The Next Big Thing is very likely to come out of California. It almost always does.
In technology, aerospace, entertainment, bioscience, pharma, finance… the big trends that change the whole world start here.
There are plenty of graduates from California MBA programs who will be a part of the rank and file in those industries and others. They’ll make six figures and a nice annual bonus optimizing operations strategy in a global logistics organization or shaving a few percentage points off retail shrinkage at a department store chain. And that’s a good life.
But there are plenty of people who come to California to make a splash. They have their own ideas, their own motivation, and their own mark to make on the world.
They come here to start their own corporations. And California has plenty of ways to help them do it.
Business Incubators and Accelerators Let You Pin the Pedal to the Floor
A lot of that assistance comes from the state’s bumper crop of business incubators and accelerators.
Long before you get accepted to an MBA program, you’ll probably already know the dire risks that come with starting a new business. Nationally, more than a quarter of all new businesses fail in the first year. You take your most prized idea and roll the dice and get a one in four chance of watching that idea die on the vine.
Despite being regularly ranked as one of the worst states in which to do business, though, California somehow manages to come out on top for startups.
It’s easy to rank the Best States for Business based on a cold assessment of taxation and regulation, but you can quickly lose the plot when you do that. California is the setting for some of the most important stories ever told – the ones behind revolutionary companies like Tesla, Apple, and Google.
According to an analysis of Bureau of Labor Statistics (BLS) data from 2023, California has got the best track record of any state in the country for new businesses… fewer than 20 percent fail in the first year. Even after five years, more than half of California startups are still going strong.
There are some good reasons why California startups beat the odds. Research from the University of New Orleans found that startups that graduated from accelerator programs had an approximately 23 percent higher survival rate than other new businesses.
That’s why many recent California MBA grads are all about getting accepted by the open arms of one of the state’s hottest accelerators or incubators.
What Exactly Are Business Accelerators and Incubators? – Their Function and Purpose
What is this magic California pixie dust that turns potential business failures into a roaring success?
- Business incubators: Early stage support for incorporation, ideation, organization, and start-up operations
- Business accelerators: Booster rockets for product enhancements, market identification, pitch crafting, and growth funding
These aren’t unique to California, but they have been developed and honed here to a quivering state of high potential by our potent blend of creative industry, first-class business schools, and abundant wealth.
It’s also true that the lines have blurred between accelerators and incubators in California and elsewhere. You’ll find every possible combination of the different kinds of financing and services described below. The right fit will depend entirely on your business idea and what stage of building it you are in.
Together, they can take you straight from graduation to stratospheric valuations in a matter of months… if your idea makes the grade.
What are Business Incubators?
California Business Incubators Get Start-Ups off the Ground
Business incubators really started to kick off in the United States in the 1980s. The modern form is probably a California innovation, though.
Nolan Bushnell, one of the founders of Atari, passed up a shot at a one-third equity stake in a new venture a couple of his former employees were putting together in their garage. Maybe feeling a little bummed that he had missed his chance to turn $50,000 into a one-third stake of what was to become the 2nd most valuable company in the world, $3.4 trillion Apple Computer, Bushnell left Atari in the late ‘70s and founded Catalyst Technologies: a turnkey tech company incubator.
Catalyst didn’t have any knock-it-out-of-the-park home runs, but it set the stage for what California incubators would offer:
- Turnkey office space availability, freeing founders up from finding space, negotiating lease terms, buying furniture, creating utility accounts, and finding office equipment
- Legal and incorporation assistance to clear the decks of paperwork immediately so they can get up and running
- Payroll and accounting systems already available and configured
- Healthcare and other benefit systems in place
With some variations, that remains the pattern today: a founder can show up with an idea and parachute into a ready-made company to start executing it. Along the way, those systems, and the experts who came with them, could provide advice and assistance through the startup process.
As the name implies, though, these supports aren’t intended to be permanent. Fledgling companies with solid prospects leave the nest to fly or fall on their own. The timeline varies based on the program, but it’s typically anywhere from six months to several years.
Incubators may provide seed capital, but their primary value is in their startup services. In return, however, they generally look for less equity in return.
What are Business Accelerators?
California Business Accelerators Transform Ideas into Unicorns
An accelerator is designed to take a business that is already operating and amp it up to the next level.
The venture capital industry defines unicorns as startup companies that reach a valuation of over $1 billion.
So while accelerators are open to businesses that are in any stage of startup or operation, they typically come without all the handholding for basic early-stage organizing and operating.
