What It Is: Business incubators are a good path to capital from angel investors, state governments, economic-development coalitions and other investors.
Business incubators house several businesses under one roof or in a campus setting, and offer resident companies reduced rents, shared services and, in many instances, formal or informal access financing.
Appropriate for: Pre-revenue-stage companies to early-stage companies that are selling products or services
Supply: Approximately 1,000 incubators in North America cater to high- and low-tech businesses. Of these, about 80 percent report that they provide formal or informal access to capital.
Cost: There are many kinds of financing found through incubators, from state-assistance funds based on matching private sector investments, which could be inexpensive relative to straight equity investments from angel investors.
Ease of Acquisition: Getting into an incubator can be easy or challenging. Simply being in an incubator offers value to investors. Incubator managers know this, and as a result, many carefully screen would-be tenants to see that they match certain criteria. The good news is that once in an incubator, the path to angels or other investors might be more direct since they tend to hover around easily identified centers of entrepreneurial activity.
Money is on loan terms with a nominal interest rate. The loan plus accrued interest converts to stock at whatever the A round terms become.
If the A round venture financing doesn’t occur within a specific time frame, the loan terms may continue, or converts to stock at a pre-specified price, or the investor loses his money with no obligation to the company.