Toral: Start-ups and incubators

Tuesday, August 30, 2011

I HAD the benefit of meeting people in high-tech companies, start-ups, and business incubators in a learning program recently that made me contemplate on why incubators and start-ups have not clicked so much in the Philippines.

With incubators, I think the primary challenge is the location. I had experience in dealing with them where project ideas were discussed.

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However, it seems one of the conditions is that you need to hold office in their premises that, more or less, becomes a reason for them to get stock shares in your start-up company.

Apart from the traffic generated, it didn’t make that much sense to me then and it has made me wonder why business incubators are really needed.

One idea shared to me is the concept of a virtual incubator and I think this may probably work in the Philippines, especially if the team doesn’t necessarily come from just one area of the country.

Access to mentors and experts is often part of the incubator package.

This, I believe, is important and it will be helpful that upon meeting up with the handlers of an incubator, the line-up of experts and mentors who will share their knowledge or insight to the starting company needs to be properly identified.

Expertise can be shared through “webinars” or face-to-face meetings and bootcamps, among others.

In my experience with local incubators in the past, access to these resources was implied but it was not necessarily clear who they were and what program structure they had in mind.

Should incubators provide working cash resources or not? Most local incubators get a share in the company.

I recall once asking for a 40 percent share back then without shelling out any cash.

In the US, some business incubators provide resources (US$20,000 to US$25,000 with five to six percent stake in the company) so that the start-up can focus on their project, its owners are able to pay themselves while working, and the company can prepare for a demonstration after an agreed number of weeks. Those who don’t provide working cash get a smaller share of around two to three percent.

I think the working capital part is important, especially if you want to have a service up and running soon. This also brings us to the question on who the investors are.

I have arranged several introductions between a company and investors before. Some resulted in investments, buyouts, short-term exploratory partnerships, and no follow-ups.

I don’t like meetings and events where supposed investors attend but just end up listening to ideas for their own benefit.

As much as start-ups are screened for their ideas, I think investors need to be screened as well during pitches to prove that these are serious people who really want to invest in a start-up company.

I am sharing these thoughts as I am currently contemplating on coming up with a virtual and physical incubator that can help develop e-commerce start-ups (front-end and back-end services).

I hope to refine my ideas further in the weeks to come.