26 Startup Funding: Nontraditional Funding Sources
CJ Cornell
Introduction
These are coined “nontraditional” only because their prominence as viable funding sources has skyrocketed in the past 10 years. They are indeed becoming mainstream, and even the norm, for startup funding:
- Incubators and Accelerators
- University Programs and Corporate Programs
- Economic Development (government) Programs
- Grants
- Crowdfunding
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| Incubators | Accelerators | University Programs | |
| Distinguishing Features | Are usually physical locations with shared office space (and office resources) for new businesses. They charge rent and other fees. Usually incubators are more efficient for “operating” companies (small businesses) as opposed to startups just developing their first products.
Incubators offer individual workspaces (cubicles) or offices with shared use of conference rooms, receptionists, common areas, etc. |
Accelerators usually offer a small amount of equity funding and have an intensive program (a few weeks or months) that is designed to prepare the entrepreneurs, their product, and company for seed investment. Accelerators are usually “cohort” programs (a group of entrepreneurs are accepted and participate during the same timeframe).
“Graduates” usually pitch before investors affiliated with the accelerator. Accelerators don’t necessarily have buildings or facilities. |
Almost exclusively for students or for faculty trying to commercialize research.
University programs may offer a combination of incubator facilities and programs similar to accelerators—with the funding being more in the form of small grants. University programs often offer an extensive network of advisors and mentors. |
| Funding | None. | Usually in the $10,000-$50,000 range. Often VCs and prominent Angel investors participate so they can invest in the promising graduates. | Varies. Usually in the $5,000-$20,000 range and/or free but with use of other university resources. |
| Participants | Usually businesses that already have a need for an office presence to conduct business, small businesses. | Usually (but not always), younger teams of entrepreneurs—who can collectively survive for 3-4 months on the accelerator’s funding, while participating in the program. | Students (affiliated with the university) and faculty researchers. |
| Duration | Varies, but in the 1-5 years range | 3-6 months | Varies but often coinciding with the academic year: 1 semester or 2 semesters |
| Selection Criteria | No specific criteria, other than to be able to afford the monthly rent/charges. Some incubators will take equity in return. | Usually highly competitive. Startups/entrepreneurs apply, must go through intensive vetting processes. Usually accelerators also have a preferred type of company they want in the program (e.g., health care ventures only, or mobile app ventures only). | Varies. Most students and faculty are p