

Incubators are a Ghetto - shanley
https://stochasticresonance.wordpress.com/2012/01/03/incubators-are-a-ghetto/

======
crcsmnky
Funding doesn't equal success, it's simply a longer runway to failure. That
said, what would be more telling is data about how many companies last and are
able to build something compelling or sustain any kind of growth, compared to
how much money they raised (if any).

Just because a program doesn't have successful entrepreneurs running it
doesn't mean they're companies are doomed to fail. It all comes down to
picking the right companies and the right markets to chase. If I were building
an enterprise-oriented SaaS product, it may make sense to join an
incubator/accelerator where the mentors have deep enterprise sales experience
from an enterprise company.

~~~
j45
>Funding doesn't equal success, it's simply a longer runway to failure.

In those cases (too many), funding is also a distraction and putting off
todays problems (profit for sustainability) until the future.

VC funding has often struck me as a wonderful way for those who have been
successful (many vc's are entrepreneurs) to give others a chance, and from a
financial standpoint, likely a reasonable way to have some tax write-offs
while doing good in the world to help give something a chance.

In that way, I like funding. At the same time, funding is about founders more
than the idea.

------
ryanwaggoner
As someone who just finished an incubator program (<http://piepdx.com>) and
thoroughly enjoyed it, I tend to agree. As AngelList explodes and traditional
venture capital contracts (or the bubble bursts entirely), I would love to see
more "incubator" programs that take very little or no equity and essentially
function more as filtered coworking spaces. I think we're already seeing that
with places like Dogpatch and General Assembly in NYC.

~~~
thesethings
Cool to hear about your positive incubator experience. I'm a little confused
though. The main vibe of the blog post was generally critical of the value of
most incubators and you said you "tend to agree." Not that these opinions are
technically mutually exclusive, but i did go "wait. what?" and reread your
comment over a few times.

Can you go a bit more into your incubator experiences (positive) and the parts
of the post you agree with (negative?)?

(Not asking you to rant/heap praise/ do anything you're not comfortable with.)

~~~
ryanwaggoner
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.

------
yesimahuman
One thing I've heard about other incubators is that they demand a large amount
of your attention, in a way that is more like working _for_ them rather than
as your own boss. This is interesting because it would seem to challenge the
entrepreneurs' drive for independence, which could be harmful to their
success. Contrast this with YC which gives you more independence and simply
offers "office hours" and weekly meals, where it's up to you to make the most
of them.

Has anyone else experienced this?

~~~
bbaker
Yes. This is a great point. I've been involved in a startup and advisory
capacity with a handful. The good ones are clearly working for their startups.
They gain success through their startups. In the bad ones, it feels like the
reverse - the startups are working for the accelerator. The difference was
clear to me.

A secondary question is whether those interactions bring value. It's okay to
be busy with engagements if those engagements are truly helping.

------
peregrine
I have an experience with one of those "Bad Incubators" the analysis is spot
on.

\- We all met weekly for presentations, half the advisors knew what was going
on the other half did not. Right before demo day the other half of the
advisors were shocked that we had pivoted and planned on selling our OLD idea.
Those same people then pitched our OLD idea to the few investors as a possible
pivot, which was a huge WTF.

\- They brought more politicians then investors to the demo day presentation.

\- The investors they did bring focused on healthcare companies and companies
further along(profitable, paying customers, large user bases etc)

\- The entire operation was paid for by a single guy, who subsequently was the
only investor in most of the companies in their "Accelerator" round.

\- Most of the companies accepted had non-technical founders/co-founders. Most
of the companies could not even launch a product, yet alone MPV, in 3 months
because of this, and some had trouble launching a product after 1 year.

Overall we turned down money from their "Accelerator" which ended up being a
great decision. If you are going to use an incubator make sure to heed the
advice this article gives.

~~~
dpe82
Sounds a lot like 94 Labs... if I'm right, I feel bad for you guys. I was at
the "demo day" this fall. So terrible.

------
hluska
Question for everyone....

Do you agree with the assertion (that most incubators are ghettoes) or is the
problem simply one of supply and demand? In other words, are there too many
incubators?

When you look at the economics of incubators, successful incubators rely on
successful startups. If there are too many incubators, companies that don't
normally deserve funding (or incubation) will end up getting shepherded
through the process....

