They’ve been called “Vital resources for startups.” “Great ways to grow your business.” And “Terrific for first-time CEOs.” But startup incubators and business accelerators are not interchangeable terms.

It’s true that “both incubators and accelerators prepare companies for growth by providing guidance and mentorship,” as Business Insider has said, “but in slightly different ways, and more importantly, at different stages in the business life cycle.”

Life-cycle metaphors of childhood-adolescence-adulthood, or greenhouses, or brood nests, are often applied to the incubator-accelerator systems of startup development. These are handy comparisons. But as with most handy comparisons, important differences are often lost. As with chicken coops, incubators are where eggs are kept warm until ready for hatching. In contrast, the accelerator is all about training the youngster to move from crawling to walking and—hopefully before long—to running on one’s own.

Here’s a refresher on how business incubators differ from accelerators, and some advantages and disadvantages that founders might consider for their own fledgling startups.

Incubate your idea

Inc.com describes the incubator as a partner that “nurtures the business throughout the startup phase (childhood) and provides all the necessary tools and advice for the business to stand on its own feet.”

The International Business Innovation Association describes the incubator as “a business support process” that aids the development of startups “by providing entrepreneurs with an array of targeted resources and services. These services are usually developed or orchestrated by incubator management and offered both in the business incubator and through its network of contacts.”

Examples of well-known incubators include Idealab and tekMountain.

Common characteristics of the incubator:

  • Fosters small and early-stage startups in their “childhood” phase, focusing on concept formation, customer discovery, management development, value proposition, and potential pivoting.

  • Acceptance criteria vary. But often only those founders with feasible business ideas and workable business plans are admitted.

  • No set time frame. Incubators tend to be short term and less structured than accelerators. The time a startup spends in an incubator can vary greatly, from months to years, until it scales to the point of needing its own space.

  • Provides office space, professional services and business advice. Coworking is a common part of incubator settings, and has spun off into its own niche of the ecosystem.

  • Startups pay a monthly fee to participate. Incubators typically take little or no equity because they do not provide investment capital. Some incubators are grant funded and have university affiliations.

  • Startups physically locate on the premises. Incubators often provide a collective space shared among startup tenants.

  • Mentoring provided. Guidance typically comes from proven entrepreneur investors and through collaborative learning with peer founders.

  • Singular sponsor. Sometimes all the startups in an incubator are hosted or venture-funded by the same investor group or business.

  • Goal: The incubator’s goal is to help startups discover their own viable concept and pace of success, or to prepare them for an accelerator program.

Accelerate your business

More structured than the incubator, business accelerators hasten businesses through the wobbly adolescent stage (Inc.com). Jonathan Axelrod, managing director of the Entrepreneurs Roundtable Accelerator, notes that accelerators provide “early-stage investors […] oftentimes, the first money in.” Famous businesses that matured in accelerators include Dropbox and Airbnb.

Some observers delineate two categories of accelerators: seed accelerators and second-stage business accelerators. According to Business Insider, “The seed accelerator’s services often include provisions of pre-seed investment (usually in exchange for equity), and the focus is usually on business model innovation.” In contract, the emphasis of the business accelerator is “on rapid growth, and to sort out all organizational, operational, and strategic difficulties that might be facing the business.”

Examples of well-known accelerators include Y Combinator, Techstars, Dreamit, and tekMountain.

Common characteristics of the accelerator:

  • Assists “adolescent” startups focused on fast growth and investment

  • Competitive application. Entry requires an application process, open to all, but top programs can be highly competitive. According to TechRepublic, “Y Combinator accepts about 2% of the applications it receives and Techstars has to fill its 10 spots from around 1,000 applications.”

  • Fixed-term, cohort-based programs, more structured than incubators.

  • Small, even minimal, seed investment is typically offered in exchange for a single-digit equity stake in the startup business.

  • Short term. Accelerator programs typically run three to four months to complete, ending with “demo day” when the startups pitch their ideas to venture capitalists or angel investors.

  • Mentoring is provided by a network of affiliated entrepreneurs, CEOs and investors, regarded as “often the biggest value for prospective companies” (TechRepublic).

  • Goal: “To grow the size and value of a company as fast as possible in preparation for an initial round of funding (MicroVenturs.com).

Advantages of such programs

According to Forbes:

  1. Shared learnings and mentorship (helping avoid typical startup pitfalls and speeding up your efforts);

  2. Access to capital, either within an incubator or post an accelerator; and

  3. The PR value and networking exposure you get from these programs (not to be underestimated).

Disadvantages of such programs

According to Forbes:

  1. They can be distracting, at times, with lots of related meetings and events with mentors and investors (getting in the way of focusing on your own project);

  2. They can be confusing at times (getting 10 different opinions from 10 different mentors), so you need a good “filter” on any advice; and

  3. Sometimes, sharing space with other companies is not always a plus, especially in long-term incubators that may be carrying dead weight of underperforming companies.

Aaron Harris, a partner at Y Combinator, says that “Y Combinator’s success is due to the way it approached incentives…. At YC all the partners who advise the companies have a stake in their success. We also do as much as we can to limit distractions. We don’t schedule unnecessary meetings, don’t force them to work in a big loud coworking space” (TechRepublic).

Incubators have been around for a very long time, but they and accelerators have proliferated enormously in the past decade or more. Their growth is the symbiotic outgrowth of the lean startup method of entrepreneurship, with its rapid iteration cycles and lower costs of entry.

Which option is right for your business depends a wide range of variables, the most basic being your own current business experience. Sorting out the relative benefits is something that tekMountain specializes in doing. As a leading entrepreneurial and innovation center, tekMountain can help you discover whether your startup concept needs the right conditions for hatching, or if your adolescent business is ready for the world. Talk with us today to plan your ascent.

 

This blog was produced by the tekMountain Team of Sean AhlumAmanda Sipes, Kelly Brown and Bill DiNome with lead writer Zach Cioffi.

Comments are closed.