Incubate or incubust
Entrepreneur Elias Bizannes has been closely involved in the local start-up community and is now based in Silicon Valley.
He doesn’t believe the incubator model will last and that alternatives such as AngelList, which acts as a virtual “matchmaker” for start-ups and investors, are easier ways to raise funding.
“There has definitely been a boom in incubators, especially the seed accelerator kind,” Bizannes says.
“I think the model of investing will be more sustainable, as the investors have a lower cost of capital to satisfy to generate a return (ie. a Silicon Valley talent acquisition of $2-4 million can give the seed investors of Startmate a 10 times return).
“That said, I don’t think all these incubators will last: getting a bunch of random mentors, with dumb capital being invested isn’t what makes a successful incubator.”
Bizannes emphasises the importance of a mature exit market to nurture companies that have graduated from accelerator and incubator programs.
“It’s a hits-based business, and a mature exit market is needed. It’s partly for this reason that Silicon Valley has an edge over any other region in the world and why the incubators here are more likely to succeed.”
First-timers need apply
Even at this early stage, however, there are success stories to be found. Whether it’s Grabble or 99dresses, backed by the comparative veteran Pollenizer scheme and now headed to the US to join the Y Combinator program, it’s clear that there is plenty of Australian start-up talent to be nurtured.
Bizannes believes there are plenty of benefits that first-time entrepreneurs can gain from incubators.
“Different incubators benefit you differently,” he explains.
“They are great for those who don’t have a network, a reputation to raise capital, or validation in their abilities due to lack of experience. Incubators don’t make you a guaranteed success, they simply reduce the risk of you failing.”
Adventure Capital’s Naunton says that both accelerators and incubators are a “self-fulfilling prophecy”.
“By sheer virtue of going through Startmate, AngelCube, Y Combinator, there’s a lot of validation in that company even without having the customers on board.”
“It’s somewhat of a self-fulfilling prophecy that a level of success will be breed out of the fact that they have gone through an incubator program.”
Startmate’s Scevak believes the value of incubators is that they allow a business to accelerate their business development, learning and investing over a matter of months, but he warns that it is definitely not guaranteed to succeed and the default outcome is failure.
“Only a small number will succeed,” he says. “Seed accelerators add to the chances of success but the reality is that still the majority of start-ups fail.”
Noosbox co-founder Andrew Jessup said the program is best suited to technical co-founders, and ideally they have already launched the first version of an application which is ready to be scaled to the next level.
If you don’t fit these criteria, your chances of success are limited. But even if you do tick all of the boxes to join the burgeoning incubator scene, it remains to be seen whether any graduates are set to storm the world stage.