Incubators are a Ghetto

There are some things my discretion says should not be made publicly specific.

While everyone is entitled to have different sensibilities, I don't understand why you would refuse to discuss this in the abstract.

I'm not sure what you actually read, but at the end there is a link to this google doc which appears to be the closest thing to publicly available data. https://docs.google.com/spreadsheet/ccc?pli=1&key=0AkkhS...

I have never been through an incubator, but I have been involved in the process of successfully raising venture capital half a dozen times. Further, I have become friends with many other founders and investors. I have friends who have been through different incubators and I always make it a point to get involved with entrepreneurial events and activities whenever I can. Of incubators I have personally observed, some are on that list and some are not.

I have no affinity for any incubator, but there are public numbers and if you want to take the position that on paper right now YC doesn't overshadow everyone else, I'd really like to hear the arguments.

Honestly, I'm not upset so much as underwhelmed and disappointed. It doesn't impact my life or business directly, I just don't like to see good people wasting time and that includes people running these incubators.

If you care to make questions or comments on any point beyond ad hominem commentary, I would do my best to answer in earnest.

These things are not mutually exclusive.

Most incubators can be ghettos AND there can be too many.

While I partially support the algae bloom theory, I am asserting there are companies that deserve incubation and believe they are, but are in fact not getting good advice nor real opportunity through the program.

There is an emphasis on hacker news and in the startup scene on VC funding. But I think this is a mistake. The mission of a startup is not to get VC funding. The mission of a startup is to get product-market fit. Angel funding or some other solution is necessary to sustain you until you get that product-market fit.

But until you do, I think you're going be in a worse position for getting VC funding. You might not be able to get it at all, or if you're in a hot area, you might get it but at terms that aren't' really great. Certainly, when you can show traction, or massive growth, or profits, or massive growth in profits, at each level the terms you'll get for outside investment get better.

We're about to enter an incubator program (Startup Chile) and I have no idea what their funding rate is. I'm guessing that less than %50 of the startups get funded, certainly by VCs, within 6 months, mainly because Startup Chile supports very early stage companies.

Here's our goals in startup chile:

1. Have 6 months to not worry about our burn rate because its covered while we try to get product market fit.

2. Have 6 months in close association with others doing startups to exchange ideas around technology, business, marketing, etc, that will help us get to product market fit.

3. Test our product in latin america as we try to get product market fit.

4. Expand our relationships with developers in latin america.

For our product and market, a successful product market fit should make us immediately ramen profitable, and probably "we don't have to take money on bad terms ever" profitable. If at that point we want to pursue money, or pursue the go-big-really-fast california venture capital style startup, we'll be in an excellent position to do so because we'll have traction.

If we fail to find product market fit, or we get close but things don't take off, maybe we'll be well set up to apply to Tech Stars or YC, or start offering Dave McClure rides to the airport.

One things for sure, after those 6 months funding or no, we'll be a lot more incubated than we are now.

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Wanted to clarify:

The goal of Startup Chile is to incubate a startup culture in Chile. Thus they're bringing around 300 companies to Chile each year (3 overlapping groups of 100 that stay for 6 months). In exchange you get $40k, and they take zero equity, but you also "have" to network with chileans to help jumpstart their startup culture. For us this networking is a feature.

We're not solving a small problem, we're solving a large one, and we're addressing the global market. Chile gives us an opportunity to test in a small market, if we choose to (haven't decided) but in no way will we be restricted to the Chilean market for our product.

I removed the term "lifestyle business" because it isn't really what I meant to say, and I just hate hate hate it anyway.

Scaling a startup these days doesn't take the money it used to. This makes VC terms even less attractive. Thus the goal of a startup going thru an incubator should be less focused on getting VC money. If you've got an internet based business model, and you've got a way to cost-effectively address your market, you can scale up by keeping headcount growth below the rate of revenue growth.

We got good value, but I don't think the average startup would be best served by an incubator approach. The amount of cash is too little, the mentors are generally accessible in our industry, and you can get the camaraderie of being around other startups via a coworking space. For us, our program being sponsorsed by the largest indy ad agency in the world (W+K), as well as Google, Target, and Coke, was a huge factor in why it's been good for us. But I don't think most incubators have that kind of approach. And in particular, as more and more generic startup incubators spring up, the value of being part of one probably drops.

Chasing funding can be a major distraction from finding a product-market fit.

Good advisors, be it in an incubator or a mentor, help you make sure you can make money with your business before adding money to make it grow.

There are lots of problems out there to solve and for those looking for their first hit it's quite reasonable to find one that can provide enough value early on that customers will pay for it.

OTOH if you really only want to entirely invent a new paradigm with the help of funding, great. Personally I'd rather do the same forever, not having to worry about my day to day thanks to some simple but profitable problems I've solved.

I guess that makes me pro-profit and not so much anti-funding. Businesses need to make money, now, later. The more we avoid and distract ourselves from that the further out we are from reality and sustainability. Both ways have their benefits. :)