Instead, they aim to deliver support for more advanced concerns:
- Access to capital and investment resources
- Mentorship and guidance for growing and optimizing the business offering
- Grooming founders and startups to attract further investment, marketing opportunities, and exposure
Accelerators are much shorter in duration, usually lasting only a few months. They also tend to take a larger stake of the company in exchange for their services. But they can help polish business ideas and rapidly scale investment and output far beyond what an individual founder could accomplish, even with solid network connections.
Venture Capital Firms are Another Powerful Source of Startup Assistance
The advantages to traditional incubator and accelerator programs are fairly clear, as are most of the pitfalls. But like most good ideas in any kind of market, they are open to being displaced by other good ideas.
In particular, some VC firms are skipping the mass-produced approach of traditional accelerators in favor of more individualized and long-term relationships with startups.
These are programs like San Francisco’s IndieBio. There are no cohorts or timelines, and founders don’t compete for attention with dozens of other teams.
Village Global goes in the other direction, billing itself as an investment network that includes luminaries like Jeff Bezos, Sara Blakely, Bill Gates, and Mark Zuckerberg. Startups get a dedicated advisor and a fundraising support team, but much of the draw is from the network and the chance to bounce ideas off legendary entrepreneurs. There’s less structure and handholding, but that may be an advantage for founders at a certain stage.
It’s worth keeping your eyes on the field. Just like accelerators and incubators were once a market-shattering innovation, there will certainly be something else to come along that works even better. Maybe you’ll invent it.
What Accelerators and Incubators Have in Common
Many incubators and accelerators are siloed by sector: technology, life sciences, manufacturing, aerospace. There are a lot of specializations even within those sectors, with programs focused on AI, green tech, medical devices, and so on.
This can make a great deal of sense since the kind of assistance that a program can offer may be specific to a certain field; business networks also tend to operate with that sort of focus.
But other programs may have more general goals, or have a focus that is more about the founder than the business sector: Cal State LA’s LEEAF Accelerator, for example, champions BIPOC female founders in the LA area.
Accelerators and incubators have become tied to venture capital for a few reasons:
- VC investors often have a great deal of applicable knowledge and advice to offer founders in various industries
- Providing additional levels of support beyond the purely financial helps secure returns
- More in-depth agreements that come with accelerator-level support lock in promising startups to ensure the Next Big Thing doesn’t go next door
- Venture capital is simply where the most money is available for founders
But even today, you will find incubators and accelerator programs in California that come free of the strings that tie founders to VC firms. Some of these are run by universities, including many of the top California business schools. Others are non-equity accelerators like LIFT Labs from Comcast NBCUniversal, which seeks to create partnerships with small, nimble startups that can eventually give NBC an edge in their own industry.
Incubators and Accelerators Offer a Shot at Elite Business Networks Without Attending Elite Business Schools
It’s a truism that the real reason to attend a top MBA program has nothing to do with the curriculum, and everything to do with who you meet while you’re there.
Make no mistake, there’s nothing wrong with learning the ins and outs of marketing strategy, quantitative decision making, and organizational behavior. If you’re going to be in business, you’d better know how to read a balance sheet.
But those core skills aren’t something you need to learn from some professorial wizard. On the other hand, who you rub shoulders with, who you can get an introduction to, and even who you party with can be a big deal in opening doors at the next level.
Not everyone gets into those elite schools, and not everyone meets the right people for their industry while they are in them.
Fortunately, there’s another way to get a bite at the apple: getting accepted by a first-rate California business incubator or startup accelerator program.
Risks and Reasons to Consider or Reject Incubator or Accelerator Programs in California
Entrepreneurs graduating with an MBA from California business schools are well-equipped to evaluate which of these types of support are most appropriate for their business. In general, the earlier and less well-formed the idea or the business, the more suitable an incubator will be.
If you don’t yet have a viable product, you are probably in incubator rather than accelerator territory.
On the other hand, if you’re past initial product development and have a viable operation that just needs polish or financing to break through, an accelerator program will be a better fit.
The results seem to speak for themselves, but incubators and accelerators are also a sort of filter. Experienced professionals evaluate entrepreneurs and their ideas carefully before admitting them. So the improved success rate of business that go through these programs may be as much down to the fact that they pick the cream of the crop as to the assistance they offer.
You’ll need to carefully consider the actual value of such programs to your business plans and aspirations before you engage with either one.
Entrepreneurs Have to Consider the Costs of Incubator and Accelerator Programs
None of these organizations are providing these services out of the kindness of their heart. There is a lot to gain from taking part in an accelerator or incubator, but there is also a price to be paid.
In most cases, that’s going to be equity in your new and growing venture. Incubators will often look for a lower stake, or merely options to take a stake, while accelerators are generally more rigorous about locking up shares of the company.
