The startup arena has its own vernacular. Navigating through it isn’t always obvious. All the hype around entrepreneurship and innovation doesn’t help either. Often, so-called “experts” use terms erroneously, potentially misleading unaware first-time founders.
Data show that entrepreneurs who get help in building their startups have increased chances of attracting investment. Both incubators and accelerators provide guidance to startups in advancing their business models and strategies, as well as safe ecosystems and environments for development. The main goal is to help startups become valuable in the eyes of investors.
Most startups would benefit from being in an incubator, but fewer are fit for an accelerator. To maximize gains from associating with either one, you must be well informed about the role of each within the innovation ecosystem and their differentiating factors.
Incubators are looking to foster and support local startups and the local ecosystem. As such, they are focused on driving innovation and finding ideas. They “incubate” ideas to devise a business model. Incubators are not designed for growth and scale. They nurture and mentor entrepreneurs over time to help them create a startup.
Accelerators are focused on accelerating the growth of existing startups. Particularly, those that have already demonstrated some growth. Accelerator programs are designed to leverage startups’ existing business model.
In a nutshell, incubators “incubate” ideas with the hope of creating a company and accelerators “accelerate” growth of existing companies.
Young startups, which might not even have a team or anything besides an idea, are the target market for incubators. These startups are very early in the entrepreneurial process. Growth potential is not the most important factor. Solo founders are fit for incubators. A good incubator will help aspiring founders developing a business model and build a team.
Typically, startups with a minimum viable product (MVP), the business incorporated, a well-established team of founders, some type of traction in the market and a track record of some growth are best fit for accelerators.
The best incubators are selective and only accept early-stage startups/entrepreneurs. During the application process, startups are expected to disclose the business plan. This business plan might already be somewhat of a formal document or just an overview of potential areas for development (particularly for solo entrepreneurs who only have an idea). Some incubators will only accept entrepreneurs and startups referred by someone within the network of advisors.
Accelerators are cohort-based programs tailored for early-stage startups and have a rigorous application process. Participants apply to the program, which, typically, has a limited number of slots. Top applicants are then selected to join the program. Selection is based, mostly, on scalability potential, investment interest and capacity to grow quickly.
Incubators are flexible in terms of time and tend to be a long-term arrangement focused on learning and development. Tenure can last anywhere from 6 months up to more than a year; depending on the time it takes the entrepreneur(s) pitching their idea or product to investors, consumers and/or the incubator community.
Accelerators have intensive programs on a set time frame of three to six months. Typically these programs end with a presentation on the growth and development the startup achieved during the program.
Incubators tend to be open-ended. They might, in some cases, be focused on a specific vertical (aka industry). For example, an incubator sponsored by a pharmaceutical company may only be looking for health technology startups.
Accelerators focus on a specific vertical and/or technology. Thus, accelerators provide specialised resources for startups.
Incubators cater, mainly, to, young startups. As such, these ventures are typically not at the point of needing investment. Therefore, incubators typically do not invest in startups nor have claims of equity. Many incubators are sponsored; thus, they can provide various services without financial gain.
Accelerators typically give a small seed investment in exchange for equity. The amount of investment and equity depends a lot on the accelerator and the maturity of the ecosystem in which it operates. However, generally speaking, accelerators take between seven and ten per cent equity.
Generally speaking, at an incubator you can expect a shared co-working space, mentoring, connection to the local community and a credibility boost from membership; assuming it is a well-respected incubator. Not all incubators are the same. Expect to see variations and different combinations of these elements.
Co-working spaces are extremely useful in helping to tweak the idea and assumptions behind a new venture and monitor its progress. Co-working ensure a reduced bill at the end of the month by offering employees access to shared utilities. It also has the additional benefit of connecting the entrepreneurs to the local community and its most recent developments, opportunities and threats.
Besides shared office space, incubators offer consultations and close support from experts in an environment of collaboration and support. Often, support is provided on a need basis only. As such, incubators tend to have a relaxed culture.
Incubators tend to be well connected and attract partners within a specific ecosystem. If looking to set up your venture abroad or in a specific geographic area, you could apply for an incubator that is well connected in that network. Even though incubators are sector agnostic, a good incubator will be able to introduce entrepreneurs to the accelerators most relevant to them. In fact, good incubators might even guide and support startups for entry into an accelerator.
Even though incubators don’t tend to offer technical or software development support, they might be able to connect non-technical entrepreneurs to software developers within their community.
At an accelerator, you can expect networking, mentorship and resource allocation to fast-track the success of proven startups.
Unlike incubators, accelerators promote private working environments to improve concentration, focus and efficiency.
Accelerators also offer consultations and close support from experts. However, they tend to be sector-specific and focus on giving entrepreneurs insights from their own sector. Many accelerators offer technical or software development support.
Typically, accelerators are not restricted to a geographic area.
How to choose?
Joining an incubator or an accelerator will not guarantee the success of any startups. There is, however, a strong connection between graduate (term typically used to refer to startups who have participated in an incubator and/or accelerator) success and the depth of the network of mentors offered. In other words, startups who manage to reap specific value for their venture out of the mentor network, seem to be more successful.
Timing is also an extremely important factor. If you are still looking for co-founders or your first employees, you are a better fit for an incubator.
Growth rate also provides insights whereas to which might be most suitable for you. If you are a fast-growing startup, an accelerator will definitely generate the most value. However, if your growth plan is still not 100% clear, go for an incubator.
Many accelerators require you to relocate during the program. You must also assess if you (and your core team) are willing to do so.
If you need capital, an accelerator is most likely better equipped to support you. Nevertheless, some incubators are starting to invest in startups. It is definitely worth looking into within your geographic area.
If you have any other question about incubators and accelerators, don’t hesitate to leave a comment. I will happily answer and include additional details to this post.