Accelerator vs Incubator: What’s the difference and which to choose
24 November 2018
English is tricky in many ways, and one of them refers to the multiple meaning of words. Synonyms can induce people to error sometimes. That is the case with accelerators and incubators. Even though these terms are usually related to both cars and chickens, this article will relate to entrepreneurship and business startups. The accelerator vs incubator battle is even more complex than the meaning of these words alone.
Startup incubators and accelerators help businessmen to get their companies notorious and profitable. These companies are different from those that offer specific services to growing firms. For instance, while TMS focuses its efforts on building the top-notch web applications for developing companies, incubators and accelerators provide a broader spectre of supporting services.
In analogy to chicken incubators or car accelerators, one can say that the terms are somehow related. Many people tend to use them interchangeably because they do not understand the meaning behind it. Incubators and accelerators are both used to provide guidance to newly launched companies, offering entrepreneurs appropriate ideas to reach their business goals. However, there are several differences and similarities between them.
One should learn what accelerators and incubators are, what advantages and disadvantages they bring to the table and what choice to make based on an extensive comparison. A list of startup accelerator and incubator examples in the United States and Europe should come in handy as well. All these details will be presented below.
Startup accelerators – definition and characteristics
In order to understand the differences between accelerators and incubators, it is paramount to define the structure of the programs used. In the case of accelerators, the programs are based on a specific period of time, ranging from weeks to months, that also involve a group of people that guide entrepreneurs along the way if unexpected events occur.
A startup that worked its way through an incubator will already have a solid starting point – a team, a product, some interested customers and so on. From this point forward, they will need further guidance, which can be provided by an accelerator. Accelerator can be a mentorship synonym, in the sense that the word refers to offering education and training to early-stage companies.
Besides the fact that accelerators sustain startups through mentorship and guidance, they also offer companies a capital to begin with, which may differ from one accelerator to another. The average sum reaches $20,000. But what accelerators gain from this effort? Well, in exchange for these services, accelerators will take anywhere from 3% to 10% (or even more) ownership of that company. Accelerators are somehow more structured than incubators.
In some cases, accelerators are not that linear, meaning that the road to success is not completely ensured. Accelerators will do their best to grow the value of a company and help it attract capital, but if the idea behind the startup is not good in the first place, it might be difficult to reach the goals as planned. This is why most accelerator programs offer a demonstration day, where investors gather to discuss previous startup cases that became fully developed due to the guidance and resources offered by the accelerator.
How can I tell if an accelerator is right for my company?
First of all, you have to assess your business goals and set a specific timeframe to respect. If your startup needs a short-term solution for its current state and your terms range from a couple of weeks to 5-6 months, then you might want to get informed about accelerators further. The biggest element that can tell you whether your company is suitable for using an accelerator program or not is represented by the stage of your startup. Accelerators should be joined only by fledgling startups. Joining one at the wrong moment can actually do more harm than good.
After carefully assessing goals and determining the stage of your startup and deciding they fit the conditions, you can join an accelerator program and take advantage of their resources and mentorship instead of spending your own time on sorting things out by yourself. You just need to analyze your startup from the correct point of views and you will have nothing to lose if you fit the pattern.
Startup incubators – definition and characteristics
Companies or single entrepreneurs can join incubators to grow their businesses by offering them the proper conditions. Plants can’t grow without good soil and quality seeds, and businesses can’t be launched without enough capital and proper guidance. Startups that join incubators are most likely to join accelerators as well, to continue the process they started.
Incubator programs can either be independent or sponsored. Angel investors or government entities often sponsor incubator programs, taking into account that these programs gain benefits as well. Startups can either apply to an incubator program or they can be recommended to one through partners. Either way, the results are the same.
Once the incubation definition is clarified, one must focus on the process, that tends to last more than the in the case of accelerators. Mentorship periods can extend from 6 months to a year and a half, and incubator programs are not oriented towards fast growth. They are more likely to prepare the startup for future developments, that will usually be handled by accelerators. Incubators, on the other hand, have no claims of equity in the startup, and if they have it’s very little.
Incubators don’t provide money that serves as capital in the initial stages of the process, compared to accelerators, so they can afford not to ask for an equity percent. Since many incubators are sponsored, they can provide various services without financial gain. Joining an accelerator program is easier, but incubators are a bit more difficult to reach.
The number of startups that join incubators is lower, and most of them come from entrepreneurs recommended by the official partners of the incubator, such as the sponsor. Yet regular startups can join incubators too if their business goals, their cause and the pitch that the entrepreneurs use are impressing enough. Entrepreneurs that want their startups to be part of incubators and accelerators must have great networking skills.
What incubators ultimately do?
When a startup joins an incubator, it needs to collaborate with the team in the incubator and respect the conditions as good as possible. For that, most startups must relocate in an area where other incubator companies are located. This way, the startup can rapidly redefine its purposes, the main idea of the business and so on. During this phase, startups create their business plans and they do their market research while networking in the ecosystem that the incubator promotes.
