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Incubators, Accelerators, and Factories, OH MY!

On the occasion of visiting the Roundhouse, labeled online as a ‘startup space’ and in a Journal of Organization Design case study as a ‘startup factory’, I set out to clarify my personal knowledge of some of the various components of an entrepreneurial ecosystem. I was seeking definitions and norms for physical locations that, at least theoretically, assist entrepreneurs in launching their businesses. I focused on co-working spaces, incubators, and accelerators, as they appear to be by far the most common combinations of physical structures and entrepreneurship specific assistance. I conclude with a brief discussion of Roundhouse specifically.

Co-working spaces

A co-working space is a shared environment that entrepreneurs and business people can use on an ad hoc or contractual basis. Often there are shared resources such as internet access, tables, computers, coffee machines, meeting rooms, and so on. Usually, there is some sort of fee for accessing the space, ranging (rarely) from a ‘per use’ basis, to ongoing monthly fees, to annual contracts. There is a growing trend to offer co-working spaces for free, at least in major markets. Before this was called co-working, it was called renting office space. There was a company (probably still is) Called Regus that would rent you space by the day to by the year with shared secretarial, fax, internet, boardrooms, and so on. And people used libraries and coffee shops, with varying levels of success. They still do.

Incubators

An incubator is a much more sophisticated bundle of resources. The purpose of a business incubator is to help nascent and early stage businesses develop. To do this they offer a suite of services. Incubators vary in the ‘mix’ of products and services offered. Some commonly offered services are high speed internet, help with business basics, introductions to investors and business experts, preferential access to higher education, and intellectual property advice. Sometimes also offered are market research, legal and financial experts, comprehensive business training programs, and access to capital through preferential loans, angel investors, and venture capital. Incubators typically don’t have a timeline for a business’s exit, or if they do it is measured in years rather than months. Incubators are most often grant funded and/or not for profit. Their goals are usually socioeconomic in nature, things like job creation, technology commercialization, or diversifying the local economy. Oh, and they want to help the company succeed too.

Accelerators

Everyone wants to be an accelerator. But they’re not.  Incubators and accelerators both prepare companies for growth, and they both provide guidance and mentorship. But accelerators operate on a faster time table, and often put significant amounts of money into the mix. In exchange for this money and the services offered, the accelerator takes a piece of the company. The numbers I found indicate that 6-7% is about average, for cash and prizes totaling $150 thousand to $250 thousand.  Most, but not all accelerators have a ‘standard deal’ that all companies must agree to to be considered for admission. An accelerator program is typically an intense 3 to 6-month learning period, during which, and immediately following there is a great deal of very active mentoring going on. In addition to the mentoring, a comprehensive suite of services, similar to incubators, is offered, with specifics varying by location.

The Round House

Based on their website, the Round House offers all of the above in Opalika, and now in Mobile Alabama. From their website it looks like they offered a traditional accelerator in 2015 in partnership with John McAfee and others. However, I don’t see any current evidence of a typical accelerator format. In any event, a visit to their space in Mobile and a talk with Kyle and Robin left me convinced that they were something new. They have co-working space. It is very nice space. If I were in the market for co-working space it would definitely be on my short list. Kyle didn’t seem to care for the incubator model however. He indicated that he wanted to move much faster with the companies he chooses to mentor. In general, I view that as a good thing. Fail fast, fail often, fail forward and all that. And if you’re going to succeed, why not now? Why drag it out? That all makes sense. And as I’ve come to understand the rest of the model, it makes even more sense.

What this company seems to do, at least some of the time, is make what can only be described as angel investments in nascent and young companies. Instead of forking over a bunch of cash however, they provide all the same services that an incubator or an accelerator would provide, plus additional services, such as hiring programmers to finish your software. I can see the virtue in this. Often, a fledgling entrepreneur doesn’t really know what to do with the money they get. Without going through their process myself, or without analyzing the numbers for the businesses they have ‘graduated’ I’m not sure if they’re a good deal or not. At first blush I believe that they are taking a larger equity stake and providing similar services to companies than accelerators do. That being said, I imagine that most of the companies that they take under management (or whatever) wouldn’t be able to get into an accelerator in the first place.

So really, it’s the same old story. If a company could qualify for Y Combinator, or The Brandery, or Amplify, they’d be in one of those types of startup accelerators. Since they can’t, they are coming to a lower tier of service provider. Let me be clear, when I say lower tier, I do not mean that Round House is not as good as Y Combinator.  (That’s a bad example. Probably no accelerator is as good as Y Combinator, but you get my point.) All I mean is that their money seems more expensive than other money. It’s similar to someone with a higher credit rating getting a better interest rate. The better ideas get better terms. But if you’re in Mobile or in Opalika and you’re looking for access to capital and mentoring, do your due diligence and check out Round House. It might be a good fit.

 


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