Plenty of California entrepreneurs have gotten themselves in trouble by giving away a little too much, a little too early in exchange for funding and assistance.
It’s also worth watching out for the grift… programs that claim to be accelerators but charge you money up front, or effectively are just a weekend workshop and a list of email addresses from which you’ll never get a reply.
Caution is also warranted on the incubator side. While the advice and guidance that comes from investors and mentors is invaluable, it’s not unbiased. Investors may have an idea of where your business should fit into their portfolio that doesn’t exactly align with your own goals and interests.
Staying SAFE With Accelerator and Incubator Investments
In most cases, you won’t get something for nothing by going into an incubator or accelerator program; with few exceptions, you’ll end up forking over some shares of your company to the investors behind the program.
Increasingly, the most popular way for doing that is through a SAFE: Simple Agreement for Future Equity.
Safes are executable warrants to convert ownership shares to the holder when some agreed event takes place, most typically a liquidity event of some sort. Unlike conventional equity conversions, however, safes aren’t valued at signing. Instead, the valuation is determined at the time of the trigger, and negotiations are deferred to that point. Those negotiations, though, are conducted within the framework of the initial agreement, all but guaranteeing preferential terms for the accelerator backers.
All of this makes safes simpler and quicker than traditional debt instruments, and more appropriate for early-stage businesses that may never even make it off the ground.
Safes are typically, well, safer for founders than for investors, but there are ownership implications that may give you pause. It’s best to retain and confer with outside counsel before you take a safe investment, despite the name.
California’s Stand-Out Business Incubator Programs for Entrepreneurs
Incubators require a pretty intensive commitment from organizations, so you’ll find fewer of them in California than accelerators.
There are certain industries where incubators are both more common and more necessary than others. Creating a software startup to develop iPhone apps can be done virtually and takes nothing more than a beat-up old laptop, incorporation paperwork, and some way to pay a salary.
If your amazing business idea is in biotech, say, or food services, startup costs can be overwhelming. An incubator with a working wet lab or commercial kitchen, like San Francisco’s La Cocina, may be the only economical way to get going.
It’s also no accident that many incubators are sponsored by government or educational organizations. Their missions aren’t entirely profit-bound; you’ll find more healthcare, green tech, and energy innovation-oriented incubators designed to ramp up local economies and support social enterprise.
There are several that stand out from the crowd that we feel every burgeoning entrepreneur in California should know about. Our editorial team selected these incubators from the pack for offering substantial backing and funding opportunities, along with some of the most talented people in their respective industries to learn from.
Los Angeles Cleantech Incubator focuses on helping cleantech startups develop technologies, secure funding, open access to new customers and markets, and pilot their solutions from the La Kretz Innovation Campus in LA. Run by the Los Angeles Department of Water and Power and partnered with the Department of Energy, State Energy Commission, and major utility and transportation players, it’s an effort to put real drive behind the creating of an inclusive green economy for California and the world.
CVBI supports Central Valley startups with consulting, exposure, and capital access with a focus on water, energy, and agricultural technology to help energize America’s Golden Valley. With preferred service providers in law, branding, HR, and other essential parts of the business startup, you can make connections quickly and focus on your business ideas rather than California regulatory red tape.
EvoNexus is a San Diego nonprofit that incubates companies across every technology sector. The program lasts two years and includes capital access, pitch scrubbing, mentorship, and a milestone-based structure that will keep you on track even when you are experiencing the most doubts. If you need secure space to build out your team with focused support and mentorship, the flagship offices here allow you to do it right next door to UCSD and all the opportunities that entails.
This Los Angeles-based program is open to businesses owned by veterans and military spouses who want to devote 10 weeks to absorbing practical activities and learning about resources to help them polish and launch their products. Although Bunker Labs is out of LA, the incubator is virtual, so you can attend the live webinars and presentations from anywhere in the state. Although it’s pretty stripped-down as incubators go, it has a real advantage over others listed here: it is completely free of charge and requires no equity stakes for participating businesses.
California’s Top Business Accelerator Programs for Entrepreneurs
There are far more accelerator programs available to California MBA grads than incubators. In part, this is down to a fuzziness of definition that allows almost any investor with a few kindly words of advice to call themselves an accelerator. It’s also because the logistical and infrastructure needs at the accelerator level really lower the barriers to entry. So investors from all over the world flock to California with these services.
You will be hard-pressed to find any kind of global startup accelerator program without some sort of presence in California.
Just like MBA programs, there is a kind of hierarchy in the accelerator world, but there is also plenty of room for finding a unique fit even with smaller and more eclectic firms. No one will fault you for taking aim at the Y Combinators of the industry, but don’t let the shine distract you from what could be a better fit for your business from a less famous program.
