While starting a business may seem like the completion of a life-long goal, it’s the start of a new and challenging goal: growing your business from a passion to a profit. If this fails, your startup will become yet another cautionary tale: one study found that 9 out of 10 startups fold. To help survive and thrive, some startups turn to incubators and accelerators, which work with early-stage companies and have the potential to increase the odds of success.
Maybe this is the first time you’ve heard of the terms, or maybe you’re even thinking about joining one. The truth is that the two are not interchangeable. So what are the differences between these two fancy terms?
This article outlines all you need to know about an incubator and accelerator, along with whether or not choosing one is right for your business needs.
What Is An Incubator?
The first clue in understanding an incubator is in its name. The term refers to the process of a bird sitting on its eggs in order to keep them warm and help bring them to hatching.
Thus, they “incubate” businesses by giving them the resources they need to “hatch.”
This means they’re most useful to very early-stage companies that aren't yet strong enough to fly the nest. For incubators, the key is to help startups innovate.
For example, if you don’t yet have a Minimum Viable Product (MVP), a business model, or a strong founding team, an incubator fills the void.
In exchange for a monthly fee, an incubator gives you the resources to work on all those critical things. This includes mentorship, training, professional services, office space . . . basically everything you need to get over the initial hurdles.
Or almost everything.
One thing they don’t provide? Capital.
This is a key point to consider when comparing an incubator vs accelerator. It sounds like a downside, but your startup may not be ready for funding.
Typically, incubators don’t take any equity, but this is dependent upon the specific incubator. For example, a startup may provide equity to an incubator as a way to help pay for their services.
Another item to remember about incubators is that there’s no pressure to grow quickly.
This is because they’re typically funded by non-profits or government bodies. They care more about things like improving the local economy than financial returns. Thus, how long you stay depends more on your needs. Though a typical stay is 12-18 months, this can range to some companies staying for years.
Advantages Of Incubators
If you’re a first-time entrepreneur, an incubator can help you build a solid foundation. The benefits include:
With an incubator, you have access to a network of experienced entrepreneurs and business experts.
These mentors have been in your shoes and they want to see you succeed. They can help you set goals and priorities and make the right decisions for your business.
Networking and Community
Connections are everything in business. With an incubator, you'll be able to network with others in the program as well as in the surrounding community.
The people you meet may even become collaborators or business partners. Working among other companies can also be inspiring and encourage growth.
Office Space and Equipment
Most cash-strapped startups aren’t in the position to sign a lease or buy expensive equipment. Many incubators solve this problem by offering office space for free or at a reduced rate. In some cases, they even provide office equipment.
Business Services and Software
Buying costly business services and software is another common obstacle for new startups. Incubators provide access to accounting, legal, banking, and other services. They also offer business software such as accounting and project management programs.
There’s a lot you need to learn as a new entrepreneur. Incubators provide training on useful business topics like legal issues, operations, and marketing.
Being accepted into a reputable incubator helps build your credibility — you'll be legitimate by association. This can help down the road when you’re ready for funding, because investors may take your business and your brand more seriously.
Disadvantages Of Incubators
As noted above, incubators rarely provide funding. So you shouldn’t rely on one to fund your startup. In fact, you should expect to pay for them.
If you join an incubator, you’ll need to pay monthly fees.
Relocation and Co-working
Some incubators will ask you to move to their shared office space with other startups in the program. Moving can be disruptive, and co-working is not for everyone. The distractions, lack of privacy, and rules of the space may not be a good fit for you.
As part of an incubator, you’ll need to meet with mentors and attend workshops and training. These time commitments have the potential to detract from you working on other aspects of your business.
What Is An Accelerator?
Incubators are great if you’re brand new to entrepreneurship. But to decide whether an incubator vs accelerator is best for you, you need to know what an accelerator does, too.
As the name suggests, accelerators “accelerate” the growth of startups. A cohort of companies enter an accelerator together for anywhere from a few weeks to a few months. During this time, rapid growth — scaling — is the name of the game.
Accelerators can help companies achieve in a few weeks what they would otherwise achieve in a year — or longer. This is possible because accelerators have a carefully structured program.
If you’re thinking about joining an accelerator, your business should:
- be operating
- you should already have an MVP, and potentially even some clients.
- You should have a team in place that can work on accelerating the growth of your business
Accelerators are mostly funded by private funds or for-profit companies. This leads to another big difference between an incubator vs accelerator.
Unlike incubators, accelerators almost always make an investment in their companies. In exchange for the investment, the accelerator takes an equity stake in your company.
As an example, Y Combinator, a top accelerator, provides a standard deal: $150k in exchange for a 7% equity stake.
Accelerator programs typically culminate in a demonstration day or demo day.
During demo day, you’ll be able to pitch your company to investors, members of the media and network.
Advantages of Accelerators
If your business is at the right point in its life cycle, an accelerator is attractive for many reasons:
Most accelerators provide a small amount of direct funding in exchange for equity. They also provide exposure to potential investors. You’ll even have the opportunity to pitch your startup to investors at the end of the program.
Much like an incubator, you’ll have access to people with a wealth of knowledge. Your mentors will have real-word experience and will be able to help you work through problems as they occur.
Networking and Community
Many top accelerators allow you to rub elbows with successful entrepreneurs and influencers. You can also make connections with other companies in your cohort and the alumni network.
