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Last week, a startup founder reached out to me for a consultation on selecting an incubator for her digital health startup. She has a great idea for providing software for doctor-patient management system, has a good network of experienced developers in India, and is planning to establish a SaaS company in the Netherlands. She is planning to partner with an incubator not only to leverage her business, but also applies for a startup visa. (Click here to read about applying for a startup visa in the Netherlands)
She came to me with these three questions about selecting incubators:
- How do I find the right incubators?
- How much does the incubation program (potentially) cost?
- How do the incubators support you on your startup journey?
These questions are very spot on! I was asking the exact same questions a year ago. It was the time when I was considering applying for a startup visa to continue my scientific illustration business in the Netherlands. I didn’t reach out to the incubators until my visa was about to expire, because knowing the answers to these three questions and was skeptical about involving incubators in my business. Incubators in some way will become your business partners. I was very cautious of that. I must select an incubator I trust.
A month before my search year visa expires, I finally reached out to the incubators around the Netherlands and settled with the wonderful ACE incubator in the Amsterdam Science Park. I wasted so much time on the hesitation only because I didn’t reach out to an experienced person to answer these three questions for me when I started my company!
I am sharing the answers to these three questions below so you can select a suitable incubator for your company TODAY.
1.How do I find the right incubators?
Each incubator has their expertises in specific industries; your startup has to fit in with their portfolio so they can offer you the recourses, mentorship and network that help you the best. A few examples of the expertise of the university incubators: ACE incubator specialises in academics science and technology. Yes!Delft hosts many engineering startups. Erasmus Centre of Entrepreneurship has a portfolio of Fintech companies. Do research the incubator’s field of expertise before applying.
2. How much does the incubation program (potentially) cost?
Joining an incubator is (potentially) not free. There will definitely be a financial agreement between your company and the incubator. That being said, they might not ask you to pay them cash and credit, a.k.a. money. That is why I put the adverb “potentially” in the statement.
After all, a startup incubator is a company that helps you to build your business and to achieve product-market fit. That means the incubators can be, in most cases, a for-profit entities. Your relationship with them will be similar to business partners.
Though some of the incubators might charge you an upfront fee for the incubation program, but many of them do not charge you this way. Typically, instead of cash and credit, most incubators take equity, which means a share of the company. In such case, they are in a way your investor. They invest in your company through the services they provide. Some of them even invest some credit (a few thousand euros) into your startup. The percentage depends on the contract the incubators make with you; I heard it could be around 10%. The aim of this equity model is that if, in the best case scenario, your business successfully grows into a very valuable company, the 10% shareholding of the incubator will also become very valuable. This equity model will establish a mutual interest, which is making your company as successful as possible, between you and the incubators.
What if your company fails and go bankrupt? Then the 10% share worths nothing. Do you need to pay any financial compensation to the incubator? No, you don’t. That devaluation of the 10% share is the risk they should take. (This is the case of, within your incubator contract, you only agreed on offering nothing else but the 10% share.)
So make sure you carefully read through the financial agreements you are having with the incubators. Only sign the contract when you fully understand and agree with the terms. When unsure, find a venture lawyer and have a consultation.
My incubator, the ACE incubator, is an exception. ACE Incubator is quite special in terms of their financial agreement with their startups, because they do not take equity nor fee. They are supported by the four major universities in Amsterdam. Their intention is to encourage students and academics to transfer their research into innovative business. They do charge you, but only when your company has an annual revenue over 250,000 euros. They will then take 2% of your revenue for 3 years, and they will only charge you in the specific years when your revenue is over 250,000 euros. I think this is a very good deal based on the excellent service (and the startup visa) they have offered me.
3. How did the incubators support you on your startup journey?
Participating in the incubation program at the ACE Incubator was one of the best business education I have ever had. They taught me the following crucial knowledge about building a business:
- Making an idea into a scalable business.
- Market and product validation.
- Client acquisition.
- The knowledge about equity, venture capitals, and investment series.
- Brand building.
- Accountant and lawyer services.
- Mentors who keep you on track with your progress.
Each of the points above will be a blog post by itself. Follow me on Medium and LinkedIn to make sure you will see the articles when they are published. For specific questions, you can message me through the contact form on my company website https://www.sciencevisionary.com/workshop. I am very curious about your ventures and the challenges you are facing as a founder in the Netherlands (and around the world!). It might be something I have dealt with and I will be happy to help a fellow founder.
Until next week!
“I quit medical research to become a scientific illustrator. Accidentally started a biomedical communication startup in the Amsterdam and loving the venture ScienceVisionary. More stories can be found on my YouTube channel.”Back to overview