In most cases, incubators promote a shared space environment, so that people can brainstorm. Co-working environments help with refining ideas and monitor the progress of the startup while staying connected to the latest news regarding the local community. Co-working has other benefits as well, such as reducing the costs of the bill at the end of the month and offering employees better access to utilities. Compared to incubators, accelerators promote private office spaces to improve concentration and focus.
Incubators are great when talking about communication, collaboration, and networking, as they give people the chance to expand their ideas the proper ways in very early stages. The only thing that incubators can’t offer because of the lack of financial support on their behalf is represented by in-house tech support and the process of product development. These costs must be supported by the startup.
How can I tell if an incubator is right for my company?
Again, one should keep in mind that being part of an incubator process doesn’t directly guarantee the success of the startup. The company has to invest plenty of time in other details as well, that don’t have anything to do with the incubator program. Offering value to the startup is the main purpose of the entrepreneurs and the incubator program.
The reason why incubators are so selective when it comes to choosing the startups that are going to take advantage of their services is that the stage of development in which many businesses are in is not promising enough to ensure the best chances of success. Plus, many startups are not willing to disclose the entire business idea and plan during the interview process in an incubator program. Incubator teams will dig into these ideas and monitor each and every decision of the entrepreneur along the way, so that can be a limitation for some people.
Startups can take great advantage of incubator programs that last around 3-4 months and end up with a demonstration day and a startup pitch to encourage others to participate in such programs as well.
The advantages of joining accelerators and incubators
No matter what decision a startup makes, joining accelerators or incubators can never be a bad one. Of course, as in any other situation, there are some downsides that you should know about, but they are backed up by the numerous benefits of these programs. Some of these programs can also offer access to capital and plenty of working space to develop the business idea that you have. As a new entrepreneur, you need to expand your network as well, and incubators or accelerators can make this possible by boosting your exposure.
The disadvantages of joining accelerators and incubators
The opposing disadvantages should be taken into account as well. The decisions are all yours when you are working with a team of your choice and people you trust for years. Your routine and vision are going to be altered when you work with an incubator or an accelerator, as these programs can impose opinions and influence decisions to take your idea in a certain direction.
Plus, mentorship takes time and dedication, so attending meetings and documenting will become a part of your day. Developing the product or service itself might be postponed until the mentorship period is over. Your schedule will depend on your mentors’ and outside influences will be reduced to a minimum. Basically, your business decisions and schedule depend on someone else almost entirely, and you need to stick to someone else’s daily plans.
A clear, detailed comparison between accelerators and incubators
In terms of duration
When talking about how much time the programs take, incubators are open-ended. This means that the timeline can be altered depending on the startup’s goals and desired directions. Incubators are not focused on quickly growing a company, but on steadily gaining value and longevity for it. Incubators can mentor startups for over a year.
On the other hand, accelerators operate on a previously set timeline. This timeline can also be quite different from one company to another, ranging from a few weeks to a few months. This period is dedicated to building a business through a given capital and mentorship altogether. At the end of an accelerator program, a startup should be able to give investors reasons why they should financially support their ideas through a pitch.
In terms of application
Incubators are mostly focused on local startups and it can be difficult to join one. The startups that desire to join incubator programs are not asked to grow fast, but they have to be part of the local community. Startups that seem to be slow-growing or not that scalable as others tend to be ignored, but they are in fact great candidates for incubator programs.
Accelerators are more formal when it comes to an application because the participants must cover a specified number of slots available in the program. Accelerators are more competitive, and they usually look for startups that could grow extremely fast and that are scalable.
In terms of the environment
There aren’t any visible differences between incubators and accelerators in terms of environment. Both programs offer collaboration and mentorship, sharing or private spaces, resource access and feedback, some more than others.
In terms of finances
As for the investment capital, incubators don’t offer any because they are previously funded by institutions or organizations. Considering that they don’t offer any capital, they are not interested in the startup’s equity stake in exchange for their support. There are some exceptions where incubators do provide capital, and they operate similarly to accelerators. These exceptions are often the cause of confusion between the two terms.
Accelerators always invest capital in startups in exchange for a percentage of equity. The percentage differs from one accelerator program to another, but this percent determines how much effort the accelerator program must put into developing the startup. The percentage varies somewhere between 3% and 10%, but the most common value is 7% equity.
Which one to choose?
Choosing between the two programs can be a tough decision unless you know for sure what your startup needs in the first place. You need guidance only or capital to develop your products? After properly assessing the needs of your business, the accelerator vs incubator battle will be finally finished.
Keep in mind that there is a huge number of accelerators and incubators out there, so you will definitely find one that suits your needs best. You might end up not choosing a program at all and opt for a different solution instead. Yet if you decide to join a mentorship program, determine whether you desire a fast or steady growth. You are the only one who knows what’s best for your startup.
Examples of Startup Accelerators In The U.S.
Examples of Startup Accelerators In Europe
Ending thoughts on accelerator vs incubator
Startups will benefit from these programs only if entrepreneurs choose the one that’s right. The stage of the startup will define what program is the best. Take your time to research as much as possible about this topic and get informed about both incubators and accelerators before making a choice. Then, make sure that your startup will be accepted into the mentorship program selected. A careful decision can dictate your company’s future!
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