Considering we have now been able to distinguish between a startup and a SME, the next thing we should ideally talk about is how they have different growth strategies. Startups are high risk, high return. Since they are expected to win markets and scale, there's definitely a need for strong foundations in its early-stages. Early-stage startups usually focus on product development, establishing a customer base, market research and eventually ensuring a way to create defensible value.
Apart from the business, finding the right people and building a team that believes in the idea is crucial for its growth. There is no doubt that a startup needs access to more resources and networks at this stage. Incubators work on bridging the gap between founders and resources by providing founders with opportunities to grow their business. But how does an incubator work?
The types and roles of an incubator
There are two types of incubators; early stage incubators and accelerators. Early stage incubators usually work with early-stage startups to help them attain a level of self-sustainability. They help them access resources such as, funding, talents, connections and knowledge. Startups can receive coaching, mentorship, legal support, collaboration, office space and networking with industry experts and successful founders through their program. Mentorship through experts in areas such as financial strategy, business plan, marketing strategy, operations and management as well as pitching to investors are the key benefits provided by an early stage incubator.
Accelerators on the other hand, become of help to startups when they have achieved initial market traction. These are a fixed term program that help startups access investors by guiding them to perfect their pitches each day. They also help startups build crucial networks for partnership and financing prospects. YCombinator is one of the top global accelerators that has incubated companies like Airbnb, Stripe, Twitch, Reddit, Dropbox etc. In its entirety, both of these ultimately work closely with the startups with the objective of maximizing their overall success.
"For an early-stage startup, day 100 is never a reflection of day 1. If the execution didn't differ from the original idea, it was never a startup to begin with. The undisputed logic behind it is that once you get into execution, you will be exposed to new information and new challenges. A well-designed incubation program with proper mentors helps startups not only learn the fundamentals of establishing a business, but also to streamline their service. For us, NSU Startups Next has been that vessel of navigation," says Co-founder and CEO of Reshop Ventures Limited, that has recently graduated from NSU Startups Next, an incubation program by North South University.
Key benefits of an incubator
Access to funding: Incubators offer funding opportunities for startups through investor relations. Some incubators have partners to assist the startups using the incubator. These partners will often provide startups with funding and other invaluable resources. There are incubators that offer investing offers like angel networks. These programs bring together investors looking to provide funding for startups they believe can succeed.
Exposure to industry leaders and mentors: Incubators arrange mentorship sessions with industry leaders and experts for nascent startups which would both be exclusive and educational. Founders get to have one on one interaction with these mentors as required and get valuable feedback on their business. They might also challenge in a manner that assists a startup in refining its vision and goals.
Structure and curriculum to maintain focus: Incubators maintain a curriculum that is followed throughout the incubation period. All startups must allocate time for the sessions, workshops and KPI meetings to assess their progress. It is almost like enrolling in a college where a startup has to go through a rigorous process to develop their business by the day. Incubators help keep their focus steady while a startup completes all its business goals and objectives set for growth.
Networking opportunities: Incubators generally enrol a batch of startups from where they need to graduate after completing the program. The program duration generally ranges from 4 months to even 5 years depending on the type of incubator. All the companies participating in it collaborate with each other on different tasks and build a network with like-minded people. Networking is essential for early-stage startups because a solid foundation of professional relationships is needed for them to succeed in their respective industries. Incubators provide a professional environment where people coming from different backgrounds and expertise can network with each other and benefit from the relationships.
Why do we need more incubators in Bangladesh?
Early-stage startups are in a unique position where they can reach success on a massive scale when provided with the right direction and support. Reddit, Airbnb, and Dropbox were startups that used incubators to grow their business in the initial stages. Each of them is now valued at greater than $1 billion.
Pathao was also born out of an incubator called HackHouse Dhaka. Pathao has been able to raise more than 12.8 million USD from four rounds of funding and it is currently valued at over 100 million USD. The Bangladeshi startup ecosystem has picked up pace with investments in 2020 and early 2021. According to Lightcastle Partners, The Bangladesh Entrepreneurship Ecosystem is at an inflection point with an excess of USD 200 million in international investments from big-name corporate investors and venture capitals over the last 4 years. The ecosystem is diverse and operating in multiple sectors. Homegrown startups have raised more than 200 million USD of foreign investment over the last decade. Startups like ShopUp, Paperfly, SOLshare, iFarmer, Maya, Loop, Gaze, TruckLagbe have raised significant investment amounts amid the pandemic, paving the way for more startups to grow. This also signals the rising interest of foreign investors in Bangladeshi startups that are showing promising growth.
The emergence of both local and international venture capital firms like IDLC, Anchorless Bangladesh, active Angel Investment Networks like Bangladesh Angels and the government's VC fund, Startup Bangladesh Limited are facilitating the development of an entrepreneurial ecosystem. A host of local and international operating accelerators and incubators propelled more than 1000 active startups in Bangladesh, generating over 1.5 million employment, embracing products and services of startups as part of the country's everyday life.
Currently, finding the right talents and access to financing are considered severe bottlenecks for emerging startups in Bangladesh. While it is a great time to found a startup in Bangladesh according to experts, opportunities should be optimized for both companies and investors. Incubators can help form and sustain startups while giving them access to funds and investors, keeping both ends functional.
Ultimately, the success of incubators is measured through the success of their startups, eventually building a successful ecosystem for the next generation of founders in Bangladesh.