~~~
littleidea
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.

~~~
hluska
Good points - thanks very much for taking the time to answer this. I enjoyed
the article a whole lot!!

------
prayag
I think you are missing two crucial pieces of the puzzle. The 3 months sprint
and peer support. Those are the biggest outcome of an incubator. You work your
ass off for 3 months to sprint towards a product while helping your peers with
their sprints. This can be done without an incubator of course but incubator
atmosphere keeps you going.

~~~
littleidea
I agree that is very valuable, and there are other valuable aspects of the
incubator experience that are omitted as well.

This schedule pressure and the support of colleagues can contribute to
successfully creating a fundable opportunity.

I'm just saying that results should be the measure. Fundable and funded, and
if that's not happening, the incubator is not working. Further, I put that
result more on the program than the participants.

------
michaelochurch
Here comes one of the most depressing posts I've ever written.

It seems that startup incubators are doomed to follow the same distribution as
business and law schools or non-STEM PhD programs: unless you get into a top
one (and by "top", I mean top 3 or 4) you should just go home. The connections
that will turn your time and effort into something are not uniformly
distributed, but clustered around a small (single-digit) number of hubs. The
non-hub alternatives exist to take your money (or, for incubators, equity) and
are unlikely to return on the investment.

This distribution isn't inevitable, but it's common. For counterexamples: from
an economic perspective, there are two classes of post-graduate educational
programs where it actually makes sense to go to a middling (i.e. respectable
but not top-5) program. 1. Medical school, because the AMA puts a cap on the
number of students the schools can take, limiting the number of doctors and
keeping the pay high, so that those skills are in demand regardless of
geography and connections. 2. PhD programs in STEM disciplines, where students
gain marketable skills and therefore, even though the academic job market has
been a cesspool for over 30 years, their graduates can get decent private-
sector jobs.

Option 1 is not a credible model for incubators, so that leaves the second:
some sort of objective and salable value-add. Unfortunately, this is hard to
achieve in 3 months in the context of a no-name incubator. The only way to
learn business is to do it ( _opportunity_ ) and that requires serious capital
and powerful connections, not a short runway and "mentoring" from someone of
dubious credentials.

People learn best when they are in moderate power. Actually, that's the only
time when most people learn. Being at the pinnacle or having infinite
resources just spoils them, and no one tells the truth to monarchs or
billionaires; but being at the base of the pyramid discourages and enervates
them. What the connections and cachet conferred by YC acceptance perform is an
elevation into this region of moderate power and high opportunity.

I don't think there's room for more than 5 general-focus Y combinators in the
US. It would be nice if there were, but the truth is that opportunity and
connections are not that abundant... or at least not in that way.

~~~
lsc
do people with masters or PhD STEM degrees make much more than people that
only have bachelors in similar fields? I thought that the gain was fairly
small. Even in the same area, I know a literal rocket scientist working as a
rocket scientist with a masters degrees from MIT who makes less than your
average programmer/sysadmin.

As far as I can tell, once you make programmer, having a bachelors vs. a
masters doesn't seem to make much difference. (Once you have the job, lacking
even the bachelors doesn't seem to make much difference; but those of us who
have the job with out the degree are relatively rare, which to me points at
the degree helping you to get the job, even if it doesn't change your pay all
that much once you have it.)

~~~
cdeonier
I think the degrees have an impact at large companies-- at the large company I
worked at, developers with bachelors started at 10k less than developers with
masters.

~~~
lsc
The fair comparison would be a developer with a bachelors and two years good
work experience and a developer with a Masters. Depending on your area (and
thus the size of the salary involved) $10K might be a mediocre raise for your
first two years; heck, if you are making $100K, that means you haven't even
been making 5% a year.

I don't know if it's normal, but in my career, raises came much harder and
faster (at least percentage wise) earlier rather than later.

------
dlevine
I'm not sure which incubators you are talking about. This post seems like more
of a rant than a productive analysis. I have seen some indications that there
are too many seed-stage companies right now, but I'm not sure if any one
incubator can be blamed for this.

~~~
karmajunkie
The entrepreneurial world is small. Its not the kind of thing where you
(should) name names. That said, he raises some good issues that I think most
of us have definitely seen.

~~~
herval
Why shouldn't you name names?

------
GC1
Before accepting money from an incubator ask the program directors for 3 to 4
references of founders that have gone through the program and 3 to 4
references of advisors to the program.

Then call the references the program directors didn't give you. Do due
diligence! Find out where the money comes from which founders, VCs, and Angels
support the program and the reason for their support.

As someone who's gone through a "Ghetto Incubator" I'd suggest you do as much
Due Diligence as possible before accepting money from a program because you're
accepting their terms too!

