There is a boom of incubators and accelerators throughout the country, and many have arrived in Southern California, centered in L.A.
A recent panel event sponsored and hosted by UpStart/L.A. in Santa Monica offered a panel of four founders speaking of their experiences with four different incubators. These included YCombinator, TechStars, 500 Startups, and IdeaLab.
Most programs are an intensive 90 days. Most require full-time involvement, some in a live-in environment, or some in locations open 24/7 and expecting founders’ 12-hour-a-day presence. Some have facilities, some are educational-based, and can be done in the evenings. All have a full network of mentors available, which expect the founders to initiate outreach for what help they need. All include seminars, training and/or educational programs, plus access to expertise from the mentor and peer network. Survival rate of most founders’ companies after 2 years in these programs is about 80%.
Here is a summary of sound bites from the panel presentation.
The profile of the founders includes:
- Founders are primarily 1st time entrepreneurs with deep domain experience, but some are serial entrepreneurs.
- Founding teams are preferred, particularly with a technology founder attached, rather than single entrepreneurs.
- Most founders are in their 20s and 30s (Millennials and GenXers).
- Most are at concept or ready-to-launch stage. Occasionally a founder has revenue.
- There are virtually no dropouts from these programs (except those educational programs that cull their participants, such as Founders Institute).
- Access to network of mentors, investors, peers.
- Collaboration with all of the above, spending time, getting expertise.
- Wider network available through the incubator.
- Credibility and increased valuation when seeking new funding, from having been vetted and selected by the Incubator, and from having completed the training.
- One founder declared, “I would pay a lot for the benefits I received.”
- Founders must pass rigorous screening to be accepted. Founders need a compelling concept; a team, especially a tech founder; strong scalability in their revenue model; and a company profile that would justify professional funding.
- All the founders spoke of the incredible pressure and hard work they experienced during their 90-day term.
- Some spoke of experiencing “mentor whiplash” from sometimes receiving conflicting advice from various mentors. This whiplash would force the founder to deeply examine or re-assess all business issues.
- Founders must be pro-active to get the benefit from the available resources within the time frame of the term.
- Founders must aggressively network with mentors and peers to build community in order to get deep benefit.
- A culture of “pay it forward” pressures founders to help their colleagues in the program with their needs (which sometimes adds time pressure to getting their own work done).
- Founders must complete their mentor networking, finish their product, and prepare and practice a pitch for capital for demo day, all within their 90-day term.
Deals from Incubators: Capital in and equity out
Capital contribution ranges from $12K to 20K seed capital (occasionally more). LaunchpadLA offers $50K to each company. IdeaLab now averages $50K – 100K in seed capital.
Founders contribute 6% (sometimes more) of their founding stock to the Incubator. IdeaLab generally wants 10% of founders’ stock.
Follow-on angel funding ranges from $100K – $250K, usually in a convertible note to the next-round Series A funding
These incubators and accelerators are supporting the current boom in high tech application development for many market sectors, seeding and guiding new companies and connecting them to opportunities for seed capital and more. The companies have the opportunity to move forward in the capital-investment circuit, finding funding and building their next new thing. If these programs prove successful, we can hope to see a new generation of serial entrepreneurs developing soon.