Should you take your business to a start-up incubator?
With a number of start-up incubators now existing in South Africa to both help with business plan development, business finance and other start-up support services many entrepreneurs are asking whether going the Incubator route is the right solution of their business.
I thought it may be useful to share this very interesting case of a entrepreneurial team going through the same decision process of whether to take on the help of an incubator.
Three years ago, I brainstormed an idea with a couple of friends for Foodzie, an online marketplace for artisan foods that would let home chefs and small food producers market directly to consumers. We knew we were onto something, but we were recent college grads in Greensboro, N.C., and didn’t have the funding or connections to launch the business.
So we decided to apply for TechStars, a start up incubator that provides mentorship and seed funding to innovative early-stage tech companies. We were accepted, but the program required us to uproot our lives, re-think our idea, and give up a stake in our company. Despite these sacrifices, I’d do it all again in a heartbeat.
When we came up with the idea for Foodzie in the spring of 2007, we knew we needed help getting it off the ground. My partners — my fiancé Rob and close friend Nik — and I had the technical skills to build the site, but we didn’t have enough money to devote our full-time efforts to the company. Moreover, there was no real tech community in Greensboro to help us secure funding.
We found out about TechStars through one of their mentors, Ben Casnocha, who gave a presentation on entrepreneurship at UNC Chapel Hill. We were excited that they offered young entrepreneurs like us a combination of mentorship and connections to venture capitalists. But the program was also highly competitive: They accepted only 10 start ups out of hundreds of applicants.
So we submitted an application and then, to better our chances, we flew out to their headquarters in Boulder, Colo., to meet the directors at their “TechStars for a Day” conference. The face time, plus weeks of following up to show that we could execute our ideas, impressed them. They selected us as finalists, we survived several rounds of interviews and then made the cut.
Going all in
We knew that Foodzie’s future wasn’t in North Carolina, so when we moved out to Boulder for the two-month program in the summer of 2008, we decided to move for good. It was a hectic time — everything seemed uncertain. But we were confident that TechStars would help us work out a plan.
However, once we arrived in Boulder, the intensity of the program immediately overwhelmed us. The residency progresses in three phases — development, execution and pitching — each of which is as disorienting as it is helpful.
In the first phase, all 10 participants must sharpen their ideas. Mentors and other founders repeatedly questioned our ideas and challenged our basic assumptions. One of the founders, David Cohen, even joked that some of us were there in spite of our ideas.
Their goal was to force us to refine our business idea or come up with another one, which forced some companies to trash the first idea altogether. We all suffered what is known within the program as “investor whiplash.” But the approach worked. Our core concept stayed the same, but we developed a more comprehensive plan, with more ideas for generating revenue.
In the second phase, we devoted our time exclusively to executing our newly polished idea. We spent 16-hour days building the site and gathering feedback from our mentors and the other program participants. Finally, the third phase was about perfecting our pitch to funders. I hated public speaking. But we rehearsed our presentation about 100 times, so I had no problem on Investor Day, when 400 venture capitalists arrived to listen to our pitches.
At the start of the program, TechStars gave us a small amount of seed funding — $6,000 per founder, so $18,000 total in our case. It wasn’t much, but it was enough to allow us to focus on Foodzie full-time for several months. In exchange, TechStars took six percent of our equity. It may seem like a large stake for the size of the investment, but was worth every dollar.
The instruction we received from our mentors and peers paid off almost immediately. That October — during the height of the recession — we leveraged the connections we had made to raise $1 million in venture funding. We put that money to work to complete our marketplace, hire staff, contract with more than 500 food vendors and garner hundreds of press and blog write-ups.
I’m certain that we would have found a way to launch Foodzie without TechStars. But I bet we’d still be in North Carolina struggling to get it off the ground if we hadn’t gotten the support of such a collaborative, mentor-focused startup community.
While working at a specialty food shop, Emily Olson was inspired to found Foodzie by seeing the quality and quantity of products that never made it on the shelves.
As told by Milly Olson, Co-Founder, Foodzie.com
So from an entrepreneurs perspective there are a number o issues to consider. Contact us for information on the various incubator services available in SA and if you have any reservations about taking the next steps.