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Incubators and Accelerators: Interviewing Kate & Julia

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For entrepreneurs in the startup business, it’s often difficult to navigate the new business terms they come across. For instance, what’s the difference between an accelerator and an incubator? Join Darshan Kulkarni as he talks with guests Kate Merton and Julia Huettner-Pumar about the different roles of accelerators and incubators, and which might be best suited for your startup. Plus, we’ll discuss how an accelerator might help your startup expand.

Darshan: Hey everyone. Welcome to another episode of DarshanTalks. We have a two for one, we have two amazing, amazing guests, and we are going to be discussing incubators, accelerators and how the world of growing your startup is changing.

Narrator: This is the Darshan Talks podcast. Regulatory guy, irregular podcast with host Darshan Kulkarni. You can find the show on Twitter @darshantalks or the show's website at darshantalks.com.

Darshan: We have Kate Merton and Julia, and we'll let Kate go first and then have Julia go next to introduce themselves.

Kate: Hello, my name is Kate Merton. I'm the staff VP in digital care delivery at Anthem. Prior experience, I've worked at JLabs, which is Johnson & Johnson's incubator, and I have a background in healthcare discovery in the commercial.

Darshan: Very cool. And Julia?

Julia: Hi everyone. I'm Julia [inaudible 00:00:59]. I am currently at Anthem as well. Previous to Anthem, I was at Johnson & Johnson. I hopped around their innovation group, their innovation centers, and then also at JLabs as well. Happy to be here.

Darshan: Awesome. I'm excited to have both of you on. So we're going to keep this tight, Kate and Julia. Let's start with a basic question. What is the difference between an incubator and an accelerator and does it matter the practical level?

Kate: So I'll start off and then ask Julia to weigh in. I think the definition of both is, I don't think anyone's actually put it in a dictionary, but from my perspective, an incubator is an organization which has pulled together different tools and resources in order for entrepreneurs to build up their business and find a path to market.

Whereas an accelerator, I often see as part of an incubator because it is a time defined program that brings a company and puts it through a very clear curriculum of what they need to get done, but they are kind of like brought in and then pushed out a certain time.

Whereas an incubator isn't necessarily time defined, but they may provide the same resources.

Darshan: So, Julia, do you have anything to add there?

Julia: My only comment is I feel for incubators, there tends to be more of a one-on-one approach with the companies, just on how they incubate and companies supporting them individually. Whereas I feel accelerators tend to be a little bit more for a group perspective, but the growth, everything Kate said.

Darshan: So if that's true, if I am a brilliant scientist, I've come up with a brand new drug or biologic and I'm going, "I want to bring it to market." And I'm trying to choose between, do I go with a big pharma incubator or go with someone like Anthem? How I'm making these decisions? What considerations do I have as I'm doing this?

Kate: That's a really good question because how you set it up actually kind of pre-defines how you're going to answer it. If you are a startup with a molecule that lands in the pharma world, you are probably going to want to go to an incubator, just for what Julia said, which is a more one-on-one high touch experience, because we all know that developing a drug is inherently difficult and problematic.

You are not going to be able to get in an accelerator, which is a little bit more like preformed, exactly how you have to navigate. Developing a product, it goes beyond, I think what you could get out of an accelerator. They might be able to give you like a start of how to run a company, but the actual process of how to work with your product and get it through approvals, everything else. That's going to be more suitable for an incubator.

So whether you go in an incubator versus an accelerator, I believe very much depends upon the products that you are selling. If you have got a molecule or a device, maybe you are going to think more about an incubator side of things. If you have a health technology product, that may be very appropriate for an accelerator, because the sort of the product cycle for that is going to be shorter.

Darshan: Correct me if I'm wrong. So what I hear you telling me then Kate, is that it's about not just the product, but the development cycle associated with the product is what decides it. So theoretically, what if I have a digital tech device, so let's say some kind of app. And it's going to be a prescription only app. As we know, there are some of those out there already. Would that be more of a incubator, or an accelerator?

Kate: That could be both. It also depends upon the stage of the company. So there's going to be accelerators that help you at the very beginning. Like, "How do I set up my LLC? How do I give a pitch?" That's a very early one and you might want to jump into an accelerator. Whereas when something's more developed, you might want to look for an accelerator that gives you a past market.

