What’s the Difference Between Incubators and Accelerators?
The terms “incubator” and “accelerator” are often used interchangeably, but they are actually two different things. Traditionally, incubators focus more on companies at the beginning stages of developing their ideas (though some incubators host startups at all stages), whereas accelerators focus more on early-stage startups that are a little more advanced in their trajectory, perhaps already having a business model or MVP. Accelerators tend to offer hands-on support with mentorship and training to accelerate bringing the company’s product or service to market.
Accelerators are geared towards startups that have at least an MVP and sometimes already have a product or service to sell, and they provide access to capital, usually direct investment in the companies they accept. Traditional incubators, on the other hand, are geared towards companies that are more in need of other resources, and are often in the earliest stages of development. Accelerators offer programs that usually run three to five months, with more intensive mentorship and training, whereas incubators can last for years.
Sound confusing? Let’s break down what accelerators and incubators are all about.
How Incubators Work
Incubators are invaluable in assisting startups and entrepreneurs in getting their business ideas off the ground – by providing needed workspace, loans, access to legal services, workshops, administrative support, and business training. Incubators are seen as crucial in helping entrepreneurs start and grow their business, as they offer their benefits at low fees, and will sometimes offer free services in exchange for equity in the company.
What Incubators Do and Don’t Do
Incubators are sometimes non-profits and can be run by both public and private entities. Many incubators have connections with universities, as well as business schools, which can allow students and alumni to participate in these programs. There are other types of incubators as well, established by governments, civic groups, universities, startup organizations, vc firms and successful entrepreneurs.
The services offered by an incubator can vary, depending on the type of incubator it is. At times, an incubator can overlap offerings with an accelerator, which is why the two get confused. To make it even more confusing, tech incubators tend to encompass quite a bit more in terms of their offerings than traditional business incubators and can operate differently altogether.
Incubator Examples and What Role They Pay
There are several types of incubators that serve different purposes for entrepreneurs, as they attempt to grow a company from scratch into something more viable. The most common type of incubators are business incubators, technology incubators and science parks.
Business incubators are organizations that help companies as well as individual entrepreneurs develop their businesses, by providing comprehensive services, including management training, mentorship, office space, administrative, accounting and legal advice, access to equipment and most important: access to investors, capital and ideas. Incubators offer a supportive environment for new businesses to help them get off the ground.
The most common business incubators are university-affiliated incubators, followed by those run by economic development organizations or chambers of commerce. There are also corporate incubators and government-sponsored incubators.
A technology incubator is a program or company that helps new or developing tech and hardware startups grow and develop their business, which usually involves innovative, new technologies or healthcare. Unlike traditional business incubators, technology incubators are often open to businesses in every stage of growth and development. This can range from startups still at the idea stage or established startups with successful products/services already in the market.
A technology incubator provides startups with access to multiple services and vendors. Those startups involved in technology incubators may also have access to various types of funding, including investor connections and vc firms.
Examples of technology incubators include:
Austin Technology Incubator
Los Angeles CleanTech Incubator
Science Park Incubators
A science park incubator is a very specialized type of business incubator that allows scientific teams to examine innovative ideas that require not just expertise, but also investment. Science incubators are beneficial to science startups as they invest in the resources that scientific researchers require to demonstrate the value of their concept. This can include access to state of the art equipment, access to world-class research, laboratory and technical space, conference facilities, as well as administrative and IT services.
These particular incubators are valuable for those startups in the agricultural, environmental and life sciences sectors, as they offer many resources and mentorship opportunities for early stage companies.
In order to be accepted into a Science Park Incubator, your company typically must meet certain criteria, such as: being in the technology or life science industry, having less than $500,000 in annual revenue, and being headquartered in the United States.
How Incubators Can Benefit Entrepreneurs
If you’re an entrepreneur in search of more than just access to physical spaces and tangible resources, the real value of a startup incubator is the access to mentorship and industry expertise. This can help founders avoid common mistakes, navigate challenges and build successful businesses.
