Six factors to consider when selecting startups for your incubator

So you’ve built the foundation for your incubation program. You’re now eager to launch it and open your doors to startups all over the country. But the reality is that there are hundreds of great startups out there. And your program can only take on so many.

How do you judge the startups looking to join your incubator program? Rosstyn Fallorina, QBO Innovation Hub’s senior program lead for ecosystem development, shares the six items on their criteria.

1. Team

In almost any situation, the people in a team are the foundation for its growth; thus, it’s very important to make it as strong and sturdy as possible. This not only means developing their strengths but also identifying holes that need to be filled in.

“Are they missing a tech founder, or CFO, or specific key roles in their team? We figure out what these gaps are and say, ‘We can eventually help them with this,’ or ‘Will this be an issue later on when incubating the team?’” said Fallorina.

Some questions to ask:

• Does the team possess an understanding of the market they plan to enter?
• Does the team have the technical expertise to create an effective solution?
• Do they have important connections in the market or industry they are trying to penetrate?
• Do they have any startup or entrepreneurial experience?

2. Business model

Aside from being able to check if the startup is profitable or pricing their products correctly, asking questions about the business model is also a good way to spot founders that are 100% focused and have foresight.

“I like founders [who], when I ask them, ‘Have you tried this model or this market?’ have an answer to that already… because they tried to think of all the different scenarios or things that can affect their startups,” said Fallorina.

Some questions to ask:

• Does the startup have a clear revenue model?
• Do they have a clear customer acquisition or rollout strategy?
• Are they using or tracking the correct metrics?

3. Timing

History shows that a product doesn’t have to be bad to fail. Sometimes a little bad timing can make even the best products flop. And while this may sound like it all boils down to luck, there is a lot one can do to determine if the market is ready for a startup’s offerings, just by asking the right questions.

Some questions to ask:

• Will current trends incentivize the use of the product or service?
• Is there already a proven market or opportunity for the product?
• Is the tech or innovation easily available in the market now?

4. Financials/Funding

Financial records are often the clearest indicators of a startup’s operational success. “I had this experience where they had to shut down the company because they ran out of money, and then just found out about it in the last month. So after that, we learned our lessons,” said Fallorina.

This doesn’t necessarily mean that you reject a startup outright if they’re having some trouble with their financials. But if the group doesn’t have an acting CFO (or worse: the person they got to fill the slot has never managed any money past their own allowance), then you might be in a little trouble.

Some questions to ask:

• What’s the startup’s runway?
• What’s their monthly burn rate?
• Are they raising now? How much and what for?

5. Idea/Product

A product or service is meant, first and foremost, to address a consumer need—thus, it’s important that your potential incubatee is able to fulfill this basic premise. This can often be determined by checking if they’ve already validated their product and knowing how many iterations it’s had.

“It’s good if they have multiple iterations already; it just shows that they already tried and validated their idea,” said Fallorina. “For those startups that have the same product after a year without changing anything and validating, that’s a bad sign for us, [because] if they don’t value their market, then they need to be able to help themselves.”

Some questions to ask:

• Have they validated their product?
• Is there a product-market fit?
• Is it scalable?
• Does their solution have a clear value proposition?

6. Market and competition

Finally, you want to find a startup founder that’s done their research and identified a market worth pursuing in the first place. If they want to be the biggest players servicing the needs of one specific barangay in their home town, the team might not be aiming big enough.

And be sure to ask as well how they stack up against their competition. Good research means knowing not only your customers, but understanding how others are trying to service them too. This will save the founders (and you) the headache of pivoting every time someone stumbles across another competitor.

Some questions to ask:

• How big is the market they are trying to serve?
• Do they have viable and diversified acquisition strategies?
• Who are their competitors and how are they different from them?

7. BONUS: Your own “QBO profile”

Is your incubator founded on a specific vision, or does it serve a particular market? In that case, you could factor this into your criteria, your own “QBO profile”.

For instance, QBO checks if a startup is underrepresented or helps underserved communities. “This might not be necessary for all incubators, but since J.P. Morgan [one of their partners] wanted us to help entrepreneurs that are underrepresented, we include this in our scoresheets,” said Fallorina.

And feel free to use the selection process to learn more about different industries as well. Who better to ask about a market than the entrepreneurs looking to devote their lives to servicing it?

“We admit that we’re not experts in a lot of industries,” said Fallorina. “So whenever we would do the selection process, we try to learn as much as we can from them…so we can potentially also teach other founders about it.”