometimes drastic selection at the beginning to privilege the projects and project holders with the highest potential.
The most reputable ones have a selectivity rate of between 3% and 8%, for example 50 Partners only kept 10 projects out of 1200 applications in 2016.
In addition to the project itself, you must have a competent team, a quality business plan and an effective pitch.
As you can see, there are many ways for all these support structures to finance the services they offer to startups.
A free incubator may seem like the best solution, no matter how good the support is, it will still be profitable after all… but things are not that simple.
However, things are not so simple. If price is a significant factor, the quality of the programme and the services offered are also important.
Thus this cost analysis is meaningless if it is not compared with the expected gains, which will be the subject of this second part.
Investing in an incubator rather than in your company?
A large number of incubators, accelerators or even business incubators are specialized and will address a very specific type of project. Whether it is a stage of development, a field of activity, a market or even a geographical location, it will be important to take these points into consideration. When put against the price, they will greatly influence the services you will receive.
Access to a network (internal and external)
Quite honnestly, this is the most valuable resource you can have and is one of the major differences between private and public incubators.
These structures represent what is called a structural bridge between many external networks. The business managers and partners are chosen for their experience and diversified networks, creating the most complete network possible.
As private incubators and accelerators are often the creation of experienced investors with a wide network of influence, incubatees have access to many sources of information, privileged relationships with certain suppliers and even manage to find their first clients easily.
When you listen to the testimonies of project holders, you quickly notice the difference with public incubators.
While the first ones manage to quickly find investors, suppliers and clients, the second ones only have access to a much more local network, focused on public services and the various communities. Of course, this depends on the structure, and if the project is very local or participates in the development of the city, the latter will be perfectly capable of helping you.
All this concerns the so-called external network of the incubator, but the internal environment is also of considerable value.
Numerous projects and their creators will coexist, creating synergies and generating a valuable informal information resource.
Moreover, some incubators intentionally seek to bring together complementary profiles during the selection process.
While a network is indeed difficult to quantify and evaluate, it is generally worth much more than the cost of access to the structure. You will get information in a few hours rather than days, you will find good suppliers and may even get your first clients, thus quickly paying back the price invested.
Access to financial and technical resources
We will distinguish here three types of financial resources: those provided directly by the accelerator or incubator, those granted by a public subsidy body, and those from private shareholders and investors.
Those who choose to take a share in the project will, in some cases, in addition to the services offered, invest funds directly in the capital of the start-up. This is particularly the case when business angels have a special relationship with the structure.
There are also certain incubators such as the Incubateur Paris-Dauphine which have their own loan funds. They provide a non-dilutive, deferred, unsecured, interest-free loan.
But most of them will not finance your business directly. However, they are familiar with many sources of private and public funding and their representatives.
They will therefore act more as intermediaries, while providing you with technical support in writing an investment file, a business plan or even preparing an oral presentation.
In France, there are many subsidy organisations that include the entire entrepreneurial ecosystem of their community in their networks. The BPI or the PIA are only the most famous examples, but other aid, particularly by region, exists. If your incubator is serious, it will be able to facilitate the procedures and send you to the right organisations.
There is also the very special case of business incubators such as the B612 of the Caisse d’Epargne or 39Bis of Sanofi. They have their own internal investment funds and help with the development of solutions that they wish to buy for their own use.
Finally, one should not overlook the internal competitions of certain accelerators or incubators, which sometimes offer a significant sum to the winner. These are even found within modest structures, not only in the famous Station F or the Family.
For example, the rewards amount to several thousand euros at the Manufactory incubator, attached to the Jean Moulin Lyon III University.
Here again, we see that the investment to join these structures is largely compensated for by the easy access to financing that they offer. Numa, which has raised a total of 100 million for about 100 companies, has only taken a 3.5% stake in each of them.
The BPI or the French Tech grant alone can add 20,000 or 30,000 euros in subsidies to your capital, and a good incubator will know how to help you write a funding application to obtain them. Find all French startup incubators here.
Access to quality support
It is difficult to make generalizations here, as each structure has its own programme, consultants, experts and team.
Just be sure of one thing: these services will always cost you much less than their real value.
Some even have industrial production tools, 3D machines or professional software that you will have access to. All these tools would be extremely expensive to access on an individual scale, unless you have an excellent professional network.
Combined with expert advice and personal follow-up, searching for information, developing prototypes or acquiring a skill will be simplified.
However, it would be wrong to claim that all incubators or accelerators are beyond reproach in terms of the quality and continuity of the support they provide. Like any business, some are more qualitative than others and it will be up to you to find the one that can best help you.
My aim here was not simply to give you the prices and costs of a support structure. The aim was to give you the keys to be able to choose one of them or not with the necessary hindsight.
To do this, you will have to do some research to find the one that, for the price you are prepared to pay, will bring the most to your project and its growth.
To help you some points to conclude:
- Look for the most specialized in relation to your project (banking, industry, plastics, agribusiness, digital, etc…)
- Look for assistance adapted to the growth potential of the project: creating a local food concept, selling handmade candles or developing the application that will revolutionize the medical field do not require the same resources and skills.
- If access to a specific network can get your project off the ground, see which incubators can get you in.
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