Although 2020 was a terrible year for humanity, it was a very good year for startups. Here’s what Crunchbase said:
“Startups closed out 2020 in a much stronger position than the one they started the year in, with global venture funding up 4% year over year to $300 billion. That growth came as industries disrupted by the global pandemic—work, health care, education, finance, shopping and entertainment—shifted dramatically to online services. That, in turn, created a boom for tech infrastructure and cloud services companies supporting this transfer, leading to a strong IPO and M&A market as companies sought to consolidate and compete.”
Incubators are a common route for startups looking to grow. The National Business Incubator Association estimates 7,000 incubators around the world, including 1,400 in the US. According to a Kolabtree blog, the top five incubators are: Y Combinator, Techstars, 500 Startups, Venture Catalysts and StartupBootCamp. In its most recent review, the best known incubator, Y Combinator, reported that it had “raised” notables like AirBnB, DoorDash, Stripe, Cruise, and Instacart, producing a combined valuation of $300 billion dollars, 125 companies valued at $150 million or more, and produced more than 60,000 jobs.
The Keenan-Flagler Institute of the UNC Business School describes the purpose and contribution of incubators as support new businesses in multiple ways:
“Business incubators support young businesses through three primary mechanisms — buffering, bridging, and curating. Through buffering, incubators protect young firms from competition and external threats. For example, shared basic business services help offset costs. Bridging connects firms to outside resources, knowledge and social capital. This often includes networking with mentors, investors with industry expertise, and early buyers and suppliers. When firms need help sifting through many available resources, curating connects them to the most appropriate ones.”
Ian Hathaway described incubators this way in a recent HBR article: “Startup accelerators support early-stage, growth-driven companies through education, mentorship, and financing. Startups enter accelerators for a fixed-period of time, and as part of a cohort of companies. The accelerator experience is a process of intense, rapid, and immersive education aimed at accelerating the life cycle of young innovative companies, compressing years’ worth of learning-by-doing into just a few months.”
It’s not easy to join a top incubator, and it’s not cheap in cost and time. Y Combinator takes 7% of the startups that apply. For their support they have a standard plan: they invest $125K using a “post-money safe” that converts to 7% of the company’s value. In addition, they are granted the right to invest pro-rata in future financings (including the round in which our safe converts) to maintain their ownership percentage (“Pro-rata right”). Y Combinator runs two three-month funding cycles a year. Founders are expected to move to the Bay Area for that period, during which they work intensively to get the company into the best shape possible. Each cycle culminates in an event called Demo Day, at which startups present to an audience that includes significant investors.
There’s no doubt that incubators help. A recent Forbes article pointed out: “A 2010 study from the National Business Incubation Association (NBIA) found that companies that participated in a business incubator had an 87% success rate — nearly double the 44% success rate of businesses that didn’t incubate. This figure is still widely cited today. A UK study from 2014 had similar results: The average survival rate for businesses that went through incubation programs was 92%.”
But, while startups broadly benefit from the incubator experience, the freelance revolution is providing some interesting alternatives for eager entrepreneurs and startup teams that lack the time or resources to incubate. Here are six alternatives to the incubator route:
DIY Guides. OneCircleHR founder Emma El-Karout found it helpful to work with author Ben Blomerley. Blomerley, COO of Mohara.co, wrote the ebook “The Marketplace Blueprint” which advises startups on the steps and actions needed for success. Mohara is a software development studio and sweat equity investor, with offices in several countries.
Coaching and consulting. There is a growing movement in the freelance revolution to provide executive coaching and that has expanded into startup consulting. Individual freelance consultants like Evelina Lavrova offer startups help in marketing, PR and IR for tech startups. StepUp, an executive coaching service led by Jen Simpson, an expert coach and former private equity executive, works with founders on new business creation as well as corporate executives, and brings a unique background: until recently Simpson was executive director of the Aspen Institute’s Finance Fellows Program so she brings broad knowledge and a strong network. In addition to individual coaches focusing on startups, executive coaching platforms like AceUp led by Will Foussier are also growing quickly to meet demand, and expanding into areas like coaching for innovation and new product and service creation.
Coaching and consulting networks. Mentorpass is a new startup that has taken coaching to the next level. Kenny Hanson, a former Accenture consultant, identified the potential to combine coaching and incubator benefits. Founders working with Mentor Pass get a main coach, and access to specialized mentors in a wide variety of areas, from how to raise money to service pricing to resource scaling. Hanson describes his service this way: “We offer founders a main advisory relationship supported by experts in different specialty areas.” For this, founders pay a monthly subscription fee. Hanson reports that angel investors have expressed interest in using Mentor Pass as a means of identifying attractive investments. It is a new platform – a combination of coaching and access to an expert network – and I’m eager to watch how it develops. Its strengths: the coach, support by experts, and the time and cost of decamping to an incubator. The challenge: how to create the intensity of the incubator experience in a less intense coaching relationship.
Educational offerings. The fourth approach we’ve seen providing an alternative to the incubator is co-learning. One example is Jolt.io, an Israeli based platform offering what it calls NAMBA or “not another MBA”. From its extensive class offerings of 1.5 to 3 hours each, the Jolt team has pulled together a curriculum for new startup leaders and teams that is focused on new business creation. These video based programs are taught by experienced entrepreneurs, business leaders, and experts in a wide variety of fields (note: I was a member of the Jolt faculty). Coursera also provides support for budding founders. And universities are getting into the act. For example, Columbia University offers an executive education program it calls “Launch your startup” that is 8 weeks online and “offers an intensive learning experience that focuses on the creation, evaluation, development, and launch readiness of a new business or social enterprise. Program participants learn from Columbia Business School faculty and tap into the expertise of the University’s vibrant entrepreneurial community.” Harvard and many other business schools provide similar entrepreneurial programs.
Platforms and ecosystem partners. There is a growing trend for freelance platforms and ecosystem partners to provide coaching to their freelancers, particularly those who have shown significant success. While more general in focus than startups, Fiverr offers a Fiverr Pro service which includes business development coaching and education, and MBO Partners has a similar concierge service provided to selected freelancers. Gebeya, an African based freelance platform, has worked with African freelancers who have entrepreneurial goals to grow their business. Go Floaters, a platform to discover & book coworking spaces in India, offers entrepreneurial education to its members. Payoneer has recently created “freelancer’s lounge” a video based series of mini-courses on building a successful freelance career (Note. I am a member of the Payoneer faculty for this initiative).
Social networks. Finally, social networks are a source of support. For example, I’m speaking later this year to a network of Harvard B School alumni entrepreneurs who regularly bring in experts in different areas of starting and scaling a business. Networking sites like Startup Nation, Founders Network, or LinkedIn communities are another resource. A helpful article in Inc described a number of peer support communities for entrepreneurs and startup founders entitled “5 Support Groups that Make the Startup life Less Lonely.” Most major cities around the world – and many smaller ones – have meetups or networks for entrepreneurs and often more specific networks. For example, goodtalks.dk is a Danish women’s network led by Pernille Sandberg Bech that is nurturing and educating female entrepreneurs (as well as corporate female leaders).
There’s no doubt that incubators provide real advantages for startup founders and teams who are able to make the cut, and accept the time and expense of an intensive experience. But, not all future unicorn teams have the access or means to take the incubator route. For those who can’t, the freelance revolution is offering new ways for startup teams to get that next Toptal, Upwork, or Fiverr started.
Viva la revolution!