Accelerators and incubators provide great ways to enhance early-stage start-up businesses. Here we outline the key differences between a start-up accelerator and a start-up incubator.
Start-up founders seeking to begin on the correct path, often turn to start-up accelerators or start-up incubators for assistance.
The titles “accelerator” and “incubator” are frequently considered to represent the same concept. Nevertheless, there are a few specific differences that start-up founders need to be aware of if they are considering applying.
Both accelerators and incubators provide great opportunities to entrepreneurs early on. Founders get assistance with growing their business alongside, a better chance of attracting a top venture capital (VC) company to invest in their start-up at a later date. However, the programs have different frameworks for the success of start-ups.
Let’s begin by analysing the goals of each program type.
Accelerators, grow an existing business. Incubators on the other hand “incubate”. They interrupt ideas with the expectation of constructing out a business model and business.
Therefore, accelerators concentrate on scaling the business while incubators are more concerned with innovation.
Although, both types of programs were made popular in start-up hubs like Silicon Valley, these days they can be found worldwide. Despite most people associating these programs with tech start-ups, several of them accept organisations from a large array of verticals.
Accelerators
The individual program structures are one of the major differences between accelerators and incubators. Accelerator programs generally have a set time frame, whereby individual businesses spend between a few weeks and a few months working with a team of mentors to build out their business and avoid difficulties along the way.
A few of the well-known accelerator programs are Brandery, TechStars and Y Combinator.
Accelerators begin with an application process. However, top programs are generally extremely selective. Y Combinator welcomes about 2% of the applications it receives and TechStars normally has to fill 10 places from about 1,000 applications.
Early-stage businesses are normally given a small seed investment and connection to a big mentorship network, in exchange for a limited amount of equity.
The mentoring network is comprised of start-up executives, industry experts and venture capitalists. Alongside, other outside investors, this is often the largest value for prospective businesses. The mentor networks are large in size, for example TechStars has hundreds of mentors in the program.
A partner at Y Combinator, Aaron Harris said “he is unsure whether accelerators actually work as a whole, but Y Combinators success is due to how they managed incentives”. A huge amount of that success comes back to the alignment of incentives, stated by Harris “good programs completely align all parties”. Partners at YC who advise businesses have a share in their success. They also try to limit distractions, schedule meetings when necessary and ensure they are not forced to work in a large noisy co-working space. When the accelerator program finishes, you will observe start-ups from a specific cohort pitch at a demonstration day (a demo day for short). This demo day is attended by media and investors. At this time, the company has optimistically been developed further and assessed. The aim of the accelerator is to assist start-ups for around 2 years of business building within a small number of months.
The general manager Mike Bott of Brandery stated that “if you go through a good one, you’ll know at the end where your start-up founding team and business stand”.
Incubators
Start-up incubators begin with businesses or one entrepreneur, that may be at the start of the process and do not need to work on a fixed schedule.
If an accelerator is in a greenhouse for seedlings to obtain ideal conditions to develop and grow, then an incubators role is to combine the best seeds with the finest soil for the blossoming and advancement.
Although, there are a few independent incubators, they are mostly sponsored or managed by VC companies. The likes of Angel investors, government bodies and large corporations will sponsor independent incubators.
Several incubators have an application process, while others only work with organisations and ideas that they are in contact with through credible partners and referrals.
An excellent example of an incubator is Idealab, conditional to the sponsoring group an incubator can be concentrated on a set market or vertical. An incubator sponsored by a hospital, (for example) would only be interested in health tech start-ups.
Generally, start-ups established into incubator programs will transfer to a particular geographical area to work with other businesses in the incubator. Inside the incubator, a business will perfect its idea, buildout it’s business strategy, develop their product, identify creative issues and network in the start-up ecosystem.
A regular incubator will have shared an area in a co-working environment, a monthly lease schedule, extra mentoring and contact with the local community. Co-working is a substantial part of the incubator experience. It has been divided into its own unattached business offering around the country. Whereby, co-working places charge a fee to access utilities.
Although, accelerators sometimes offer co-working space, the majority provide businesses with private office space or permit them to select their own space.
TechStars mentor, Troy Henikoff states that “the economics are usually on a per seat basis”.
However, although this may be ideal for the first few individuals, it may be more economical to obtain your own office.
Summary
Accelerators and incubators both offer opportunities to assist new businesses and start-up ideas to head in the right direction. However, it is entirely your choice when it comes to where you wish to start.
If you would like some advice on funding options for your business, get in contact with us today!
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