Interactive resources for incubators and accelerators
Interactive resources for incubators and accelerators
Interactive resources for incubators and accelerators

Financially Sustainable Business Models

This section provides a brief summary of different business model options to help make your incubator or accelerator organisation financially sustainable. It outlines the benefits and considerations of each model as well as a number of case studies of the model in action.

1. Donors and Funders

Receiving money from donor organisations or funding bodies.

BENEFITS

  • They are a good source to get funding from if you are looking to launch your organisation or enterprise
  • They often like new ideas and projects versus ongoing funding of existing work
  • They are able to collaborate locally, nationally and regionally (but, they usually do have specific geographically requirements for their funding so be sure to check their websites before sending them a proposal)

CONSIDERATIONS

  • These relationships take time to cultivate, and the goal is to build relationships to improve the chances of funding support by better understanding the donor’s goals, needs, and ways of doing business
  • They tend to support launching and early-stage organisations, but not support you over the long-term.
  • It can also be difficult sometimes to receive funding from them if you already have a track record. On the flip side, sometimes they require you to have a track record before funding you, so it’s always best to check out their funding requirements before spending time writing a proposal.

CASE STUDY

Impact Hub LATAM

  • 1.

    Two years with no follow-up funding

     

    Developed a regional capability plan which included organisations from five countries with support from the Inter-American Development Bank (IDB).

     

    The program covered: program development, skills, space, and corporate innovation.

     

    This resulted in three new incubators and accelerators launched and a capacity of five communities impacted.

     

    Source: Spring

2. Sponsors

Corporations who sponsor programs, workshops and/or events

BENEFITS

  • They often support your vision and want you to succeed
  • They may value your entrepreneurs as potential customers and want them to succeed

CONSIDERATIONS

  • Their support may be a component of their Corporate Social Responsibility (CSR) targets and this may affect what they prioritise within your program
  • They may look to acquire early-stage companies as clients (for example, a bank or a law firm)

CASE STUDY

Spring

  • 1.

    A private for-profit entity and are fully privately funded.

     

    Spring has been pursuing sponsorship from the beginning from a range of industries such as banking, insurance, accounting, legal as well as software companies. At its peak in 2017, 20% to 25% of their revenues for the entire year came from sponsors. This is an important part of their financial sustainability mix.

     

    From experience, it takes about 3 to 4 years to get the full potential of a sponsorship relationship. Initial sponsorship may be small but as you continue to build the relationship and show value in what you are doing, it will grow. For example, a bank started by sponsoring one event for $4,000 and currently brings $50,000 a year in annual sponsor revenue to Spring.

     

    To get sponsorship, Spring did not tell but asked what the sponsors’ goals and objectives are, what is important to them and from that, they found alignment between what they were trying to achieve and what they were hoping to do.

     

    The important thing is to cultivate and nurture the relationship as you would with a partner in terms of and investing the time making sure that they also know what is happening in the community.

     

    Source: Spring

3. Coworking and Events

Running a coworking space alongside an incubator or accelerator program and running events within your ecosystem.

BENEFITS

  • Coworking meets a secondary need of your ecosystem
  • Coworking has different clients to an incubator or accelerator so has the potential to diversify risk
  • You are able to run (and charge for) all types of events, every day

CONSIDERATIONS

  • It has different clients to an incubator or an accelerator so should be set-up as a separate, standalone business (e.g. an incubator business won’t rent desks and coworking members won’t take programs)
  • Coworking as a business needs its own budget, goals, staff and focus areas
  • If you own, rent or lease space as a marketplace for your community, you are a landlord and you need to maximise your revenue per square foot/metre

CASE STUDY

Impact Hub: Belgrade

  • 1.

    An incubator and accelerator organisation and coworking space.

     

    Impact Hub Belgrade make full monetary value and financial sustainability by treating their space like a real estate asset and running it like a business.

     

    They have a diverse range of events every night which are promoted to everyone in their community (e.g. wine tasting, workshops, and parties).

     

    This helps them to be financially sustainable and gives them the breathing room to run programs such as incubation and acceleration.

     

    Source: Spring

4. Corporate Innovation

A consulting business that works with a corporation to respond to a specific problem or need by building them a custom solution. Sometimes called Open Innovation.

The five types of corporate innovation are:

1. Training

2. Startup surveys and scouting (for acquiring)

3. Internal incubation and acceleration:  Exclusive to their staff, no external call for companies or entrepreneurs

4. External incubation and acceleration: Corporations pay you to run a specific incubator or accelerator often themed with an external call for entrepreneurs

5. Venture building

BENEFITS

  • Corporate innovation projects can lead to high financial return
  • Running events and workshops for corporations tend to have a very short sales cycle, around 60 days or less

CONSIDERATIONS

  • The corporation’s needs may not align with your values
  • Local corporations may not have the mandate to diverge from global practices. Start with global corporations and it will teach the local corporates

CASE STUDY

Highline Beta

  • 1.

