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How Tech Incubators Work

Types of Tech Incubators

It's not an accident that Innovation Depot is only a block from the UAB campus. Colleges and universities are some of the most ardent backers of emerging technology. Major research universities have the luxury of easy access to brilliant young minds, a ready supply of research-focused faculty, and loads of expensive toys like engineering labs and supercomputers on which to test the best ideas. Thanks to bulging endowments, they also have lots of money to invest in promising ideas.

In addition to hosting traditional startup residencies on campus, university-based incubators also throw wildly popular startup competitions. The Rice Alliance for Technology and Entrepreneurship at Rice University in Texas hosts an annual Business Plan Competition that gives away nearly $1.5 million in startup funding to graduate-level entrepreneurs, with more than $500,000 going to the first-place team [source: Rice Alliance].

Established tech companies and corporations also have a vested interest in supporting high-tech entrepreneurship and innovation. Larger tech companies often buy up smaller, nimbler startups that have developed a game-changing new product or process.

To ensure a steady supply of new ideas, these corporations might invest in the creation of new incubators like Matter in Chicago. The nonprofit health-technology incubator received $4.4 million in private funding from 20 Chicago-area companies in 2014, including several large pharmaceutical companies [source: Carpenter].

Idealab, arguably the most famous tech incubator, has a completely different business model. The California-based incubator is a private, for-profit company founded in 1996 by serial entrepreneur Bill Gross. Unlike most incubators, which accept applications from established startups, Idealab generates its own business ideas and then recruits in-house teams to grow them into viable startups [source: Idealab].

As you research tech incubators online, you might find that some are referred to as accelerators and vice versa. It's true that some incubators have become accelerators, or offer those services but the two entities are quite different.