What is an incubator programme?

Incubator in business refers to a company that provides business development programme to start-ups. The programme helps start-ups to grow and manage the team. It usually comes with an office space. In exchange for the programme, business incubators take equity in the start-ups starting from 5% to 7%.  

One of the most sought after incubator programmes in tech industry is Y Combinator with successful alumni like AirBnB, Dropbox, Reddit, and Stripe. For fashion brands, there are the recently launched The Vanguard from Net-a-Porter and The Platform from Moda Operandi.

The biggest advantage of the programme is that it helps establish relationship in the industry that will eventually lead to funding. It also connects start-ups to potential team members. The drawbacks, on the other hand, are the ownership start-ups have to give in and exit strategy that could possibly hurt the start-ups. Some programmes take up to 50% of equity. While it is necessary in the tech industry, start-ups have to take into consideration that exit strategies like merger and acquisition don’t always turn out to be in their favour. Investors eventually have to cash in on the investment. Investors get the largest benefit from exit strategy since they get to cash in and make profit.

The timing to join incubator is crucial for small brands. The safest option is when a brand has a solid team and proof of sales. Joining such programme while a brand is at the idea stage may result in giving up a big portion of shares and control to the investors.