Whereas, an incubator could probably help you end-to-end with all of that. That's why I'm saying accelerators kind of fit within incubators, because they deal with a certain stage of your development. Whereas a well-formed incubator should be able to take you from a to Z, or find you someone that can do that.

Darshan: So, now I've reached a situation where I'm going, "Okay, you know what? I have an idea. I want to...," Does it make sense for me to think about going from multiple accelerators, like accelerator one takes me from organizing my company setting that stuff up. Accelerator two, and then just keep going for accelerators.

Or if I think that, you know what? I almost need, for lack of a better term, almost a franchise type set up, that's going to guide me through the whole process and incubator is better. Do you find that startups jump from accelerator to accelerator? Does that question makes sense?

Kate: It makes certain sense. And I have seen, and I know Julia can probably speak to this as well. I have seen that different startups depending upon where they are in their development, will attach themselves to different accelerators. So if you are a woman in healthcare wanting to get your products up, and you want some basic information, you might go to Springboard, like Springboard Enterprises and get the experience working with them.

Now that doesn't preclude you from then joining JLabs, or another kind of group afterwards. So I have seen them go from one accelerator to the next. I think one key thing to consider we haven't touched upon yet, is that often when you join these groups, some may have strings attached. They may want part equity of your company.

So if you are jumping from one to the next to the next, you are diluting what you have. So I think that's also something that entrepreneurs are getting very wise too, at the moment. But Julia, what's been your experience of seeing companies go from one to the next?

Julia: Yeah, I've seen this in a couple of cases. And I also think it's oftentimes how they want to expand their network, and where they see that their company is lacking in a specific area. So is it that they are based on the West Coast, but they really want to have a bigger imprint in New York? What is the ecosystem like there. And oftentimes they'll join these incubators to help with the networking aspect, which is big when you're starting a company.

So we've seen it in a couple of cases, but to Kate's point, I think planning out the accelerators and the networks that you want to join very carefully, to make sure that you're not diluting your company, but also that you're planning out where you want to go in the future is really important.

Darshan: See, I find that to be very true and yet unfair. And what I mean by that, both Julia and Kate is, you're saying you need to be methodical about how you join these things, because obviously you're diluting yourself. But if I'm coming to you going, "I don't even know how to start a company." And networking is, by definition, serendipity the whole time.

If that's true, is it unfair to expect me to go not only should you know which accelerators or incubators you want to join, but how you will join them so that it's worth it for you and optimize your situation? My problem is, I don't even know what I'm walking into yet.

Kate: It is incredibly difficult. If I was an entrepreneur right now, I think I'd benefit from the fact that I've kind of looked around the landscape and you know who the usual suspects are. But if you're coming into this blind, I think it behooves you to do a lot of research as to what has been the previous experience of entrepreneurs with that particular accelerator? Where have those companies going on to? And then you do a comparison of what you want your company to be, that says what has been successful and try and piece together their path.

Like did they go to textiles first? Did they go to an accelerator associated with any university first? All that kind of thing. Like take what you want to do, try and find a close parallel, and then look at their journey.

Darshan: I love that. So, where do you find the close parallels then?

Narrator: If I was an entrepreneur, wanted to get on with a startup, I would honestly look in Crunchbase and all the other resources to see. It's going to take a lot of research to work out you who you are versus the other, and you should be doing this anyway, because you want to benchmark and you want to know who your competition is.

So this is kind of like a double purpose use of your time, but that's how I would go about it. And then you go to as many free events as you can find, so that you can network and ask questions. And you hear the CEOs of your competition speak on panels, and you ask them questions like, "Oh, how did you do this?"

There are many ways to get the information. As of yet, I'm not sure there is an incubation consultant that can help you guys do this. That might be a great idea. But I'm at the moment, it's people doing their own, individual thorough research, I would suggest.

Darshan: And Julia, as the marketing and PR guru in the room, the big question I have for you is, how should a startup begin by positioning itself to be appropriate for an incubator and accelerator? You always hear about things like Y Combinator and you hear about Sequoia Capital makes you go through accelerators.

My question is, how do I make myself someone that these groups would reach out to and go, "You might want to be part of us because we think we can take you from one X to five X," whatever that means.

