Global fintech funding reached $111.8 billion in 2018, a 120% increase over 2017. This certainly represents good news for any new startups, however, although non-traditional financial products and services can often enjoy a resounding high growth, they are also more prone to failure to their business ventures, than startups in other sectors.
A helping hand is a way forward for fledgling businesses in such a volatile market place, which is where Fintech Incubators and accelerators are set to provide that assistance, but only if you can meet their stringent requirements. What newcomers need in this volatile market is a helping hand.
Let us take a look below at what an incubator is and why it can be a lifeline for newcomers in the financial industry.
What is an incubator?
According to Deltec Bank, “The main purpose of an incubator is to help startups at a very early stage to grow.” They are collaborative programs which help start-up companies to solve many of the issues associated with launching a new business by providing:
- Seed funding
- Many other benefits
Incubators differ from accelerators in a number of ways. They often allow startups to physically base themselves within the incubator for periods of months and sometimes even years.
They are also more likely to be run by non-profit organizations like universities, government bodies or civic groups.
Why do I need an incubator?
Incubators can offer new businesses a wealth of assistance during the start-up process. Often new players require funding of all kinds, including seed funding and many incubators, will even help with strategies, such as help for new businesses to develop a business model and also provide connections with development expertise, alongside actual premises from which to run the new enterprise.
Who is using incubators?
Research from Nesta, the innovation foundation, estimates from their recent research that there are 205 incubators operating in the UK, which support between 3,450 and 3,660 new businesses each year and offer financial support to the tune of £33 million annually.
Incubator pros and cons
Although an incubator sounds like the perfect solution for all businesses, let us take a look below at some of the advantages and also some of the negative aspects of the scheme.
- Look for an incubator that will give your business access to benefits that can help accelerate your business, including office space and services, mentorship, expertise, influence, and sometimes capital.
- Incubators may also offer business development programming’s such as workshops and panel discussions.
- Make sure investors trust the incubator to invest in the right startups and groom them into successful businesses. Joining this type of incubator will give you an advantage when seeking funding.
- Your incubator should provide a free or low-cost workspace that allows you to reduce overhead while you grow.
Not all incubators are equal and some can provide more or better benefits than others. Here are some potential downsides:
- The application process can be rigorous and competitive. For most incubators, an applicant is required to submit a detailed business plan and disclose all business activities.
- Many incubators require a time commitment of around one to two years, plus adherence to the schedule set by the incubator, which can include training and workshops. Yes, you will learn a lot, but you will also spend a fair amount of time doing it.
- Investors may take a larger share of the business in return for longer, more in-depth support and investment
To sum up…
Overall, it is important that if you are looking to work with an incubator project, it’s paramount to make sure you do plenty of research into the basics of startup funding and also make sure you show due diligence in compiling a list of questions to put to the incubator.
Is it a good fit for your company? along with important financial considerations such as industry focus, equity stake, and resources.
Make sure you visit the incubator and plan to stay for a few hours to weigh up the sense of the work style and culture. It also goes without saying to make sure you take references of not only successful startups, but also the failed ones, this can help with creating a better overview.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.