In fact, specialization can be the name of the game in finding the accelerator that benefits your venture the most. The California Milk Advisory Board even funds the Real California Milk Excelerator, supporting entrepreneurs and startups innovating in dairy-based products.
You’re going to find the greatest concentration of some of the best accelerators right where all the magic is happening and the VCs are clustered, in the Bay Area. But a number of enterprising accelerators are finding that innovation is happening all over California, and often in close proximity to top business schools. There’s a good chance you’ll find one or more of these near where you earned your MBA.
AirBnB, Coinbase, DoorDash, DropBox, Reddit, Instacart, Stripe… it’s easy to see why Y Combinator is legendary not just in California but in global startup circles for picking and funding winners. Of course, a storied history makes for stiff competition and high standards for entrepreneurs hoping to make it into one of the two rounds of funding that YC offers per year. But 5,000 companies have done so, and tapped into next-level resources like:
- A dedicated group partner with experience mentoring hundreds of startups
- An unparalleled investor network to pitch to
- A private social network exclusively for founders
- Discounts and dials from B2B services ranging from Stripe to AWS
- A hiring network that can bring in the top talent you need to expand
Plug and Play is a global VC firm that may be the most active startup accelerator in the world, averaging almost 1,000 deals a year. That includes unicorns like Lending Club and Trulioo. With partners like Visa and Walmart and accelerator programs focused on areas as diverse as fintech and food and beverage, Plug and Play’s Silicon Valley headquarters offers a customized path to success for a wide range of California entrepreneurs… without requiring equity stakes.
Techstars is a global accelerator and venture capital firm that has a significant presence in California. With a big network behind it, the company can put a lot of resources into startups, but it also can deliver a more personalized level of support than many big accelerators due to how it’s organized. Rather than taking your place in a crowd of other eager startups and fighting for attention, you will be part of a smaller sub-accelerator organized by industry, such as e-commerce, or with a geographic focus like LA or Oakland.
With backing from top tier venture funds like Andreessen Horowitz, Redpoint, and Sequoia, resources aren’t lacking for startups that land a spot at Alchemist. The San Francisco hub runs six month courses that give you a structured path to fundraising, community, mentorship, and market traction. The accelerator identifies its target at “enterprise startups” which focus their model on selling to major corporations.
This LA-based accelerator has an impressive portfolio including mobile and internet brands with names like eFlix, VBollywood, Eigatal, mVakil, and Voodle. Ongoing mentorship and access to resources gives potential unicorns room to grow until ripe enough to be plucked as acquisitions from the fruits of the ideaTree.
Mucker is a Santa Monica-based accelerator program that goes long… there is no fixed duration for participation, but the average length of engagement is 12 months. That’s much longer than most California-based accelerators, and speaks to the intention Mucker has to tailor their assistance to specific business goals, not an arbitrary timeframe. Also unusually, Mucker doesn’t broker financing outside their own investment. On the other hand, that means they are more willing to consider companies that have already raised funds from other sources.
Launch is a selective accelerator tacked on to a seed fund and syndicate, offering support across a range of startup levels. Only 7 companies are selected per cohort, which lasts for 14 weeks. They are looking for world-class product design and founders who have ventures that are already gaining traction in the market. The program is centered around workshopping and optimizing product pitches and culminates in a fundraising cycle and a public demo day. It doesn’t have the engagement or handholding of many other accelerators, but ongoing investment options are a major plus for many founders.
An average funding rate of over $14 million is one reason this accelerator consistently ranks at the top of MIT’s Seed Accelerator Benchmark. With 15 teams per cohort and a 6 month cycle, AngelPad delivers the typical one-to-one mentorship, startup funding, cloud service credits, networking, and investment introductions that other accelerators offer. With alums like AllTrails, Postmates, and Zūm, though, they have a success rate that others are hard-pressed to match.
In an era where American healthcare outcomes are declining as costs are skyrocketing, there’s clearly some room for innovation in the market. World-class Cedars-Sinai Medical Center wants to foster some of that through their program aimed at health-tech companies. Founders can get involution feedback and mentorship from CS clinicians and executives, access to campus resources and infrastructure, and incredible partnership opportunities.
Equity-free are the magic words for startups heading for FFL. Peer mentoring, valuation expertise, and an elite group of founders around you are also compelling reasons to consider this Palo Alto-based accelerator. An admirable list of graduates have been acquired by companies like Meta, Dropbox, Amazon, and Yahoo, while others like Carta and Osmo have gone on to draw funding from major Valley and national VC firms. On the other hand, FFL doesn’t itself invest, and in fact charges a program fee for participation, so this won’t be the right choice for many early-stage startups.