You probably have heard of incubators and accelerators before. In fact, they have turned into somewhat of a buzz words in the startup ecosystem. But do you know what the difference is between the two? Incubator or accelerator? How can you tell which one is better for your startup? In order to exploit them and leverage them at the best of what they can offer, it is very important to know what is the right time to engage with both.
[Guest blog by Stefani Bozadzhieva, content marketer at Equidam]
Let’s start by giving a broad definition of the two. As the name suggests, incubators help starting entrepreneurs, idea-stage entrepreneurs, to develop their company. They do this by offering a wide range of service, such as facilities, access to technologies, access to knowledge and even access to capital in some cases. Most importantly, incubators offer mentoring and quick access to a vast network of connections.
Accelerators are a cohort-based, fixed term type of program. The purpose behind accelerators is to make the company ready to raise capital, usually the first capital that the company receives – seed stage.
Incubators do not usually take equity in your company, however, they do offer a variety of services. The reason is that incubators are usually funded by governments, who do not aim for short-term profits. They are rather concentrated on long-term innovation and technology enhancement and local economic boost.
Accelerators, depending on the type of program, take between 2% to 10%. However, they are also a lot more selective. On average, 10-15 companies are included in a program that lasts 3 months. The business model of accelerators is based on diversifying their portfolio of companies. Similarly to a VC firm, once the companies have an exit, the accelerator is going to benefit from the capital gains.
2| Duration of the program
When entering incubators, you expect to be part of the community for a minimum of a year up until 5 years. They are not as short-term oriented as the accelerators.
Accelerators are fixed term. The accelerator program runs from 3 to max 6 months. They usually have two batches of companies, a spring and a fall cohort. The time in-between batches is used to make the selection we talked about earlier.
3| Type of investors
Incubators are usually funded by governments, universities, regional funds even foundations. The common thing between these organisations is that they are not-for-profit. They put in the capital to promote innovation, entrepreneurship and they have a long-term goal of helping their local economy.
Accelerators can be financed by corporations or even private investors. They are for-profit and want to work as a type of investor before the company becomes appealing to VC funds and other investors.
4| Access to facilities
Incubators can also provide you with access to facilities and technology labs that are very specific to your business – think about clean tech, health tech. They give you access to something that on the private market is very expensive, and that very few companies in early-stage can afford.
These are services based on R&D, that’s why the most frequent players here are professors and universities involved in this field. They want to make this available to entrepreneurs that can help the state of technology go further. Accelerators provide you with facilities, mainly office spaces. They assume that you are looking for capital. Hence, you have already done the R&D stage to develop your product.
What both of these programs have in common is that they require you to be local. They want to take advantage of the positive externalities that aggregating the companies offers. They try to create a community so that they can leverage it with the resources they can put to your service.
An accelerator usually always offer some kind of cash, on top of the office facilities. Incubators focus on aggregated or affiliated service that you would have to pay for in the market. However, it could be the case that they offer you cash.
They both offer access to their network and community, as well as mentoring to entrepreneurs. This is essential, especially for first-time entrepreneurs. Entering this type of community is a great experience and helps you think about the future with innovative ideas and have an open mind.
Which one should you choose?
If you are an early-stage company and your product is still not finished or your team isn’t complete, you should go for incubators. You can select the type of incubator based on the type of company you have, for instance clean tech, B2B, etc.
If you are in the process of speeding up your company and you just need the network to raise capital, then accelerators are the better alternative. In terms of raising capital, the success rate of companies that have been through an accelerator program is quite high.
Beware of marketing tricks
Incubators and accelerators have already become a buzz word. There are many companies out there who present themselves as innovation program or incubator program. However, there are some who offer their services at discounted price. They do that in the hope that you will grow into a customer that pays full price. So beware of such marketing tricks.
This guest blog was written by Stefani Bozadzhieva, content marketer at Equidam. You’ll find the original version here. Startup concept featured image and her great idea image (centre) by Shutterstock.
Want to know more? Watcht the video below.