Venture Capital Incubator
One part of the venture capital field of interest to a new business owner is the incubator. An incubator is a company that assists a new business reach either self-sufficiency or a level where it can attract venture capital interest.
The incubator company has one of the more interesting names in the business environment. An incubator is defined as a company that specializes in providing assistance to a new company with the goal of bringing it either to self-sufficiency or to a level where it will attract the interest of venture capital. Since venture capital deals typically involve millions of dollars, it is growth to this level of need plus the ability to demonstrate stability and profitability that is the goal of the incubator company.
To really understand this concept, you should understand an important thing about the majority of beginning entrepreneurs. What they usually have is a really good idea. They produce the proverbial better mousetrap. They find that banks and other conventional means of financing tend to not view good ideas as collateral. So, they generally lack financing to build a giant better mousetrap plant and must start out small. Venture capital firms are not interesting in small. So, it is necessary to establish some track record.
The problem stems from the fact that the ability to conceive of a better mousetrap does not imply the ability to manage a business. There are so many factors that can undermine the business even if the mousetrap is better. These management, physical space, manufacturing methods, and even employee relations areas have nothing to do with the base idea, but are essential skills. The incubator provides these skills, guiding and instructing the entrepreneur as he navigates the perilous waters of the business start-up.
Many incubators provide incubation facilities. The clients are known as tenants within the incubator. This brings the new business into very close contact with the incubator’s team of management specialists. Under the guide of the incubator’s management team, the new business is given a chance to flourish on the merit of idea or concept. If it is, indeed, a better mousetrap, it will be built, packaged, and marketed.
The incubator company receives a fee that could be based on sales or profits. They might also receive an equity share in the new company. This idea of providing value added services in return for equity interest makes the incubator a type of venture capital vehicle for smaller companies under the radar or minimum investment limits of the major venture capital funds.