    A global leader in corporate programs.

     

    Highline Beta started as a classic incubator and accelerator but then they found that in North America there was an opportunity to dive deeper into corporate innovation. Now they offer full corporate programs and are considered a global leader.

     

    They do it through three primary means:

    – Individual training

    – External incubator/accelerator

    – Venture building

     

    Source: Spring

4. Investment Returns

Getting a financial return on investments made by your organisation.

BENEFITS

  • Offer less immediate risk than other models
  • Revenue-backed financing and redeemable shares may help to accelerate returns

CONSIDERATIONS

  • Are a longer-term focus than other models
  • Usually takes an average of 7 to 10 years to get your money back (this number is consistent with brick and mortar, micro-enterprise/bootstrap organisations and incubators and accelerators that focus on high-growth, technology-related businesses)

CASE STUDY

BK Holdings, Vietnam

  • 1.

    BK Holdings is embedded in one of Hanoi’s leading technical schools and their core focus is helping professors and students to launch new businesses by technology transfer (transferring new technology ideas out of the University and into business).

     

    Some funding is provided but they also take a percentage of the company (of whatever money is raised).

     

    Revenue = School (donor) funding + % of funding raised + corporate training revenue

     

    In doing so, they are also able to secure a percentage of the investment round. When the company raises that first round as its transferring out of the university, they take a percentage of that round at the same time.

     

    Source: Spring

5. Venture Building

Get paid by an entrepreneur or a corporation to build a product or an entire company

BENEFITS

  • You have guaranteed payment from a single source

CONSIDERATIONS

  • Less than 5% of accelerators and incubators venture build
  • You will need to have ready access to talent, talent you know and trust
  • Sometimes you may need capital to float the start-up and you are paid afterward

CASE STUDY

Axiom Zen, Canada

  • 1.

    Axiom Aen are sometimes paid by customers like entrepreneurs and corporations and with the profit they generate, they build their own ideas.

     

    They have had three successful product launches that have come from their own ideas and have been able to raise money and generate revenue to fuel all of their work. They have the benefit of working exclusively on blockship-related projects and have their own internal technical and business teams.

     

    However, the biggest challenge they are facing is balancing culture – trying to manage a business at the same time as generating their startups.

     

    Source: Spring

CASE STUDY

Ministry of Programming, Sarajevo

  • 1.

    Ministry of Programming is exclusively paid by clients to do venture building. Those clients are diverse and cover the full spectrum – corporations, startups, financial technology-related businesses, etc.

     

    Like Axiom, they have their own technical team (employees) and they balance their workload with staff budgets. If they don’t have enough clients but have employees, they need to know how to deal with that cost.

     

    Source: Spring

  • As incubators and accelerators, reputation and the ability to do business in the ecosystem is vital. If you steal an idea, it will be the last time working with entrepreneurs as word will spread. Building a circle of trust around the organisation and maintaining that with all of your energy and focus is key.

6. Export Development

Working with businesses and governments to help companies explore and get established in new geographic regions.

BENEFITS

  • You are being paid for your intimate knowledge of the companies and organisations in your ecosystem looking to scale out or soft land into your home country/city/region, so are often paid well

CONSIDERATIONS

  • You are usually hired by a mix of growth-stage entrepreneurs as well as governments to help promote those companies into new regions or to help foreign companies to set up and expand into your country
  • The work of your client may not align with your values
  • You will need to share information with your client without alienating others in your ecosystem

7. Funding Training

Training others on how to raise funds and be financially sustainable.

BENEFITS

  • Companies always need to raise money and funders always want deal flow
  • You can charge them for the training up front or charge a success fee depending on the characteristics of the round

CONSIDERATIONS

  • You need to be able to deliver on your content, especially if charging a success fee

8. Bootcamp Schools

Teaching people to a skill (e.g. to become marketers or designers) in 10 or 12 weeks.

 BENEFITS

  • Require a low number of contact hours for a high financial return

CONSIDERATIONS

  • A bootcamp looks very different to an incubator or accelerator program
  • You need to tailor your curriculum to suit this format and timeframe
  • You may cannibalise some of your prospective incubator or accelerator clients

Key Questions to Ask

  • Which one of the above is possible for your organisation?
  • Which ones are logical given the marketplace you are in?
  • What are my teams’ strengths and capabilities so we can find the right path?

Next:

Commercial and Corporate Innovation

How to design and running programs for established organisations or corporations