Julia: Yeah, that's a really good question. And I also think when you're looking at companies or incubators, one of the things that they can help with strongly is visibility and figuring out, can they help? If they are participating in a panel on digital health, do they ever select companies to come up there and sit with them? Is that something that I need as a company? Do I need someone to help with that PR comms management? And if the answer is, "No, we're in stealth mode," then that might eliminate some of the programs that you want to be a part of.

But I think for a lot of these groups, being able to look at, on their website, do they list their companies? Is there a place for me to land? And then also at the same time, being prepared that if you do want that piece of it, figuring out things like your logo. What should a modern website be like? Understanding that it's not a stagnant page from 1998. Just being aware and to Kate's point of, one of my favorite quotes is, "Fortune favors the prepared mind."

And I think a lot of this is the research and the figuring it out, and just being prepared so that when those serendipitous moments happen, you can really take advantage of them.

Darshan: But now that really raises the big question, which is, both you and Kate referred earlier to this idea that there are strings attached. One of the questions I want to delve into is, let's talk about the types of strings, but the second question... Well, why don't we first start from, let's talk about the type of strings. So what form do these strings normally take?

Kate: So the strings could normally be, so they could be financial strings of either you obtain money from the incubator and in exchange for that, they're getting some kind of equity or first right of refusal or exclusivity, something like that. Or, the strings go in the other direction, where you are paying them. But usually the biggest strings are like when you get funding from someone, that will be the first one. And it's not always about equity in the company, it's actually about who you can then go to for additional funding, that kind of thing.

Narrator: It kind of limits who else you might be able to talk to for funding, or who else you might want to work with. For example, if you were going to an incubator of a large payer, it would be not unusual for that payer to say, "I only want you to work with me for the next two years." That then limits your path to market and the market size and everything else.

So, that's something that you'll have to consider. You get a benefit of working with them, but is it actually going to cramp your style in the future?

Darshan: So you talked about incubators, like large payers, but we also talk about incubators like large pharma. And again, at this moment, you're not necessarily representing the views of anyone. You're just here on your own personal capacity. As a lawyer, I always like to put those disclaimers out there.

The big question I have though is, does it make sense to go, "You know what? I want to first incubate in a large pharma and then go into an incubator for a large payer, because that's almost my development cycle." And do I want to mimic my development cycle?

Narrator: Depends on the product. So if you are looking for the expertise of that mother company, if you have a pharma product, it makes total sense to go and work with the Pfizer's, Novartis's and J&J's of this world. Find out which one of them has strings attached, which one doesn't and which one of them is actually going to tangibly able to help you in the near term, because you've got IP considerations on that molecule. So you want to be quick.

You should then keep in mind, because if you're developing a molecule, like what would a payer thinks about it? It's like good to know that it's someone else's problem that way down the line. If you invent a health technology product with the digital app, then unless it is... So here's the nuance, unless you think you're going to have a path to market working with a marketing team from the pharma company for your app, you might be better going straight to an IDN.

So in a hospital and a network that might implement it, or to a payer who's actually going to have to pay for it. So it's kind of understanding the healthcare landscape and who's paying for it. Who can get you actually directly to a patient. And what your product is. After you triangulate all of that. It's like an equation, it should net out [inaudible 00:13:51] it.

Darshan: So, so it's relatively obvious, pretty early on.

Narrator: I would say that those who are familiar with the healthcare landscape from soup to nuts, and there's not always many of those, it does become obvious. And that's where you need to network a lot, and ask people's opinion, if you're kind of new to this.

Darshan: So you talked about this expertise that few people have at this point, who on almost being a consultant to help developing companies, or sort of startups trying to figure out what path to take. Is there anyone who basically guides them or is there no such thing right now?

Narrator: There are some good consultants that I've got to work with who help, say the CEOs of startups think about how to manage your team, and maybe some, they use board members to suggest the next person to go to. So often, board members are used as consultants for that kind of work. But I am not overly familiar with a group that literally knows the healthcare landscape from A to Z, and could give you a path for, "You need to do this, this, and this to improve your chances."

You might be able to go to a large consultancy firm like Navigant, but that's obviously going to be attached with a dollar value, quite a large one.

