Launching a company requires confidence, courage and conviction. Having prior knowledge and experience in managing a startup can offer an important advantage. For instance, founders with entrepreneurial experience might hypothetically seek more favorable terms when raising venture capital and potentially close their first investment round more quickly.
Yet even experienced entrepreneurs can benefit from additional support and encouragement. This is where incubators and accelerators play a vital role in the ecosystem, helping to develop and accelerate startup businesses and prepare them for important milestones, like raising venture capital.
Understanding startup incubators and accelerators
While “incubator” and “accelerator” are often used interchangeably, they serve different purposes in the startup ecosystem.
What are startup incubators?
Incubators are designed for founders who are still developing their ideas, building out their initial teams and running experiments to establish product-market fit. Typically, founders have not yet raised money from institutional investors. Incubators can provide a supportive environment by offering access to mentors and industry experts, potentially facilitating introductions to seed investors, and providing legal, accounting and other forms of support.
Often regionally focused, incubators aim to bolster the local innovation ecosystem. They can offer flexible timeframes for startups to participate and may provide grants, loans or other non-dilutive financing options, such as venture debt.
What are startup accelerators?
Accelerators are structured to help startups scale rapidly. Grouped into cohorts, participants are expected to have a minimum viable product (MVP) and be on the path to securing product-market fit. Accelerators offer intensive programming over a short period, pushing startups to grow quickly. In exchange, accelerators might take equity in the startup for a nominal cash investment.
The selection process for accelerators is competitive and cyclical, unlike the more accessible nature of incubators. The process typically happens once a year and its criteria are based on a number of factors, including the founding team, the idea, market potential and level of traction. There are more startups than there are accelerators, which is one reason for a high level of competition.
What is a hybrid startup incubator/accelerator?
As the name suggests, hybrids combine elements from both incubators and accelerators. For example, they can offer a blend of long-term support that is typical of incubators with the intensive, short-term format often associated with accelerators. Hybrids usually have more flexibility than accelerators in their selection of companies, which helps foster a culture of collaboration, knowledge sharing and partnering. Hybrids can accommodate short- or long-term participation, depending on the needs of the company.
Choosing the right program for your startup
In deciding which program is best, a startup might consider the following factors:
- Progress: Is the startup at the idea stage or has it developed an MVP?
- Readiness: Does the founding team need more time to build out, or is it established?
- Experience: Does the team have prior, relevant startup experience?
- Timeline: Does the startup’s product or business model need further development, or is it ready for commercialization?
- Hierarchy of needs: What are some missing elements? Startups have varying needs, including technical skills, industry expertise sales and marketing consultants, network access and legal advice.
Key differences between the different program types
Purpose: Different programs are set up to help founders with certain aspects of their startup’s development and can be specialized in a particular sector or discipline.
Founding team: The completeness of the founding team—in terms of alignment, background, skills and experiences—may help determine which program is appropriate.
Stage: The type of program most beneficial to advancing the startup can be based on the startup’s level of traction.
Duration: The length of time a startup will spend within each program depends on the maturity of the business. Generally, the shorter the program, the more developed the business.
Selection: The way to secure a place in a program varies. Many programs, especially those with strong brands, have competitive selection processes and will only accept a small number of applicants.
Funding: The kind of support programs offer applies to different types of funding, including equity capital in exchange for an ownership stake in the company.
Cohorts: Accelerators will typically have scheduled start times to allow for groupings (or cohorts) of companies to go through the phases of the program together.
Support: The type and level of support—such as educational programs, professional advice, designated office space, networking, etc.—can vary based on the unique offerings of each program.
Mentorship: The degree of mentorship available varies by program and can include industry professionals, subject matter experts, alumni of the program and peer groups.
| INCUBATORS1 | ACCELERATORS | HYBRID | |
|---|---|---|---|
| Purpose | Can help with the maturation of an idea and putting into place key foundational elements | Oriented to drive rapid scaling of the company | Can help to finalize the development of an idea and initial commercialization |
| Founding team | Not yet complete or looking for additional attributes | Complete and aligned | Effectively complete |
| Stage | Startup has an idea, working towards minimal viable product (MVP) | Startup has a product and market fit, near or earning revenue | Startup is finalizing product and market fit, might be earning revenue |
| Duration | 6 months to 5 years | 3 to 6 months | 3 months to 2 years |
| Selection | Non-competitive | Competitive, periodic | Competitive, periodic |
| Funding | Can offer grants, loans and other non-dilutive financing | Investment for equity stake in the company, can be a non-profit | Investment for equity stake in the company, can be a non-profit |
| Cohorts | No | Yes | No |
| Support | Ad hoc, selective advice available (e.g., legal) | Programmatic, seminars, working sessions | Varied |
| Mentorship | Some, tactical | Intense, by self, peers and experts | Some, expert supported |
Potential benefits to the startup ecosystem
The success rate of new entrepreneurial endeavors is generally low, so access to incubators and accelerators could improve a startup’s chances of survival. For investors, participation in such programs can provide confidence that the founding team has undergone evaluation. More broadly, incubators and accelerators act as connective tissue for innovation hubs, facilitating the spread of ideas, expertise and connections, and increasing the likelihood of serendipitous encounters.
Exploring other potential alternatives
Joining an incubator or accelerator may not be suitable for every startup business. Alternatives to consider might include:
- Crowdfunding: Selling products on crowdfunding platforms to gauge interest and build a user community.
- Angel investors: Engaged angel investors can offer many benefits of incubators or accelerators in a less formal setting.
- Bootstrapping: Using personal funds to finance operations until reaching breakeven, often favored by seasoned founders seeking to preserve ownership.
Understanding the differences between incubators and accelerators could be important for startups seeking the right support to navigate their entrepreneurial journey. By evaluating their progress, readiness and specific needs, founders can make informed decisions about which path to pursue.
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References
1. The comparative outcomes presented are based on historical observations and are used solely for illustrative purposes. They do not represent guaranteed future outcomes. Recipients of this presentation should not rely on these historical observations as a basis for making financial or business decisions. We strongly recommend consulting with qualified professionals who can provide advice tailored to your specific circumstances. We make no representations or warranties, express or implied, regarding the accuracy, completeness, or reliability of the information contained herein
