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How Business Incubators Boost Early Stage Startup Funding?

05/27/2021
Early Stage Startup Funding

How Business Incubators Boost Early Stage Startup Funding?

May 27, 2021

How Business Incubators Boost Early-Stage Startup Funding?

For 21st-century startups, the best way to get funded and embark on the path of success and growth is to join an early-stage startup incubator.

 

Early stage startup incubators are a platform, organization, or team of experienced entrepreneurs and professionals that help startups thrive in their early stages by providing co-working space, funding, guidance, and mentoring. In a time where the competition is fierce and cut-throat, hundreds and thousands of startups fail to get out of the box even before they start. Thus, incubators act as an intrinsic part of the startup ecosystem, playing a vital role in the business owner’s development. The importance and role of an incubator in a startup’s life are increasingly being appreciated. Because most startups are commenced by young professionals who are mostly graduates, incubators have become prominent in the early stage startup phase.

 

If you are a startup owner looking for ways to scale your business from the early seed stage, keep on reading as this post touches on the aspects of early-stage startup and the role incubator plays in its growth and development.

Early Stage Startup Funding

What is an early-stage startup?

 

The term ‘startup’ is used comprehensively for growing companies. However, depending on the industry and size, growing companies aren’t always startups. In many instances, people mix-up early stage startups with growth stage startups without realizing the fact that these two are completely different.

 

Early stage phase is when the startup moves forward from the seed stage. In the early stage, the goals and aspects of the company are incomplete. Nevertheless, there are signs of progress in its development. Essentially, the management team is incomplete, and the services/products are still in development. In some cases, the products/services are developed but are in the testing phase before they are commercialized and marketed. So, the early stage startup generates revenue on a limited basis.

Also, the company may have filed for patents but haven’t received any for the proprietary technology. Their websites and products are usually identified as ‘beta’ versions.

 

This is the stage where the business owner seeks funding from venture capitalists, accelerators, angel investors, and incubators. In short, early stage startups are essentially only a couple of years of old in existence.

 

While startups in this phase try to establish themselves in the market, laying the foundation for success, they face different sets of challenges that can make or break their idea of existence. The most prominent challenges include:

 

#1 Gaining Customers

The biggest challenge that an early stage startup faces is building a strong customer base. Because the business is new, trust is something that is not easy to get by for customers. For a customer to trust an early stage startup, their products and services must align with their needs and expectations. This is where strong marketing comes in handy. You need to establish a brand that your targeted customer base can trust.

 

#2 Balancing Finances

One aspect where the majority of early stage startups fail is taking care of the upfront costs. It is already difficult to find adequate funding to keep the operations running. As a result, most startups accumulate significant debts that become harder to pay. Thus, it is vital to make informed decisions when it comes to finances.

 

#3 Finding the Right Employees

One cannot run a business alone. It needs a team of action-oriented people who have the dedication and willingness to go the extra mile for the startup’s growth. Most importantly, startups need employees who enjoy teamwork and share the same brand vision.

 

#4 Tough Competition

The ‘uniqueness’ quotient in businesses has decreased drastically. Today, there are hundreds, even thousands of businesses competing in the same industry, offering the same products and services. So, it has become extremely difficult for a startup to make a mark in the industry. Thus, strategic marketing and understanding the needs of the customers are necessary to gain a competitive advantage.

 

By teaming up with an early stage startup incubator, you can advance your business in many ways. Business incubators create a continuous learning environment and give you access to resources and even funding to advance your startup from the early stage to the growth stage.

 

Six Stages of Startup Investment

 

The startup investment ecosystem is quite diverse, with different stages of development. Typically, there are six stages of startup investment that distinguishes the journey of a startup from start to becoming a prominent solution in the market.

 

A startup is considered a success if it manages to address the pain point of the customers in the industry it operates in and provide a viable solution. However, the failure rate is quite high as the majority of startups fail to do so. Nevertheless, you can measure the success of the startup in any of the 6 stages mentioned below.

 

Each stage of startup investment functions differently, and the players involved in these stages play a vital role in the growth of the startup.

 

  1. Pre-Seed Stage:

The pre-seed stage is that phase of the startup where you spend time analyzing the market to detect real-world problems, the challenges faced by people in the industry, and finding the apt solution. While it majorly revolves around analyzing the industry, it is equally important to evaluate the cost of the opportunity and other alternatives to stand out from the competition. So, in the pre-seed stage, it is important to ask yourself some questions like whether your solution is similar to existing solutions, or is it the real answer to the problem faced by your targeted customer base. For this reason, the pre-seed stage is also referred to as the ‘idea’ stage where you are convincing yourself and others that your startup idea could bring revolution in the market.

 

  1. Seed Stage:

What started as an idea is now validated through evidence gathering, experimentation, and making risk-free decisions. This phase of a startup is known as the seed stage. The primary objective of the seed stage is to validate your hypothesis and solutions to the problems. Most startup owners develop prototypes and carry out small experiments to truly understand the market, understand the industry demands, and determine what people want. This gives them the validation of the initial idea on which their startup is based. Some entrepreneurs seek help from incubators to provide them with guidance and support.

 

  1. Early Stage:

The early stage is that phase where the idea is processed to develop into a service or product. While things are not finalized in this phase, the entrepreneur gets the idea of what needs to be done. The product or service is tested to see whether it solves the problem the industry is facing. The results are evaluated, and a conclusion is reached. If the product or service stands up to the expectations, the startup moves to the next stage. And if more work is required, improvements are made until the target user is satisfied. At this stage, the startup usually has a team but still lacks managerial ability.

 

  1. Growth Stage:

If a startup manages to reach this stage, it means that the startup is able to handle the strong market demand. This means that the business will experience upward growth in terms of revenue, recurring customers, and new customers. It is when the startup starts to grow as a company, and the employees start getting the rewards and benefits. The growth stage incorporates new recruitment, expansion of production or service line, the introduction of new products or services, and more. As the business makes its presence felt in the industry, it allows the owners to approach a new sector of the target audience, occupy new spaces, and meet new demands.

 

  1. Expansion Phase:

The expansion phase is when the designed business model actually starts to scale up. In this phase, startups focus on hiring new professionals, expand to other sectors, and even go international. Also, this is the stage where startups collaborate with other large companies, which ensures financial stability and continuous cash flow in the company.

 

  1. Exit Phase:

The final stage of startup investment is the exit phase. While it is not a mandatory phase, some owners prefer selling their startups to pursue something different. However, there are business models that are designed to become high net worth companies and owners stick to it for a lifetime.

 

How To Secure Early Stage Startup Funding?

 

In order to secure early stage startup funding, a steady cash flow is important. Funding is necessary to keep your business competitive, finalize products and services, and fund innovative ideas. There are a lot of entities in the early stage on which you will be spending a whole lot of money. They include:

 

  • Insurance
  • Taxes
  • Utilities
  • Employees
  • Marketing
  • Office space
  • Equipment

 

You can get early stage startup funding and resources by joining an incubator. Incubators help entrepreneurs in the early stage startup phase with the following:

 

  • Validation of ideas and helping entrepreneurs determine whether their ideas can address the market demands
  • Mentoring support of various nuances of starting up
  • Co-working space with all the resources for the team like the internet, computers, etc.
  • Support in fundraising
  • Shared resource pool of experienced industry professionals and technology

 

Conclusion

A startup incubator is a great resource for all early stage startups looking to make a mark in the industry. It will provide you with all the necessary resources, including a co-working space, opportunities for networking, and even help raise capital to establish a robust business model.

 

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