Have a brilliant business plan but hungry for some seed money? Finding it difficult to punch up your product pitches and sharpen your business strategy? Many entrepreneurs in need of a little nurturing of this type have turned to venture capitalists or so-called incubators in a bid to build their business.

Finding the right "angel investor" has given many upstarts a defining edge. According to the Canadian Association of Business Incubators, the average survival rate of companies that are supported by a business incubator is greater than 80 per cent after five years.

Mark Skapinker is a co-founder and managing partner of the software development company and incubator Brightspark. "In this market, there are quite a few different models of business incubators," says Mark Skapinker, co-founder and managing partner of the software development company and incubator Brightspark. "They range from seed venture capital funds that supply dollars and lots of advice and direction; to [just] offering some money, with few services; to hosting you completely with full services; to incorporating your ideas into a larger business as a division."

There has been a definite shift away from full-service incubators, with most incubators today allowing entrepreneurs greater independence, Skapinker said in an email interview. Entrepreneurs seeking support in today's economic climate will face fierce competition for limited resources, he said.

"Right now (especially in Canada), there are … very few sources of incubator help and seed financing," Skapinker said. "Remember that you are competing with others for the same resources. You may want to think very carefully about the timing of approaching an incubator."

Skapinker took our questions about the advantages and disadvantages of signing on with a business incubator, how you should prepare for a meeting with an investor and how you should determine whether such an arrangement is right for you.

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Question & Answer: Mark Skapinker

CBC: What should you have prepared before you approach a business incubator?

Mark Skapinker: Firstly, you should decide if this is the right time to approach an incubator. For example, I have met entrepreneurs who decided to first work in an existing entrepreneurial business to learn the business. Incubators and early-stage funders really like to invest in experience and known entities. So, you stand more chance of being noticed if you can gain experience and, especially, if you can prove yourself — it could be technical, sales [or] marketing experience.

'Suck up, but not too much! You need to talk about how much you want to work with the incubator, but don't sound fake.'—Mark Skapinker

Prepare your story. Remember, you are "selling a dream," so you need to be able to lay out that dream in a way that sets you apart from others.

Up front, make sure that you explain what you want to be in a simple, concise and understandable way. Many times, someone has pitched me, and it takes me so long to figure out what they want to do that I lose interest by that stage.

Make sure you (or your partners) are experts in what you are pitching. Second to experience, the seed VC [venture capitalist]/incubator will be looking for domain expertise. You can't go in and pitch why you are going to change the entire online travel industry if you have no expertise in online travel already. Show your credentials. If you don't have domain expertise, go and find a partner who does.

Try and show that you have thought this through. If you can show that you understand the existing market, your competition (or lack thereof) [and] the hurdles you need to overcome, you gain immediate credibility.

Don't plan to "boil the ocean." Show that you are realistic about resources, reach and what you can do. That is not to say that you should not be ambitious, but just show that you are realistic. Don't make wild claims. (If 10 people pay $100 each, imagine how successful we will be in the first year when 10 million people buy our product.) Show growth that can be managed.

Suck up but not too much! You need to talk about how much you want to work with the incubator, but don't sound fake. Lastly, remember that the business is all about people. Show that you are someone who the incubator would want to work with, someone who can be trusted, a team player and someone who would be fun to work with.

CBC: Can you talk about the give and take process of working with an incubator? What should an entrepreneur expect to give up? What should they expect to get?

Mark Skapinker: You are definitely giving something up by working with an incubator. Try and find out what this is as early as possible. At [the very] least, you are giving up equity for the investment and control. You need to know how much of each you are giving up and if it works for you.

Regarding equity, remember, you may need lots more money down the road, so you need to know that you will need to give up additional equity. Decide what you want to be: would you rather own more of a smaller business or less of a larger business? It is a race to try and achieve more with less money.

Regarding control, try and understand very carefully what the incubator/venture capitalist/angel investor is asking of you. What decisions can you make without them? How "in control" of your destiny will you be? Make sure there is a good balance between their needs to control their involvement and your vision of being an entrepreneur. For example: Your board — do you control decisions? This does depend on your incubator/partner, but understand their style before you finalize a deal. Do they typically get more or less involved in day-to-day operations? Do they typically let you change direction if you need to in your business? Do they typically become impatient if it all takes longer than anticipated? Do they demand that you use their services? Do they really have "value add" [aspects to offer]?

CBC: What common mistakes have you come across when approached by an entrepreneur hoping to be accepted?

Mark Skapinker: The biggest mistake is when an entrepreneur is not prepared —when it is obvious that they have not looked at their market, or they don't understand what hurdles they are facing, or it is obvious that they are in the wrong place. For example, don't approach an internet incubator about a clean-tech business. Other mistakes are entrepreneurs making claims that simply can't be supported, [such as,] "We are sure that our new internet business will put the cellphone companies out of business in two years." Arrogance is not necessarily what investors are looking for.

CBC: What types of companies are not well suited to being supported by a business incubator?

Mark Skapinker: There are experienced entrepreneurs or very independent individuals who don't work well in an incubator environment. (Bill Gates would probably have failed in an incubator.) Sometimes, entrepreneurs are focused, stubborn individuals who would be much better off going to traditional investors when they need capital.

I would suggest that, if all you are looking for is funding, don't go to an incubator. Incubators, by definition, add some level of service and advice component.

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