Adapted from: https://www.entrepreneur.

com/article/75820

1 Opinions expressed by Entrepreneur contributors are their own.

2 Prior to launch, new businesses have to hire people; register the business name; formally
3 organize the company as a Sub-S corporation, C corporation, limited partnership or LLC;
4 and get banking services in place. Entrepreneurs also have to set up:

5 • Office space for managers and staff.

6 • Lobby and reception space.
7 • Meeting and conference space (white board, projector-screen capability).
8 • Communications infrastructure (phones, fax, internet).
9 • Computing capabilities (PCs, networks).
10 • Website hosting.
11 • Postal and overnight delivery addresses.
12 • Document processing.

13 And, most importantly, the venture has to get funded. For most startups, getting everything
14 in place is a major headache. But for many emerging companies, launching at an incubator
15 might be the one-stop solution to all the tasks outlined above.

16 Incubators are essentially ready-to-go space and support infrastructure for startup companies.
17 They also may have a full-time incubator support staff to help you and your personnel with
18 finance, marketing, sales, IT, strategy and other areas of operations. Under one roof,
19 entrepreneurs can have turnkey access to professional reception and waiting area, mailboxes,
20 parcel pickup, office space, meeting and conference rooms, and access to all the hardware
21 and gadgets needed to conduct daily business.

22 Remember, a business incubator is itself an entrepreneurial venture, as investors have pooled

23 their funds to secure a large building and outfit the space with its own support team and
24 everything needed for dozens of startups to engage in business. The incubator generates
25 revenue by charging monthly rental-access fees to the tenant companies.

26 Having provided consulting services to more than 125 entrepreneurial growth companies
27 since 1984, I'm very well acquainted with a wide range of incubator types and sizes used by
28 more than a dozen of my clients. I also have hands-on knowledge from the insider's
29 perspective, as a founding member of the Advisory Board for the Santa Barbara Technology
30 Incubator (SBTi), which opened in late 1999. And I'm an incubator alum who launched my
31 own company--TechKnowledge Point Corp.--at SBTi in 2001.

32 There are, of course, both pros and cons to securing capital funding from the operating
33 partners at the incubator.

34 The benefits include having a hands-on team of incubator support staff working closely with
35 you and your company. The staff works for the incubator partners, so they have a vested
36 interest in seeing your firm succeed, beyond simply collecting rent on your space. Other
37 startups in the incubator which are also in the investors' portfolio of companies can also
38 develop with you a good degree of camaraderie among the many entrepreneurs, company
39 employees and the support staff, as all parties get to see tangible evidence every day of each
40 other's struggling and working hard to be successful. The incubator investment team will
41 also likely have a wide range of network referrals with specific expertise that your firm can
42 tap into. After all, the investors want the incubated company to grow and be profitable, so
43 once again the vested capital stake can serve as a powerful link to bridge your operating and
44 strategic needs to knowledgeable and well-connected professionals in your industry and
45 market space. And finally, the incubator investors may also like to take an additional
46 personal investment stake in your firm or have excellent referrals to serious qualified
47 investors who will have interest in your firm.

48 But the irony is that many of those benefits can also be reasons not to do capital funding
49 through an incubator. The incubator staff and management team might actually end up being
50 more of a distraction to you and your personnel, as they may exhibit stronger allegiances to
51 the incubator investment manager, whose perspectives and expectations for company
52 direction and plans may be at odds with those of the entrepreneur. There could be various
53 forms of micromanaging from the incubator personnel and/or investors, with the pervading
54 feeling that the site staff, investment manager and even incubator shareholders are always
55 looking over your shoulder to monitor business progress.

56 The decision to get capital through an incubator's investment fund must be carefully
57 evaluated, regarding both tangible financial and other intangible costs to the startup business.
58 But the right fit and situation could also be the perfect place from which to gain both money
59 to implement your business plan, and the market/industry traction in those critical early
60 months of the launch, that are together the keys to your success.

61
David Newton is a professor of entrepreneurial finance and head of the entrepreneurship
program, which he founded in 1990, at Westmont College in Santa Barbara, California. The
62
author of four books on both entrepreneurship and finance investments, David was formerly a
contributing editor on growth capital for Industry Week Growing Companies magazine and
has contributed to such publications as Entrepreneur, Your Money, Success, Red 63
Herring, Business Week, Inc. and Solutions. He's also consulted to nearly 100 emerging, fast-
growth entrepreneurial ventures since 1984. 64

65 The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are
66 intended to be general in nature, without regard to specific geographical areas or circumstances, and should
67 only be relied upon after consulting an appropriate expert, such as an attorney or accountant.