Incubators
Incubators usually provide entrepreneurs with advice, office space, and other services in exchange for some equity in the new venture. Incubators will only work with companies that they think are likely to become successful with their help.
Motivation and timing of investor
Incubators are typically seeking long-term equity-based returns although some non-profit or community-based incubators may have other motives. Most incubators want to make a lot of money from their investment but recognize that it may take 5-10 years to realize a return. Non-profit or community based incubators often have other motives including creating jobs for a local economy, stimulating economic development, fostering growth in technology, or helping to fuel innovation around a corporate mandate that they might have.
Typical Amount of Funding
Incubator funding can vary widely but is usually between $25,000 and $500,000. Entrepreneurs should note that many incubators include the "value of services rendered" as part of their monetary investment. This means that entrepreneurs may not see as much hard cash as they originally expected from many incubators. This is because incubators will often consider the non-cash services that they provide to entrepreneurs as one of their primary contributions. For example, incubators will view the office space they provide and advice they give as important sources of value for the entrepreneur.
Availability
Incubators are somewhat more difficult to find. They are often associated with universities. In recent years, a new breed of incubators has emerged that invite entrepreneurs from all over the country to come to a central location for a period of time to launch a company. Some of these incubators may actually be closer to seed funds or small VCs. The term incubator has actually become somewhat controversial since in the late 1990s many incubator models failed and received broad criticism. Examples of these new funding sources include:
You can find other incubators on the Internet.
Interest and Principal Payments
Incubators do not provide debt financing so there are no interest and principal payments.
Equity
Incubators will generally require that you provide them with an equity stake ranging from 2-20%. Given the relatively small amount of financing provided 2-10% is generally a more acceptable range to entrepreneurs.
Control
Incubators will exercise some forms of control as shareholders and advisors. They may require update meetings, they might take a seat on the board of your company and thereby exercise some board control, but they do not generally have a controlling stake in your company.
validation / Other
Incubators and "American-Idol" style funding programs like Y-combinator and TechStars provide a great deal of media exposure and validation for your concept.