Startup accelerators and incubators help businesses during their infancy to reach their initial goals. This is done in a number of ways including by offering finances, advice, and even facilitating networking with potential investors.
In this article, we are going to delve deep into what startup accelerators and incubators actually are. By the end of this article, you’ll understand what they are and whether you should be involved in them as either an investor or a startup founder.
Startup Accelerator or Incubator: Are they the Same?
You’ll notice that the terms startup accelerator and incubator are often used interchangeably. However, this is a common mistake. There are key differences between both.
Top startup accelerators and incubators offer the same basic goals of pushing a new business forward so that it can stand on its own two feet. However, they achieve this by subtly different means.
To understand which is best for your situation, let’s clearly define both.
What is a Startup Accelerator?
A startup accelerator helps a startup founder grow their business to the point where they have a better chance of attracting substantial investment, usually in the form of venture capital.
Startup accelerators accelerate a business from standing still at the beginning, to covering distance at breakneck speed.
Startup accelerators are often founded by successful business people and sometimes entrepreneurial academics. Usually, they come together with a shared interest in a niche or in supporting rookie entrepreneurs in their local area.
By pooling their experience and, in some cases, finances, startup accelerators are able to quickly help startup founders develop their ideas from the conceptual stage into something tangible and potentially profitable.
Startup accelerators are structured differently from incubators. Accelerators stipulate the duration for when they will offer their help to a startup founder. This can last from a few weeks to several months. In rare cases, it can last more than a year.
Within this period, startup accelerators offer mentoring to entrepreneurs, providing them with the advice needed to attract the necessary investment in the short term.
To gain access to a startup accelerator, a business must show that it has a valuable concept at its heart and that it is being operated by someone with good business acumen.
Most startup accelerator applications fail. This doesn’t mean you should stop applying to such organizations, but don’t be too downhearted if a startup accelerator declines your idea. This is more common than not.
Startup accelerators often offer a small seed investment as a catalyst for initial business growth. This is often to perform market research or develop a product; however, it is usually not enough to bring a product completely to market. The idea of seed investment is merely to get a business to the next funding round.
Remember, the goal of a startup accelerator is to accelerate the initial spark of a business so that it can attract long term investment. In many ways, an accelerator is simply there to help a startup prove its worth to others.
Startup accelerators open up their networks to the startups they are supporting. This involves industry experts, financial advisers, venture capitalists, angel investors, and in some rare instances, private equity investors.
When the initially agreed duration is finished for the seed investment, the accelerator program usually sets up a pitch or demo day so that the startup founder can then pitch for investment directly to potential investors. These investors are usually part of the accelerator program or brought in through it.
Hopefully, investment is secured. In rare instances, an accelerator may expand the duration for which it offers support, but they are usually quite strict about this time-frame.
What is an Incubator?
An incubator is concerned with intervening during the formative stages of the business process.
What separates an incubator from a startup accelerator is that, while a startup accelerator operates to a specific schedule and hopes to push the startup towards new investors within that time-frame, an incubator does not have such a set duration. The aim of an incubator is to nurture business in its infancy.
Much like a greenhouse, the incubator is there to protect the business from the harsh environment to which it would otherwise be exposed.
An incubator aims to create the best conditions for a business to grow and become healthy. Like a nurturing gardener, the incubator provides the correct figurative soil, temperature, sunlight, water and feed to give the seedling business the best chance of sprouting.
In many ways, you can think of an incubator as a sponsor. These sponsors tend to operate within a specific market. So, for example, if your product is a mobile application, then you would be looking for an incubator that specializes in app development.
Incubators offer a complete ecosystem through which a startup can thrive. This can include access to premises and co-working spaces where startup founders can develop their products and/or services.
Such environments are often open seated, where business people can share different ideas in a friendly, nurturing environment.
Startup Accelerator or Incubator?
Deciding whether an accelerator or incubator is best for your needs is specific to your situation.
If you are a business person looking to invest, then a startup accelerator provides strict timelines and access to formative pitches. You might just find the next big thing.
An incubator, on the other hand, is more about investing time and resources to help fellow entrepreneurs reach their goals. There might be financial opportunities during this, but not always.
If you are a startup founder and looking to apply to a startup accelerator or incubator, both will significantly improve your chances of making your business a success. If you are more concerned with securing investment and feel you have a fully formed business plan, then a startup accelerator is probably best.
If you are focused more on company culture and the development of your concept, then an incubator may suit you better.
Remember that storytelling plays a key role in fundraising. This is being able to capture the essence of the business in 15 to 20 slides. For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
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