Office Space Provided by Incubators
Much like a co-working space, incubators provide office space and resources such as Wi-Fi, printers, conference rooms and often serve as a networking hub for entrepreneurs in the surrounding community, who may share their skills or company goals with one another. This can help you build valuable relationships that can help your business grow as you network with other entrepreneurs and professionals. This allows you to have necessary office space at a low fee, with access to built in networking opportunities as well as events and mentoring opportunities.
Incubator spaces also often provide assistance in outsourcing administrative tasks, which can free up your schedule so that you can focus on growing your business.
Mentorships can range from formal relationships that require regular check-ins to informal meetups that occur when someone offers assistance on an issue they’ve mastered through experience. Incubators provide a longer-term mentorship program than an accelerator will.
Mentors are crucial as they can provide specialized knowledge from their background and they always have a strong network aligned with their this expertise.
Whatever incubator you decide to pursue, make sure that the incubator is a good fit for you business. It’s best to work with one that has a connection with, and understands, your ideas, rather than one that might have a different focus.
The benefit of having access to experts, who are usually successful entrepreneurs or executives from larger companies, especially in a mentorship driven program, is invaluable.
Access to Funding
Startup incubators typically won’t provide direct investment, but they do offer some lucrative connections, including access to venture capitalists and vc firms, who may invest in the company at a later stage.
Most participants in incubators typically have a small team and limited resources. Incubators may seek an equity stake in exchange for the valuable resources that they’re providing. This may range anywhere from 2%-10%, in exchange for the mentoring, networking, potential branding and providing investor access.
Applying to an Incubator Program
There are a few very important things to keep in mind when applying to an incubator program.
First, be sure that you meet the eligibility requirements of the application process. Most incubators have certain criteria that applicants must meet, such as having been in business for a certain amount of time or generating a minimum amount of revenue.
Next, research different incubator programs and find one that’s a good fit for your business. Each program has its own strengths and weaknesses, so you’ll want to make sure the incubator you choose can provide the resources and support you need to grow your business.
For each incubator you contact, realize that you’ll have to tweak your application based on their requirements during the application process. The process is competitive, and the incubator wants you to be the right fit for them.
Remember that incubators will focus on preparing the entrepreneur with a number of tools, including helping them to formulate a business model and create a winning pitch deck, and provide valuable mentorship to help them secure investors. So, it’s important to assemble a strong application package and submit it on time. Incubators receive a lot of applications, so you’ll want to make sure that yours stands out and shows your commitment and passion for your idea or business.
How Startup Accelerators Work
The Benefits of Accelerators
Startup accelerators are a little different from incubators. The main goal of an accelerator is to help their portfolio companies achieve rapid growth in a short period of time. Accelerators also typically directly invest in the companies that they accept into their programs.
Like an incubator, a startup accelerator provides mentorship and other resources to help early stage startups grow their businesses. Accelerator programs typically offer a three-month program/boot camp, where the startup teams work out of the accelerator’s office space, sometimes live in the environment together, and receive guidance from experienced entrepreneurs, investors and industry experts.
On average, startup accelerator programs provide anywhere from $20,000 to $100,000 in funding. In addition to the financial investment, startups accepted into an accelerator can expect to gain access to a wealth of knowledge and expertise from the program’s mentors. As with incubators, these mentors can offer guidance on everything from product development to fundraising strategy.
Accelerator programs usually work with businesses that have already been started and are growing quickly, and instead of helping businesses get started, they help them grow faster. In addition to money, an accelerator program also offers networking opportunities with potential investors, customers and partners.
Companies that will be a good fit for an accelerator are typically those who have a business model or an MVP and have done some initial work on their startup.
Accelerators Offer More Hands-On Support with Mentorship and Training
In exchange for equity, accelerator programs will provide startups with mentorship, training and other resources that can help them succeed. Accelerators typically work very closely with each startup to further develop their business model and create an action plan for growth.
