Entrepreneurs now have a multitude of options for where to start and grow their new companies, such as coworking spaces, incubators, accelerators, and startup studios. However, most new entrepreneurs do not understand the differences, nor the value propositions of each. This article gives a high level overview of these scenarios to entrepreneurs, startups, and those who are interested in pursuing entrepreneurship.
When an entrepreneur is in the idea stage, saving money and equity by building your business model, team, and technology out of a free location makes sound business sense. Go to free meetups and community events and network as you may find team members, advisors, mentors, and partners who can help take your idea to the next level and help create a startup business. Once you have funding either through early sales, friends and family, or grants, you may want to consider paying for dedicated space and startup programs.
Coworking spaces are shared work environments where an entrepreneur or startup can rent desks or offices on a daily, weekly, or monthly basis. The coworking space does not provide funding, nor do they take equity or IP in the startup. The only fee is the rental fee, also called a membership fee. Included in the rent fee is access to shared facilities, like front desk receptionist, phone booths, conference rooms, kitchen area, bathrooms, and potentially an event space. Coworking spaces are open to the general public, and members can include large corporations, service providers, small businesses, and startups. Some provide free food and beverages such as cucumber water, beer, and snacks. Coworking spaces became popular in the last decade.
Incubators provide shared work environments like coworking spaces do. Additionally, they offer entrepreneurial and startup-specific programs and services in hopes of fostering company growth. Services can include startup trainings, business coaching and mentoring, preferred vendor discounts, pitch competitions, access to networks of investors, business operations consultants and strategists, industry-relevant programming, and general startup events. The incubator fee may include monthly program (rent) fees, equity and/or IP. Most incubators, however, just charge a monthly fee that would be comparable to the coworking fee. Incubators do have a focus; it could be industry specific, such as biotechnology, software, or even food. Or, they can serve a specific community, such as a university community, a city, or region. Incubators do have an application process and it is seen as positive brand association for the startup to be selected as a member of the incubator. Incubators have been around since 1959, the first one being the Batavia Industrial Center in New York. There are now over 9,000 business incubators all over the world. Almost any research university has at least one, as well as any major metropolitan area, as most incubators are nonprofit and are created to spur economic development.
Accelerators are cohort-based, short term (3 to 6 months), intensive startup programs that provide mentoring, training, funding, and potentially space for entrepreneurs and startups. Like incubators, each accelerator selects entrepreneurs and startups based on their particular focus area, such as emerging technology, software, biotechnology or even a hardware platform through a formal application process. Getting accepted into an accelerator can be very competitive and can be the tipping point for a startup, as the validation into the program can lead to follow on funding by investors that wouldn’t typically be introduced to the startup. In exchange for acceptance to the accelerator program, the startups will assign a percentage of their company to the accelerator. The amount of equity required varies for each accelerator program. The range can be anywhere from 5% to 12%. Accelerator programs started in 2003, with the most famous accelerators being Y Combinator and Techstars. Y Combinator has invested in over 1,450 startups, including Airbnb, Dropbox, Reddit, and Instacart.
Startup studios are a new model for the creation and growth of startups. Startup studios are managed by investors, seasoned entrepreneurs, and business advisors. They create startup ideas in-house, mature and validate them, and then hire an entrepreneur founder to spin that idea out as a separate startup. Startup Studios maintain a majority of the equity and pay the entrepreneur founder a market rate salary for spinning out the startup, as well as provide seed capital for the startup. There are very few startup studios in the world, and in Seattle, we have three: Kernel Labs, Madrona Labs, and Pioneer Square Labs. Some criticism of the startup studio is the notion that the entrepreneur founder will not have “founder fit” with the studio that created the startup idea and therefore will not have the tenacity and passion to see the startup to market growth. However, this model does allow entrepreneurs – who wouldn’t normally have the means to spin out a company, or have the brilliant initial idea – to scale up with a great idea.
UW CoMotion Labs
Our Labs are designed to be of ultimate service to startups. Best described as an incubator, we don’t claim any equity or IP from our startups and provide first rate programming and opportunities that help our startups succeed, well beyond the garage.
What sets us apart? It’s the long term engagement we offer our members that distinguishes us. We accept exceptional startups at any stage, and help them grow on multiple fronts. We understand that the startup journey is complex, and there’s no straight line from pre-seed to scale up. We support our members at every pivot with space, learning, networking, and services. Additionally, many of our startups benefit from connections within the UW, accessing research, faculty, and interns that advance their goals.
Elizabeth Scallon, Associate Director of CoMotion Labs and MakerSpace
About CoMotion Labs: CoMotion Labs, a self-sustaining membership-supported program of CoMotion, provides a multi-industry labs system hosting 90+ startups inside and outside the UW community. This incubator supports startups with learning programs, mentoring, networking, and space — in three locations across the UW Seattle campus and a virtual lab in Spokane — across a variety of industries including engineering, IT, life sciences, medical devices, clean tech, blockchain, AI and AR/VR.