A recent trend in the tech-startup scene is to join an incubator or startup accelerator. These incubators promise to mentor, guide, and position early stage startups for success, and in return, they receive 4% – 7% equity in the company.
But a recent article on RWW tells the story of how the majority of incubator graduates go nowhere.
If you’re an early-stage entrepreneur, is it worth it to join an incubator that is NOT Y Combinator or Tech Stars?
I recently met a graduate from a startup incubator located in New York. The girl I met (Karen) is smart, motivated, and ready to do what it takes to get her startup off the ground. Unfortunately, I learned that the incubator she joined gave her very poor advice and offered no connections to raise an Angel or Series-A round of capital after graduating.
Here is a NOT to-do list for early stage entrepreneurs:
1. Do NOT write a business plan
Karen built a 30-page business plan on the advice of her incubator. I couldn’t believe it – this is the absolute worst use of time for an early stage entrepreneur.
Investors don’t care about your business plan – they care about traction. Your time needs to be spent building a team, getting customers, and building the product. Nothing else matters.
To raise funding, all you need is the following:
- Product with traction
- 1-page executive summary
- 20-slide Keynote presentation
Never build a business plan.
2. Do NOT hire people
On the advice of her incubator, Karen went out and hired a COO, a developer via Elance, and a lawyer, which pretty much means she threw her money away.
Do not hire people if you’re an early stage startup; instead, you need to find co-founders. And if you’re a tech startup, you only need three people in your company: the CEO, the engineer, and the designer. That’s it. The CEO should be the accountant, lawyer, salesman, marketer, advertiser, and janitor. The engineer builds the product and the designer designs the product.
Developers from Elance are great for 1-off projects; not for startups.
Before you do anything else, find your core team. You cannot raise money or even build a product without your core team.
3. Do NOT wait
Don’t wait to finish an executive summary or finish building a product before meeting investors. Expect it to take 6 months to raise funding from the time you initially start talking to investor until when you have money in the bank.
Don’t wait to finish the product before closing client deals. Start pitching clients immediately to get them interested and hopefully find a first mover that is willing to take a chance on your company.
The hierarchy of importance
Early stage entrepreneurs need to go through this process step-by-step to maximize fundraising opportunities:
- Build the team
- Three milestones must happen at once:
- Meet investors
- Build the product
- Meet potential clients
- Two milestones must happen at once:
- Close client deals
- Launch the product
- Use traction to raise funding
Be careful about which incubator you apply for. Make sure to interview the incubator as well and understand their startup philosophies and how they concretely help you raise funding at the end of the program. Good luck!
Jun Loayza is the Co-Founder of RewardMe, a digital rewards program for restaurants and retailers. In his entrepreneurial experience, Jun has sold 2 internet companies and lead social media technology campaigns for Sephora, Whole Foods Market, Levi’s, LG, and Activision.
Jun’s latest side-project is an affiliate marketing site for travel to Peru.