Darshan: So that really takes us to that big question, right? Is it better to put the dollar up front and have no strings attached? Or, is it better to have those strings attached? But know that you're de-risking your portfolio as you move forward, because there's already money that's helping you take your process forward? Go ahead, please.

Kate: So on that one, it's often, I would say, "Are you a first time entrepreneur? Have you already exited? So how good is your network and how well do you know your product? Because if you've don't, it's sometimes better to have a percentage of something than zero of nothing.

So it might be better to give a little bit away in order to get your first baby, a tech company move forward and you gradually learn through that process, "Okay, this is how I should do it."

Now, you did have to give up more of your company, but this is your first time out, and nothing comes for free and this is a lot of education. So I would say, for the first time out, and you don't know the strength of your product, do that. If you have a product that is literally has no competition, and there's such a pull from the market that they need them, you are in a better situation to not give up part of your company and wait for them to educate you for free.

But those opportunities are few and far between. And I have, based from my experience, I've only seen repeat entrepreneurs come up with those. So it's highly nuances. If I was a first timer, I'd think about the need for your product and how much is worth the education. Give up part of my company. Second time out, you obviously don't need the education. If you've got a great product, push your head with that one.

Darshan: Al right, Julia, do you want to add anything more to that?

Julia: No. Nothing from my end.

Darshan: Okay. Who do you find are the most successful companies that exit out of incubators and accelerator?

Julia: Good question.

Kate: I would say Julia, I think you go first on that one. I'll let you speak first and then I'll give my opinion.

Julia: Yeah. It's pretty interesting. Part of it is I think, sometimes entrepreneurs struggle if they haven't ever been a part of a large company and understanding the nuances, the politics, the timelines that often happen within a large corporation, if they've only ever worked in startup. I think they can sometimes find that process really frustrating. And then when they go to the company, it's almost like they're speaking two different languages because they don't know that world very well. I've seen a lot of confusion around there that hinders their success because it's almost I don't want to say they're behaving inappropriately, but they don't understand the nuances of a corporate large company. So, that I think is a bit of a factor.

Darshan: I'm sorry, Julie, I want to clarify I understand how you're using that. You're saying it's a factor in the success of an individual person within the company or the company itself?

Kate: I would say the company itself. So if you're working within an incubator in which you know you want to do a deal with that company, if it's owned by a larger company. And you're not understanding the nuances, and you're trying to put together a deal or put together a calculation or get equity, and you don't understand that world, it can hurt the success of the company, I think, for a deal within that group.

Darshan: Fair enough. That's one factor. Kate, any other factors?

Kate: I just think it goes back to those who are incredibly well-informed and actually are not relying on other people for their success. I have sometimes seen entrepreneurs come into a very well-known accelerator or incubator and think, "Oh, well, I'm good now. They're going to make me successful." Even if you get into Y Combinator, that is no guarantee.

You need to be really driven and take ownership of it. And I would say go into it with a relatively humble approach, because that means that people will want to help you and educate more. Never assume that people understand what you're trying to sell them. You always need to give them the context and own all relationships.

Darshan: So are there some locations that are better for certain incubators in certain industries? I'll be biased and I'll sort of admit my bias. I'm in Philadelphia. And if I'm in Philadelphia, I talk and hang out with a lot of people in biotech and in pharma. Are the incubators here better or worse than say, Indiana? Or, say New York? Does that change? Are financial startups almost necessarily based on New York, and our pharma all over the country? Or, how does that play itself out? If that makes sense.

Kate: That makes total sense. So in the COVID world that we live at the moment, I think the importance of location has decreased temporarily, because everyone's functioning virtually. Now, what you still find though, is that the ecosystem in which you choose to function will set your bar for what good looks like.

So for example, if you are functioning in Boston or the Bay area, where there's a large number of entrepreneurs, let's take pharma, for example. You will know that there is high competition and therefore the bar that you constantly trying to reach, you will know is this high.

There also is a lot of more money. There's a lot more resources, but still you are aware of the competition. I think sometimes if you go to ecosystems, which are sometimes smaller, they look at the size of their ponds that they're in, and you think the bar is here, and then suddenly you're thrust, when you go and talk to a large pharma company, they're comparing you to some really well in a B-level city, unless they're comparing you to someone who's used to functioning in an A-level city. That's a bit of a jump in perspective.

