Incubators and Accelerators:
In the era where everyone wants to runs their own startups, incubators and accelerators have gained lot of importance. Not all startup founders have everything needed – funds, mentor, idea, business model to start and run a startup in their hand. The founders generally look out for incubator or accelerator for help and assistance needed at the early stage. Most often than not, the terms incubator and accelerator are used synonymously and are assumed to mean the same. But, they are not the same. There are some major distinctions that the founders should be aware of before starting to look for one.
However, there are some common goals they share. Incubators and accelerator both provide good opportunities and assistance at the early stage of business. They help in quickly scaling up the business and also increase the chances of attracting a better venture capital firms to fund the startup. With the guidance and mentorship, the startups get it can help the companies to avoid making any mistake. Being part of incubator and accelerator can give way to numerous invaluable connections and networks. Having looked at the similarities, let’s look into the differences.
Accelerators boost or accelerate the growth of an existing company with funds and mentorship whereas incubators “incubate” disruptive and interesting ideas and tries to build out a business model and shape the company. Accelerators target at the growth and scaling up of the business while incubators are more focused on innovation.
A major difference between the two is the timeframe. An accelerators works with startups for a short and specific amount of time, generally ranges from 3 months to 4 months. During this time, the startup kick starts the business and then exits the accelerator. While in incubators, the startups stay in the space as long as you need to, or until the business has grown to a stage where it need to move and relocate on its own. As it does not have time frame and helps the founders have a better control of the startup, it is very difficult to get into an incubator with the tough competition.
Accelerators offers the startups a specific amount of capital generally somewhere around $20,000. As they invest in the startup, they expect around 3% to 8% stake of the company. This is expected as the exchange for the capital and guidance they offer the startup. On the other hand, incubators do not offer capital or funds like accelerators and therefore cannot afford to take any equity from the company. Generally, incubators are funded by grants through universities, enabling them to offer their services without taking a cut of the startup.
Startups in accelerators have access to large mentor network which usually consists of startup executives and outside investors. This mentor network adds the value to the startup and is the biggest value for prospective companies. The networks are quite big. For example, in last year’s program at Techstars, Chicago there were 153 mentors. In Incubators, the mentorship is generally offered by proven entrepreneurial investors and by sharing of knowledge of the startup CEO peers.
When the startups graduate from an accelerate program, they are given a demonstration day where they are allowed to pitch in about their business to investors and media. Generally, at this point the business is fully developed and vetted. At Incubators, startups do not graduate as such, they relocate when they are able to stand on their own legs.
Accelerators start with an application process and the top programs are very competitive to get in. Top accelerator accepts only 2% of the applications it receives. The ideas and potential of the business can help the startups win over the competition. For incubators, it is vital for the startups to have good networks to enter into an incubator. Without good networks, it become close to impossible to get a place in an incubator. To gain mentorship of an incubator, the startup founders have to be prepared to perfect and make use of their networking skills.
Accelerators can have more of a classroom kind setups to discuss with their mentors and work on their business models. Most of the accelerators offer companies with private offices or let them find their own space. In incubators, coworking is a big part of the experience. Incubators are of open seating setups and so privacy would be compromised.
Despite the differences, both accelerators and incubators provide great platform and opportunities for the young startups to get started and head in the right direction. Depending on the requirements and needs (guidance, capital and other assistance) of the startups, it is up to the founder to decide whether he has to look out for an incubator or an accelerator.