Incubator Options

VENTURE ACCELERATORS

Four years ago, Paul Graham, the co-founder of Viaweb, realized that the costs of starting an Internet company are negligible: High-speed Internet access and the right entrepreneur are about all you need. There were a lot of successful entrepreneurs eager to share their wisdom. And it was possible, Graham says, "to apply mass production techniques to the founding of a startup"—or at least to Web startups.

Such was the genesis of Y Combinator, a for-profit incubator in Mountain View, Calif., founded by Graham and three partners in 2005. The incubator—Graham prefers "venture accelerator"—enrolls about 10 Web startups into its three-month program, giving each $15,000 (those with multiple founders get a bit more) in exchange for a 6% equity stake. Entrepreneurs work at the Y Combinator offices and get weekly dinners with a startup expert and regular meetings with Graham and other founders, plus other consultations. In Week 10, each team pitches to investors.

Since Graham's brainstorm, venture accelerators have sprung up in cities such as Philadelphia, Phoenix, and Atlanta, all loosely based on Graham's model. But there also are significant differences among them. For example, TechStars, based in Boulder, Colo., and Boston, takes a more hands-on approach. Each company gets 5 to 10 mentors, and the focus is more on business model and strategy rather than technical development. That's also true of LaunchBox Digital in Reston, Va., which was started in June 2008. SproutBox, in Bloomington, Ind., accepts only one startup at a time.

For many entrepreneurs, the best part of being in such an environment is the opportunity to learn from like-minded company founders. That was certainly the case for Christi Scovel and Tina Cannon, who joined Austin's Capital Factory this summer. The pair want to start a Web site for pet owners and veterinarians. But neither Scovel, a former veterinary consultant, nor Cannon, a former business consultant, is particularly tech-savvy. So they were delighted when the founders of another Capital Factory startup offered to develop the infrastructure to schedule vet appointments online. The companies will share revenues brought in by that line of business. "You get to know the other companies really well, working so closely together," says Scovel. "They realized we needed help with something they could build easily." Scovel and Cannon launched the site, called PetMD, in September.

GETTING IN

Who should apply: Usually, venture accelerators are for Web and software startups, and teams need to include at least one technical expert. But Scovel and Cannon got in on the strength of their idea, their background, and the fact that their business wasn't too technically demanding. Graham is more interested in personal characteristics—determination, a penchant for going above and beyond, and technical savvy—than in a particular business idea. Typically, entrepreneurs have to fill out a brief online application, followed by an in-person interview.

Pros: You get access to about 20 experienced company founders, as well as free legal, accounting, and marketing advice. The constant contact among colleagues encourages a creative environment in which entrepreneurs can share ideas and give each other advice.

Cons: You'll give up some equity. Plus, three months or so simply may not be enough time for you to develop your product or fine-tune your business plan. And you might not appreciate having all those fellow entrepreneurs wandering into your workspace all the time.

SOCIAL VENTURE INCUBATORS

The roughly 40,000 entrepreneurs who run so-called double- or triple-bottom-line businesses (those that seek to create explicit social or environmental benefits, or both) encounter unique challenges, such as measuring progress toward ambitious social goals or setting up employee ownership plans early in a company's life.

Enter the social business incubator. One of the first, the Global Social Benefit Incubator, launched in 2003 out of Santa Clara University.

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