~~~
esalazar
Totally agree! I think it is also very important to get a real feel for the
people that you will be working with. I think that a lot of people forget that
these will be your "partners" for the life of the company. A poorly run
incubator will have incompetent people running it. Ask yourself if you think
these people could potentially be a pain in the ass in the future. As GCI
mentioned: DO YOUR DUE DILIGENCE!!!!

------
j45
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. :)

~~~
littleidea
That is sort of the point, chasing funding can be a huge distraction. If an
incubator can't provide significant advantages to doing so, what are they
helping with? In some circumstances, maybe something else significant.

I disagree with your second point. There are many opportunities that will not
be profitable initially. Google, Amazon, Facebook, Twitter, these are the easy
examples to point out, but there is a spectrum. A good advisor will understand
the landscape and consider your options and leverage.

I agree there are a lot of problems. Every inefficiency is an opportunity.
Insurmountable Opportunity...

I'm pro-profit and pro using every appropriate tool. I'm also pro thinking big
and long term.

------
rokhayakebe
I doubt the real value of an incubator is in helping you with the product, or
helping you build some people want and other people will fund. I do not even
think they can.

The value, today, is in the cachet. Being funded by YC, for example, will
_probably_ get you more press, funding, and _maybe_ even a larger exit.

------
nirvana
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.

\-----

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.

~~~
littleidea
Sounds like a great opportunity. Rock out.

If the incubator is specifically trying to develop lifestyle business in
Chile, win and win.

With the possible reservation that if you truly get to product-market fit and
it's a lifestyle business, then maybe you should consider a bigger market, as
it is almost always as much work to solve a small problem as it would be to
solve a bigger one.

Good luck, and I'd love to hear your story as you make progress

~~~
beambot
As far as I can tell, "lifestyle businesses" were not implied in the parent's
comment... just "bootstrapping." There is plenty of room in between "lifestyle
business" and "swing for the fences" -- your comment seems to imply that those
are the only options.

~~~
littleidea
The author edited the post since my response. I used the word lifestyle
because that was the word he used.

There are a lot of options. Infinite options. There is also a big difference
in potential risk and outcomes of those options. There is nothing wrong with
approaches to creating lifestyle businesses. In many cases, this can be
optimal.

------
jsavimbi
So am I to understand that the new easy way to success in blog writing is to
a) steal someone else's once-popular catchphrase b) avoid doing any real
research or "naming names" c) asskiss those names whom you've actually become
acquainted with d) offer unsolicited, unobjective and unhelpful advice and e)
profit?

Only travel writers are lazier.

~~~
littleidea
a) once popular catch phrase? because of Zed? granted it's hyperbolic and
cliche, but most titles are, by design b) If you want to discuss in private, I
can give names and numbers. There are real people with real feelings and real
money involved. c) you have no idea what you are talking about d) love to see
a critique or counterpoints with any substance e) share and share alike

I'm many things, but lazy isn't one.

~~~
jsavimbi
I'm not that interested in your names and number if you cannot provide them
publicly. Obviously, you seem to be somewhat upset at a person or group of
persons related to one or more incubators and would rather champion your three
favorites over others. I don't have a problem with that, but I think you have
to reword the premise of your argument and maybe provide helpful data points
without being facetious about the subjects, nature or provenance of your
information.

You know, appear to be knowledgable regarding the subject matter at hand;
otherwise it's just some fan-boy rant.

~~~
littleidea
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...](https://docs.google.com/spreadsheet/ccc?pli=1&key=0AkkhSN3vaY4jdF90b1l1Vnl5NmZjaTBNQWlJYVozMEE)

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.

~~~
jsavimbi
> I don't understand why you would refuse to discuss this in the abstract.

Because it's just gossip and opinion. There's nothing to discuss.

~~~
littleidea
I couldn't disagree more. In this case, being more specific is only going to
multiply the gossip and opinion.

There is more than enough data in the google doc to support a discussion.

Furthermore, you now have comments from people who have had the first hand
experiences I described. I'm willing to wager they didn't go through the
programs I would specifically identify.

I'm not sure what else one could need to have a discussion, but suit yourself.