Like an incubator, an accelerator also requires an application process. Once approved, the accelerator will offer services and resources such as advising hours, shared co-working space, guest speakers, and a certain amount of capital. An accelerator program usually lasts roughly three to four months, though depending on the particular accelerator, this could be shorter or longer. In addition, the ownership of the startup should be around 3%-8%. Accelerators traditionally end with a demonstration day, where a startup presents their work with a lecture and a pitch
Networking is also a very positive benefit of both accelerators and incubators. Exposure to not just mentors, but other startups where your businesses can be lucrative to each other in the future.
Different Types of Accelerators
There are two main types of accelerators: equity and non-equity.
Equity accelerators give startup founders a small stake in the accelerator program and its companies, which become part of the accelerator’s portfolio.
Non-equity accelerators are somewhat of a newer trend, often evolving out of governments looking to accelerate the technology sector in their countries. These non-equity accelerators act more as grants, without taking an equity stake in the company.
How Accelerators Help Startups
An accelerator is an intensive program that provides startups with mentorship, education and shared workspace in exchange for equity. Startups are paired up with experienced entrepreneurs who help them develop their ideas into potentially viable businesses through structured programs lasting from three months to a year.
The most common type of accelerators are private and government-backed. Private accelerators are typically funded by venture capitalists, angel investors, or corporations. Government-backed accelerators, like those offered by the SBA, are usually funded by the government and offer a wide range of services such as mentorship, office space, and funding. These types of government accelerators offer funding from such agencies as the U.S. Departments of Energy, Health and Human Services and Homeland Security, to name a few.
The most famous startup accelerator is Y Combinator, which was founded in 2005, and is now the largest startup accelerator in the world.
Other examples of accelerators include:
Plug and Play
Entrepreneurs Roundtable Accelerator
Founder Friendly Labs
Google Launchpad Accelerator
Applying to a Startup Accelerator
Startup accelerator programs can be pretty difficult to get into. Most are quite selective and accept only a small number of applicants.
Things to be Aware of During the Application Process
If you’re considering an accelerator program, know that you need to be open to being coached. The mentors you’ll be working with have a vast amount of experience, so you’ll want to take advantage of all that is offered, and listen to their suggestions and opinions on your business model, your product, your marketing, etc.
Some accelerators look for more advanced startups. It’s important to identify what stage you’re at and which accelerators may work best for you. If an accelerator requires that you have a product ready to go to market and you don’t, you probably won’t be considered for their program.
When applying, make sure you have a good understanding of your competitive edge. What makes your startup different from your competition? Have available data handy to emphasize your value, what makes you better than your competitors, and why selecting you will benefit the accelerator.
Having a strong team can also help. In addition to a good product or service, accelerators are looking for businesses with a strong team dynamic with committed professionals. Having a strong team in place can help you stand out from the competition.
Accelerators and Incubators: Choosing the Right One
There are some fundamental differences between accelerators and incubators, which can directly impact your business growth strategy if you join them.
Consider an incubator a place where many of the needs of running a business are provided for you; founders can focus on building their products instead of getting distracted by the daily logistics of running a business.
Accelerators focus on early stage startups that have already achieved some level of traction and are ready to scale quickly. Most often they accept an exchange for equity for direct investment, and will offer the startup access to a myriad of resources, which can include office space, mentorship, capital investment and more.
Basically, it really boils down to where your startup is at, and the type of assistance you need as a startup. If your startup is still in its early stages but you’re ready to accelerate your growth, as an accelerator could be a better choice. If you’re a brand new startup and need help to find product-market fit and building out a business model, then an incubator may be a better fit.
No matter which route you choose, both accelerators and incubators can provide a great way to get your startup off the ground. So do your research, figure out what’s best for you, and go for it!
Happy launching! 🙂