Startups.com: Flight of the Virtual Incubator
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One of the hottest tickets around for entrepreneurs looking to start a company is the incubator. Its business model is simple enough. The client goes to an incubator and pitches the idea. If the incubator likes what it sees, it gives the client seed money, office space and a slew of support services. It's that simple.
Or is it? The trick is that the host company often wants a slice of the company -- sometimes as much as 15 to 30 percent. This is perhaps understandable as companies with clout, such as CMGI (CMGI) or Idealab argue that they will help a startup get on its feet at a dizzying rate.
But there are alternatives, not including venture capital firms and angel investors, to ceding this kind of control to EcoNets. One of them is the newly-launched, and aptly-titled, Startups.com. Billing itself as a virtual incubator, the firm doesn't always provide office space and some of the other amenities of a true incubator, but it doesn't take a chunk of a company or stick a member on the board for control either. What it opts to do is help a prospective company get into solid position to launch its core business.
Startups.com's method is to offer high-tech businesses, which have already created business plans and received seed funding, operational, IT, human resources, and administrative infrastructure services. The new firm, which closed its seed round of funding in July 1999 with investments from Redleaf Venture Management, Silicon Valley Bank, Garage.com, Venture Law Group and angel investors, has a host of corporate sponsors, including Garage.com and Sun Microsystems.
Startups.com co-founder and Director of Services Justin Segal said he and co-founder and Chief Executive Officer Donna Jensen launched Startups.com out of an understanding of what will and won't work for entrepreneurs looking to make their mark on the high-tech business world. Segal himself grew up in an entrepreneurial light, with parents involved in real estate. Jensen worked for VentureOne and Dun & Bradstreet.
At one point a few years ago, Segal, a 28-year-old New York University law school graduate, had bought an office and rented it out to start-up companies, some of which he said succeeded, and others that were not so lucky. Watching these companies falter or prosper, Segal said he developed a certain intimacy for entrepreneurs.
"I developed an understanding," Segal said of the experience. "I knew that the best mistakes were the ones made early on in the venture process. A lot of it is organic trial and error. Those clients were embedded in the start-up culture and I learned the language. With Startups.com, we're are not going to develop a company's market position. We're not going to have pre-negotiated deals with vendors or do reference checks. Clients can take it where they want it."
He also acknowledged the flood of B2B incubators hatching everywhere and, along with Jensen and a growing team of about 30 employees, decided the time was right to forge ahead with a business plan of getting new firms up and running.
According to the Gartner Group, the U.S. market for online business services is predicted to grow to $7.9 trillion by 2004, and the high-tech startup market is one of the fa