Entrepreneurial

Startup incubators multiplying like “mosquitoes”

By Guest Contributor
April 1, 2011

– This is a Venture Capital Journal article that  appeared on PE Hub – both are Thomson Reuters publications. –

There’s no denying that an incubator rebirth is taking place, thanks in large measure to Y Combinator.

Y Combinator clones are everywhere. Several dozen of them already exist and insiders expect more than 100 such incubators will be operating nationwide before long. And they’re busy churning out plenty of startups. This past week, AngelPad held a demo day for its startups to pitch VCs, its second demo day in less than six months.

On April 7, Dave McClure’s 500 Startups Accelerator is holding two demo day sessions at its event.

As Senior Editor Mark Boslet reported in the April 2011 issue of Venture Capital Journal, one of the takeaways from the surge in incubator activity taking place is that the traditional VC process is undergoing change, and so is the fundamental nature of the business.

“Definitely a lot of things have changed,” said Y Combinator founder Paul Graham. “Whether VCs like it or not, the world of funding startups has changed from (old style) elephants (with few offspring) to mosquitoes” or incubators with thousands of young hatchlings.

“It’s on a different scale,” he said.

Despite the impact that incubators are having on the VC industry, apparently they are not all that bad.

Last month, VCJ asked readers here at peHUB whether incubators are a threat to traditional seed and early stage venture investing. Nearly 71 percent, or more than two-thirds, voted “No.”

When asked whether they had any additional comments, most respondents pointed out that incubators are simply taking advantage of cheaper startup costs. Today, startups require less capital to gain momentum, and seed incubators are increasingly providing it.

VCJ subscribers can read the story here.

Not a VCJ subscriber? Click here for a free trial.

And if you want to chime in on the merits of incubators, send an email to VCJ Editor-in-Charge Alastair Goldfisher at alastair.goldfisher@thomsonreuters.com.

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