Q: I’m an independent entrepreneur with a great business plan. How do I get into an incubator?
A: First determine whether an accelerator is the right path for your startup. We get many teams looking for investment capital when they should focus on obtaining a loan or simply on organic growth. If investment capital is the right path, make sure the accelerator you’re applying to is the right fit: You give up equity for the accelerator’s team, mentoring, guidance, network, capital and other assistance.
Investors look at five things in startups: team, team, team, product and market. This is particularly true for early-stage companies. Later-stage startups that are raising venture capital usually have some demonstrable traction as the foundation of their pitch. Early-stage startups seldom have this – they’re pre-revenue, pre-traction and, sometimes, still at the concept stage.
Our process at XLR8UH is, more or less, to:
1. See if you have any evidence of traction, such as users, revenue or even something as simple as testimonials;
2. Decide if you can create/maintain any competitive advantage;
3. Evaluate if your team is the right one to execute your plan.
When pitching, startups must leverage their strengths while identifying weaknesses. Early-stage startups typically lack points 1 and 2, although our startups often have the advantage of leveraging UH-affiliated research with intellectual property that has hundreds of thousands, if not millions, in grant funding. However, most startups are left with option 3: the team.
What makes the right team? First, the team has to be coachable – willing to take advice and constructive criticism. Second, the team has to be passionate and easy (and preferably fun) to work with. This is the exciting phase when there’s nothing but opportunity ahead. If red flags pop up now, imagine the ugliness when the going gets tough. Third, ideally, it should be a diverse team of two to four individuals with complementary skills. If you can hit some or all of the points above, congratulations – all that’s left is the pitch. What do you focus on?
Lead with the painful customer problem and your solution. Highlight why your team is the best for this challenge and how/why your business model is repeatable, scalable and, preferably, defensible. Know your market: the size, competitors, comparable case studies, etc. You should be an expert in your market, so do your homework. Finally, regardless of your financial acumen, you should know your unit economics – the direct revenues and costs associated with your per-unit revenue model – i.e. the back-of-the-napkin math.
Follow these steps, don’t sugarcoat your weaknesses, sell the story of your vision and you’ll have a solid chance of getting into an accelerator.