Accelerators vs. Incubators: How Can They Help Your Startup?
10 minute read
Entrepreneurs looking to set up a new business but have little to no funds need to focus on acquiring enough money for the setup.
In recent decades, we have seen the rise of both government and private programs and schemes designed to help businesses that are not fully-fledged get operations off the ground.
Early-stage startups and their owners often look for accelerators and incubators, since they have proven to be an excellent aid for business growth. Additionally, some offer excellent conditions, for instance, the company awarded the aid sometimes does not have to pay back the invested funds.
A business that manages to get help fast and boost growth considerably increases its chances of attracting a high-profile venture capitalist firm to invest further.
However, just because incubators and accelerators are there to help businesses grow, it does not mean that they are the same. Let’s take a look at how accelerators and incubators help businesses as well as how they differ.
What is an accelerator?
A business accelerator is a program that is designed to help developing businesses by providing monetary aid, mentorship, or assets that are non-monetary.
Do not think that accelerators always exclusively include money as part of the help package. In fact, accelerators offer support in various forms until businesses become stable and self-sufficient.
Startup accelerators have a specific timeframe in which these new businesses spend several weeks or months engaging with mentors to develop the business further and learn what to do and what not to do in order to achieve success.
An accelerator program starts with a startup’s application. The selection process is very thorough, so keep in mind that only a small number of companies are selected for the program.
Once the selection process is over, a chosen company receives a small seed investment. Additionally, it gains access to a large network of mentors.
To return the favor, the investors gain a small amount of equity in the startup. The network of mentors is usually made of startup executives, outside investors, industry experts, and venture capitalists.
For startups, this mentor network is usually the most precious aspect of the startup accelerator program. A great accelerator program has all different parties aligned, and all its partners provide consulting services.
Once the program ends, it is common to hold a demonstration day when startups present their business growth and progress. Media and investors often attend this event.
To summarize the concept of accelerator, the goal of a startup accelerator program is to help a startup do two years’ worth of work in a matter of a couple of months.
Finally, not every startup is eligible for an accelerator program. Before you apply for an accelerator program, consider some of the following questions:
- Is it the right time to apply?
- How fast are you growing?
- Will you relocate your business?
These will help you determine whether you meet the criteria of your desired accelerator programs.
What is an incubator?
An incubator or a startup incubator is a program designed for startup companies that is supposed to help them get through the early stages (e.g. MVP).
Incubators usually provide workspace, seed funding, mentorship, and training. This program is somewhat similar to accelerators, but there are some important differences to be aware of.
An incubator process starts with a business that is in the early stages of their life cycle, but contrary to accelerator programs, it does not operate on a specific schedule.
They can be independent entities, but they can also be a part of or be sponsored by venture capital firms, angel investors or angel investment networks, government entities, and giant corporations.
The selection process is also different from the accelerators. Some, similar to startup accelerators, have an application process, while others only work on ideas and businesses suggested by trusted partners.
Additionally, it often happens that startups accepted into business incubator programs have to relocate to a specific geographic location to work closely with other companies within the incubator.
The startup incubator will help to further develop ideas and validate the business plans and markets. Furthermore, the startup incubator offers help with networking within the startup environment.
Once the program starts, participants spend a lot of time networking with other entrepreneurs. They get to share their ideas, determine product-market fit, and they also create a business plan.
However, no one can ‘steal’ another participant’s ideas, since intellectual property issues are vetted and dealt with during this stage.
The incubator process takes a few months, but it is often open-ended. It ends with a pitch or demo day where business owners present their business ideas to the incubator community or investors.
Before you consider joining an incubator program, ask yourself these questions:
- Does this program have the right mentors for you and your industry?
- Do you need funding as soon as possible (which you can get with accelerator) or specific help that an incubator can provide?
How do they differ?
The basic difference regarding accelerators vs. incubators is that accelerators receive funding from an existing company or network. It often happens that an incubator is independent although it can have connections to venture capital firms, angel investors, funds, universities, or government entities.
Next, it is important to stress that incubators are mainly focused on stimulating a startup’s innovation by incubating great ideas. Startup accelerators, on the other hand, focus on accelerating the growth and scaling of a business. The situation becomes a bit more complicated when incubators function as a preparation stage for startup accelerators.
Another big difference regarding an incubator vs. accelerator lies in the fact that accelerators follow a fixed timeline for their programs, which usually last for a few months. On the contrary, incubators do not have a fixed timeline but are usually there with a startup for a longer period of time than startup accelerators.
There is a general belief that accelerators are a bit more selective when choosing startups to support compared to incubators. However, this is due to the fact that accelerator programs include funding and equity in the startup for the investors.
To make these differences easier to understand, here is a list of the most important distinctions one should consider when comparing accelerators to incubators:
- Purpose. Incubators support startups entering the starting phases while accelerators advance the growth of existing companies.
- Duration. Incubators work on an open-ended timeline while accelerators operate on a set timeframe (3 to 4 months).
- Application process. Incubators invest time and resources into advancing local startups while accelerators use a more traditional and formal model for entry into their program.
- Environment. Both incubators and accelerators offer collaborative and supportive environments and mentorship. This area is where accelerators and incubators are quite similar.
- Investment capital. Accelerators invest a specific amount of capital in startups in exchange for a predefined percentage of equity while incubators do not traditionally provide capital to startups and are often funded by universities or economic development organizations.
Finally, the following example makes it very easy to understand the difference between these two:
- Imagine that a startup accelerator is a greenhouse which has the absolute best conditions for small plants to grow.
- On the other hand, an incubator is there to match the best seeds with the right soil for sprouting.
Which one should you choose for your startup?
The priority is to check your business model needs. It all comes down to the stage your business is about to enter and your particular needs (funds or guidance).
Most startups could benefit really well from joining an incubator, but not many are fit or eligible to join an accelerator program. Incubators can help build the business from the ground up while accelerators accelerate the growth.
New businesses that are still somewhere in the first phase (MVP or idea stage) are good fits for incubator programs. These businesses do not necessarily require investment capital, and they are already familiar and part of the local startup community.
However, businesses that are eager to reach and go through growth phases fast need help provided by accelerator programs.
Furthermore, startup accelerators usually have many applicants, of which only a handpicked few are chosen to pursue the necessary aid. To be considered for a startup accelerator program, the startup needs to be able to show that it is investible and has the potential to scale rapidly.
If it is required, the startup should also be willing to relocate for the duration of the program to a geographic region where personal meetings with mentors are possible.
In most cases, the funding received by startups from accelerators is the first outside investor funds they receive.
The bottom line is that both startup accelerators and startup incubators can contribute greatly to a business’s success, but should not be seen as identical.
As an entrepreneur and based on everything you have read, you need to distinguish the difference regarding accelerators vs. incubators.
Every experienced entrepreneur knows that most startup businesses can benefit from being in an incubator, but fewer are a fit for an accelerator program. Incubators tend to take on businesses that are still in formation while accelerators pick up companies that can demonstrate they are investable and rapidly scalable.
Before you choose an incubator or accelerator, keep in mind all the information you have read in this article, as it could make a world of difference and help your business model go through the process successfully.