The Next Evolution of the Incubator?

We’ve all heard of coworking (shared office environments) and early stage seed venture funds like Y Combinator. After reading the Fast Cities 2010 article in this month’s Fast Company Magazine, I got an idea to mix the two and take them a step further: early-stage work-live programs. In Boston, there are work-live buildings for artists that are all the rage:

ArtBlock, for example, is an old schoolhouse the city granted to a developer on the promise that half of the renovation include art studios, galleries, and live-work units. “It’s an effort to use our tools to create permanent space for artists,” says Heidi Burbidge, ASI’s senior project manager. “It’s helped revive the art scene.” ASI has already created hundreds of new housing opportunities and received more than 1,000 artist applications.

So picture a company that buys a large building in a big city. There are two stories – one for living, one for working. The living floor has small studio apartments. The working floor has a collaborative work environment, similar to coworking. The company accepts applications from early stage web technology companies, mostly from students and young professionals, and invests seed money in these companies in exchange for a small percentage of their business. They use their professional network and their experience to help accelerate the growth of the company, similar to Y Combinator.

The new companies get a dedicated environment where they can eat, sleep, and breathe their new startup with other like-minded, supportive young companies. The parent company funding this gets ownership in the start-ups as they would in a traditional VC setup, but they also get to have a much stronger influence over the success of the companies and the people by putting them in an ideal environment.

Thoughts? I’ve never heard this idea even discussed so I figure I’d throw it out there. Good idea/bad idea?

11 comments on The Next Evolution of the Incubator?

  1. Brad says:

    I would be concerned about how much control the VCs would have over the business and lifestyle. If things went south, they would go south in a hurry. You would not only have to find another source of income, but another place to live at the same time.

    • Adam McFarland says:

      Very true Brad. I suppose it could be more of a temporary thing – like a 6 month – 1 yr boot camp where you lived/worked there for only that amount of time. But yes, there definitely are some downsides about the control over your lifestyle regardless.

  2. Rob says:

    I thought of a similar thing a couple of months back; a proper business boot camp with access to lawyers, accountants and skilled people (eg. coders if it’s a web-based boot camp) as well as some funding (if you’re providing lawyers etc. & housing, what funding would be needed?) in return for equity. Could possibly be run in a school or on a university campus out of term-time.

  3. Tim says:

    Using this model as a “bootcamp” I think is a highly flawed concept. One of the key things that separates the entrepreneurs how make it compared to those who don’t can’t be taught, it’s called judgement. If the process of getting started is too easy they are not building the same skill set as a true entrepreneur – IMO. I don’t mean to sound cynical, but if it were simple and easy everyone would do it. You develop special skills and develop a network organically in the real world and I don’t think there is any way to fake this and end up with the same long term results.

    Compound that by the ENORMOUS expense of having all of the ancillary professionals “on call” the risk of having ideas, content or worse stole… As an entrepreneur I would not put myself in this type of environment and as an investor it’s not the type of venture I would invest in. There is a reason the great stories of how a business starts out of someones garage(or basement) and grows beyond everyones wildest dreams are so common, you develop honest skills, you fight, scratch and scrape to make everything the best and more efficient. If you have a huge influx of cash and nothing is really on the line it changes the game entirely.

    • Adam McFarland says:

      All good points Tim. But Y Combinator has also has a pretty good track record of pumping out companies with a similar model. I’m not saying it’s for everyone or every situation (or that I’d even be interested in it), but it is a somewhat logical extension of existing incubator programs…some of which are very successful and some of which are not.

  4. Tim says:

    I just checked out Y Combinator it is not as “inclusive” as I assumed it was, I should have dug a little deeper before I completely shot the concept down. Based on my experience working with an incubator I am quite jaded, I suppose just like with anything in life there are good and bad.

  5. Adam McFarland says:

    The other alternative to what I suggested would be to forget the whole VC thing all together and just have live-work spaces like the artists do. Essentially a coworking space that includes a studio apartment. I would probably be more attracted to an option like this, which gives you more of the freedom and control that Brad was concerned about. I could see myself doing it if I was coming just out of college and starting a 1 person company and wanted the support of other business owners, especially if I lived in a city like Albany where there is almost no support for this type of stuff.

  6. Rob says:

    Different types of people, types of companies and stages of business need different levels of support/funding. I think for a particular demographic the boot-camp style thing could work well, perhaps more along the lines of a summer-school. Just because someone isn’t a good entrepreneur doesn’t mean they might not have an incredible skillset or business opportunity on their hands, they’re just more likely to fumble it! At the moment at one end of the scale you’ve got employment, where a company supports you and has a pretty big say in deciding how you spend your time, and at the other end there’s the business owner, with more flexibility of what to work on. Something like this could fit in the middle somewhere, or perhaps different variations filling different niches.

    In some ways I actually see Universities, Google and other companies sometimes working this way; look at production models that have developed from concept cars, the Ariel Atom, Google maps, gmail etc – these are all side projects that people were allowed to work in within the support network. Naturally for such an imbalance of risk between the “investor” and the project/entrepreneur side there would have to be a corresponding balance of increased equity transfer or something.

    In reality, what is the cost of funding a web startup? I think Y-Combinator give 16-22k depending on the number of founders and that seems enough to get things moving. If you had 20 of these companies that comes to 400k, for which you could probably get accommodation and supply law/tech specialists instead, for those startups that need more handholding.

    –Rob

    (incidentally, I always read this phonetically as “E-combinator” as in Welsh that’s how the letter Y is pronounced… I know it’s really to do with Gen Y, but I have a hard time reading it that way in my head! Damn stupid Welsh!)

    • Adam McFarland says:

      Well said Rob. That’s hilarious about the pronunciation! How much difference is there between the accent of someone from Wales vs. someone from England and other parts of the UK? Pardon my naivety if that’s a really stupid question…just curious 🙂

      • Rob says:

        Yeah, s’pretty silly. I’m English but moved here in September to try something different. England and Wales are semi-independent but share much of the same government, all of the same tax system, road laws etc. but have some minor differences, so sometimes they’re considered different countries, sometimes they’re all grouped together into Britain or the UK (also considered countries even though they’re different groupings of countries themselves) so it can get a bit complicated depending on who you ask..

        As for accents etc. there is a Welsh language, but only school kids & really isolated villages generally speak it, but it’s around a lot – all the road signs are bilingual, public information adverts on the radio (eg. renew your drivers licence) are done in both languages etc.
        There can be quite a lot of regional variation in accents right across the UK, but Welsh, Irish and Scottish are quite distinct. Here’s a good example of the two together – the girl lying down is from Wales, the woman standing up is from Essex, which is East of London. http://www.youtube.com/watch?v=LeKNH57dTec

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