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.
The site itself offers detailed instructions on how to engage Startup.com’s
services from start to finish. The hub of the model is a six-step process,
beginning with how to get started online, and culminating with
implementation and online project management. With a minimum fee of $25,000,
Startups.com’s service fees vary based on the scope of the project — the
number of services, their complexity, and how long it will take.
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
stest growing sectors.
“High-tech business incubators will accelerate the evolution of business
services into the 21st century. Market expectations are forcing an enhanced
support services system in which to launch technology companies to keep up
with industry demands,” said Geri Spieler, Gartner Group research director.
As for regular incubators, Segal said that although Startups.com does not
aim to take a certain amount of control he was “very bullish” on the model.
“VCs are more interested in the high-level end of strategy. They don’t
answer questions about how clients are going to get office space.”
“Different models are good for different types of businesses,” Segal
continued. “Incubators represent the evolution of the way people are doing
business. “Look, a hundred years ago people could fix their own roof and
grow their own vegetables. Who does that now? In recent years, you’d have
CEOs who couldn’t operate a phone system. What you’re seeing is the division
of labor going back the way it used to be. Individually, people are becoming
more resourceful.”
Segal is particularly pleased with Startup.com’s Web development resources,
which he said includes a former developer from Oracle (ORCL).
“We have an outstanding development team,” he said.
Though Segal said the future looked bright, he was hesistant to speculate
about going public.
“We eventually want to but it is to early in the development process for
that.”
