While the banks may be reluctant to lend money to new businesses the government, universities and multinational corporations are all falling over themselves to support start-ups. As well as loans and advice the government recently announced that they will be making office space available. Announcing the release of 20 government buildings for use by start-ups they appealed for “incubation organizations” to “manage and allocate these spaces”.
People involved in the running of business incubators claim that companies that go through their process have around a 90% survival rate after 5 years compared with 30% for other small businesses. ‘Incubators’ are free or low cost work spaces. They can be offices or studios where you will find yourself working alongside other new and growing companies. Often the deal will include business mentoring, help with funding and general support. Being alongside lots of other fast growing businesses also makes incubators an excellent place to network and make contacts. Many of the business incubators in the UK are run by universities but there are also ones run by charities, private companies and government agencies.
Whilst ‘incubator’ is the most common term for these kind organizations in the UK some also use the term ‘accelerator’. More often ‘accelerator’ is used to refer to the largely American model of venture capital driven business incubation. Organizations like TechStars and Y Combinator take a limited number of start-up companies per year, almost all of which will be high tech companies. They will invest thousands of dollars in each company in exchange for the option to buy in. At the end of an, often very short, period of intense development and mentoring the start-ups will present their ideas to a handpicked group of investors. The aim of these accelerators is not to build a fully functioning company but to get them to the stage where serious venture capitalists are willing to invest large amounts of money.
There is some doubt about how effective accelerators actually are with reports from American claiming that 45% of start-ups that enter them receive no venture capital funding. Similarly reports from the UK have claimed that many of the incubators act as artificial life support. That they keep companies afloat that will wither and die as soon as they are released to fend for themselves. The figures are skewed somewhat by the companies involved though. Normally business incubators require new companies to apply and go through a vetting procedure. Companies with high growth potential and a good business plan are most likely to get in. It is generally agreed that there are not enough reliable statistics available to make any kind of judgment on how successful incubators and accelerators really are.
While business incubators and accelerators might not be the solution to every start-up’s needs they can be a good option for some. If what your business needs is low cost office space and the opportunity to do some networking then UK style incubators can be a great option. There are claimed to be over 300 incubators in the UK so you are likely to be able to find one close to you.