Thinking broader than angels, venture capitalists, accelerators and incubators, outlining over sixteen different types of support structures for early-stage technology businesses. Updated from the original post to the newsletter on Feb 24.

The NY Times wrote an article a couple months ago called How to Choose an Incubator, breaking down the approximately 1,200 business incubators in the USA into four most common types of incubators: the classic, the university, the niche, the accelerator (their categories, not mine). While the discussion of the similarities and differences between these groups is decent, the details about accelerators is pretty poor and the categories they chose exclude a lot of near-incubators that house and support a great deal of entrepreneurs in the USA and around the world.

Instead of thinking about “Which incubator is right for me?”, start with three questions:

1) “Where do I want to locate my business?”
2) “How am I going to fund this business?”
3) “What is the right support system for me and my business?”

Sometimes the answer to that is to find an incubator or accelerator. But sometimes, it’s not. Thus, we’ll look at the wider range of funding and support structures for early-stage businesses.

Money matters. But it’s a component of the broader picture, not the entire picture.
Finding the right environment is critical in order to make it as easy as possible to tap into the investors (the full range of investors across the capital structure and growth stage), potential employees, business partners, acquirers, customers, users and fans you’ll need to succeed. No, you don’t have to be in NYC or Silicon Valley. But you do have to understand the limitations you’ll face, the benefits you can have, and a very solid idea of how your business taps into and leverages the local business climate.

Obviously the type of funding and investor you chose to bring into your business matters. The type of funding you get determines the type of business you have to become to earn the returns appropriate to your funding source.

And money isn’t the only consideration: “dumb money” is worth far, far less than smart money. For the types of companies looking into incubators (early-stage, idea-stage, pre-seed or seed), the question is more about finding the right kind of support structure than the money itself.

A wide range of funding and support options are available for early-stage businesses, including: *

• Friends and family, a source of early-stage capital who are generally investing based on a personal relationship rather than the business idea.
• Angels, “individual investors, who are investing their own capital and doing so on a part-time basis” (source). Angels can be a great source of early-stage risk capital, but offer a wide variety of support beyond funding depending on their relevance to your business, investing strategy, available time, and professional background.
• Super Angels, individual investors investing their own capital on a full-time basis (source). “Super angel” status can be a transitory stage from super angel to VC, and again they can be a great source of early-stage capital and introductions to entrepreneurs and investors, particularly given their full-time commitment to angel funding.
• Micro-VCs, individual investors investing on a full-time basis with limited partners (source). Micro-VCs are a mix between super angels and institutional venture capitalists.
• Venture Capitalists, offering funding, relationships and in-depth advice, sometimes with entrepreneurs-in-residence to assist. Wide variety within the VC world in terms of stages (early- or late-stage) and framing characteristics such as thesis, theme, lead/follow, etc. In many early-stage rounds funding will come from a syndicate of VCs, strategic VCs, angels, super angels and micro-VCs in a variety of unique combinations.
• Strategic VCs (includes corporate VCs), offering funding and domain-specific advice, relationships and introductions, leveraging the strategic value-add of the core business. **
• Accelerator programs offering funding, mentors and some networking and training (usually tied to a time frame, a 3, 6, 8 or so month timeframe before they are expected to graduate or leave), but without office space. Includes Y Combinator and others.
• Accelerator programs offering office space, funding, mentors, networking and training (usually tied to a time frame). Includes TechStars and the variety of mentorship-based accelerator programs.
• Incubators, defining incubator as a funding source that provides office space, mentors, networking and training. Incubators often differentiate themselves by their services (shared back-end business services like accounting and legal, or marketing and product development help) or focus on specialized, niche industries or entrepreneurs (e.g. social entrepreneurship, women, hardware).
• Incubators owning (or in close partnership) the entire product and business development with partner entrepreneurs (betaworks is a prime example). These could also be called foundries.
• Idea and venture creation businesses, slightly different from the incubator type outlined above, in that they will focus on creating their own new ventures and finding outside funding rather than investing in new businesses created elsewhere. These could also fall under the category of foundries.
• University incubators, typically only for students and professors, or for ventures spinning out of university R&D. Some universities also have technology transfer groups and venture capital groups to invest in and support ventures spinning out of universities, which will operate in various degrees of partnership with university incubators.
• Corporate incubators (i.e. the old BellLabs model), focusing on basic R&D to create tech for new business lines.
• Co-working spaces, which create a physical space for entrepreneurs to share office space. However, like incubators, co-working spaces vary widely by how they provide education and support, ranging from the informal, serendipitous encounters created by sharing a space (for example, New Work City), to formal collaboration on projects (WeWork), to formal education programs (such as General Assembly, a campus for entrepreneurship).
• Government-funded incubators and technology corridors, which can encompass 5 through 8, with or without funding, depending on their focus (examples includes MaRS).
• Crowd funding, including donation-based crowd funding sources like Kickstarter which are more applicable for funding projects rather than businesses, revenue-sharing structures facilitated by companies like ProFounder, and debt-financing instruments created by Prosper, Lending Tree, and Kiva. Please note there is a big difference between these three types, and that while crowd funded debt, revenue-sharing and donations can work for certain types of businesses, the structures are not suited to fund high-growth, risky ventures in technology. In addition, accredited investor laws make it extremely difficult for crowd funding sites to issuing equity ownership to contributors.

Diversity of funding and support systems is good for the entrepreneurial ecosystem.
This isn’t a question of “what’s the best approach?” It’s a question of what’s best for your business, for your personal goals, in your industry, with your capabilities, in the current business and investment climate.

If you’re entrepreneur, take a good, hard look at your options. Review the different funding agreements, pros and cons. Look at their past investments and other companies in their office spaces. Review their executives and mentors, and consider if their advice will fit your industry, growth stage and knowledge gaps.

And more often that not, you’ll work with a variety of investors and support structures as your company evolves.

As I said a couple years ago about supporting early-stage ventures:

There will always be a wide range of approaches to funding and supporting early-stage ventures.

The fact is that the extent of help we provide will always be different because we are people helping people. We are creating businesses across a wide range of technologies and industries with a variety of backgrounds, value structures and personal goals.

It’s a big pond with lots of fish and lots of people fishing. We’ll always fish different ways. That’s what makes life and business fun.

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* Using Manu Kumar’s definitions for friends and family, angels, super angels and micro-VCs in his explanation of the venture spiral.
** Note: I work for kbs+p Ventures, the thematic investment arm of the advertising agency kbs+p.

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Originally posted to the newsletter Feb 24, 2011, updated with a couple new links. Click here to join the newsletter and receive these when they post.