You've got to know what is the toughest climate to function in? And I would go there first. That's why, when we were in New York, you got to have a lot of grit to make it in New York. There are limited resources available to you, but it's an incredibly good reality to function in, so you're prepared for the competition. It's a balance.

Darshan: Julie, do you want to add to that?

Julia: Yeah, I think there is something about being a big fish in a small pond, to Kate's point, than being a small fish in a huge pond. I think it also, going back to figuring out what you yourself needs, I think it depends on what you're looking to get out of that ecosystem. If you're looking for something that is maybe a little bit more one-on-one, this is your first time doing it, you might want to go to a city where they're trying to put resources and energy to build up their city because they, I think, are more actively engaging and looking for those opportunities.

I think sometimes the city is already arriving and is already, has all the fish. They're not looking to support because they already have a thriving ecosystem. So I think sometimes it does go back to what you need from the city that you're located in, but to Kate's point, were in a little bit of a different world right now.

Darshan: Which really raises an opportunity, which is, Kate mentioned and you mentioned this idea that, as we've moved into a virtual environment, can I as a young entrepreneur, go, "You know what, I'm being exposed to some really interesting opportunities since I can move virtually. Can I be exposed to a tier A city if I'm in a tier B or tier C city, if you will?"

Narrator: I now think that with sort of the virtualization of the different experiences, then yes, you can. You can be living in Missouri, I'm just making it up and dial into events, which are ongoing in Boston now. And before they used to be more in-person things, or maybe you can dial into something that's going on in the Bay Area, and then you can increase your network that way.

Darshan: Do you think it works?

Narrator: Networks and things in my experience that generally don't start paying out until you develop for them for like a year or two. So I think those that have kind of like quickly jumped on this journey of COVID, they might see productivity out that towards the end of next year.

Darshan: That's a really interesting perspective. The one year payout. So don't expect to walk in expecting to see your results because I was at a meeting.

Narrator: Well, yeah, you can strike gold, right? You can be that lucky person that like strikes gold and everything goes great. But networking's a bit like mentoring. Always expect to give 70% and you will gradually get that 30% back, later.

And it's also who knows someone who knows someone, and you have to let those dots get connected. You know, there's often like three degrees of freed until you actually get to the right person who's going to talk to you. So it's not going to happen over night. Very rarely, has been my experience.

Darshan: Julia, have you seen, as you start advising companies and helping companies who are virtual, are you seeing an opportunity to go, "You know what? I can help more of you across the country and expose you to more markets and therefore gets you better wins."

Kate: Yeah, it has been interesting. And I remember right when COVID started, when we were doing educational events and programming pre-COVID, it was very city-centric. So if you were in Belgium and someone on the West Coast was having a panel or playing very specific, you did not have access to that educational content because it was more likely to be in-person. That changed within the space of four months. So I think from that perspective, things have accelerated, but it's easy to ignore a text and to ignore an email. And I think you have to be more purposeful in this climate, that one, you're not being annoying, but then at the same time, you're not letting the connections that you make fade, because it's easier to ignore people.

Darshan: Fair enough, Kate, Julia, we could keep... I have so many more questions, but we should cut this short so that people listening for the next time we have both of you on. Any last parting words? Julia first, and Kate second.

Julia: Gosh, parting words. If anything, I mean to Kate's point, it takes a lot of grit to do something like this, and just keep that in mind. They're going to be good days and bad days, but just keep on pushing.

Darshan: Kate?

Kate: And my point would be that I think they also say that the proof of someone is like how quickly they get up after they've been knocked down. And I think this COVID is a moment when we've been knocked down, and those who can rise, adapt, and keep functioning in these times are probably the ones, and also have got a good product, are going to do well in the long term, because it's not just a test of how good of an entrepreneur you are. How good of an entrepreneur are you in the middle of a pandemic when the rules of engagement are quickly being changed?

Darshan: Awesome. Thank you, both of you.

Kate: Thank you so much. Thanks for having us.

Julia: Thank you.

Narrator: This is the Darshan Talks podcast. Regulatory guy, irregular podcast with host Darshan Kulkarni. You can find the show on Twitter @darshantalks or the show's website at darshantalks.com.

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