Companies joining an accelerator often get their first investment from the accelerator. If the accelerator is reputable, this initial investment helps “de-risk” your company. Therefore, you’ll get a credibility boost! Investors like to know that someone has vetted your business to some degree.
Your pitch is crucial to the success of your company. And it will take a while to perfect. Accelerators give you the chance to practice your pitch and get expert feedback.
Disadvantages of Accelerators
As with incubators, there are also downsides:
In exchange for funding, you’ll have to give up equity. Early on, this might not seem like a big deal. But if your company continues to grow, you may regret forking over that slice of the pie. And if more investors come in later on, your share could be even further diluted.
Accelerators are short but intense. You’ll have a lot of meetings and events. Balancing the demands of the program with running your business can be challenging.
For most programs, you'll need to move to the accelerator's headquarters. Many accelerators also don’t provide office space — so you’ll need to find your own space. If you have little cash, this can be tough.
High Pressure Environment
Accelerators exist to fuel rapid growth. There's a lot of pressure to make a lot of progress week over week.
If your startup isn’t ready for rapid growth, this environment can do more harm than good.
How to Decide What’s Best for Your Business Needs
To recap, whether you choose an incubator vs accelerator depends on two things:
First, the stage of your company.
Second, the kind of help your company needs.
An incubator will be a better choice if:
- Your startup is still in the ideas stage or hasn’t yet gained traction
- You don’t have any co-founders or a team in place
- You’re a slow-growing startup or haven’t developed a growth plan
An accelerator will be a better choice if:
- You have an MVP and business model, and you’ve already gained some traction
- You have a solid team in place
- Your startup is ready for investment and prepared to grow quickly within a short period
But don’t forget in deciding between an incubator vs accelerator that there’s also a third possibility . . . you don't need either one at all!
Before you apply to any program, ask yourself these questions:
- Do the economics make sense?
It bears repeating: incubators and accelerators are not free. Incubator programs generally charge a monthly fee. And accelerators take equity in your startup.
Yes, you do get mentorship, training, and resources in return. But you need to make sure the economics make sense for your company. And not just in the short term.
- How will the program help me meet my goals?
It only makes sense to join a program if you have specific goals that the program can help you achieve.
And even if you have defined goals, ask yourself if it’s possible to achieve these goals in other (cheaper) ways.
Could you instead join a makerspace or co-working space?
Would a Small Business Development Center be able to help instead?
What about an individual consultant or mentor?
Finding An Incubator Or Accelerator
Once you’ve decided whether an incubator vs accelerator is right for you, you may be wondering . . . so how exactly do I find an accelerator or an incubator near me?
The number of incubators and accelerators have multiplied over the years, and they're not limited to tech hubs like Silicon Valley. You can now find programs in all corners of the world.
You can find potential programs through:
- Internet searches by geographic location or industry
- Local economic development organizations
- Recommendations from people in your network
- AngelList’s directory of incubators and accelerators
Once you have a list of options, you’ll need to vet and rank them.
Ask yourself what you want from a program, and whether a particular program can offer it. No two programs are alike. A program should not only be reputable, but also a good fit for your business.
Vetting a program means:
- Reviewing its website. Look at its application criteria and confirm you meet them.
- Speaking to the staff, and, if possible, visiting.
- Contacting current participants, alumni, and dropouts. Ask about their experiences and goals they achieved during the program.
- Looking at how companies fare after leaving the program. How many are bought or had an initial public offering (IPO)? How many fail?
- Looking at the mentor network and making sure it’s relevant to your business.
- Understanding the economics — how much will you be giving up, and in exchange for what?
This research will help you narrow down your choices. You should only be applying to programs that give you the best chances of achieving your goals.
Applying To An Incubator or Accelerator
By this point, you’ve already done a lot of necessary leg work: you’ve taken an honest look at your business, you know where you are, and you know where you want to be.
Of course, regardless of whether you choose an incubator vs accelerator, you’ll need to show promise. This starts with a great idea.
Beyond that, however, incubators are more lenient. Reputable incubators may be competitive, but accelerators are even more so.
Incubators don’t need to see that your company is scalable, investable, and ready for growth. Accelerators do — they’re even more difficult to get into than elite universities.
As an example, Y Combinator only accepted 200 of 12,000 applicants for the Winter 2019 batch. That’s an acceptance rate of about 1.7%!
If you’re aiming for an accelerator, you should tick the following boxes:
Strong Founding Team
This is one of the most important factors. Your company may evolve. Your product and vision may change. But a strong founding team can better weather challenging times. You should show that your team has the skills and drive to succeed.
Even if you have a great idea, are you able to show a path forward? Accelerators will want to see that you’ve given careful thought to your idea and are aware of obstacles.
Evidence Of Traction
This means you already have an MVP and a solid business model. And ideally, some clients. You need to show that people want whatever you’re building. After all, accelerators are investing in your company — they want to see that you’re worth it.
Don’t have these yet? That’s OK. Back up a bit. And look into local incubators instead.
Just Keep Going
You now have the tools to decide whether an incubator vs accelerator (or neither) is right for you. But if you couldn’t tell — it’s a process.
It can take several months to identify programs, apply, then actually start a program.
And if you don’t get into your program of choice, don’t despair! Some startups apply to programs many times before they’re accepted.
Also keep in mind that no one says you need an incubator or accelerator to succeed.
It’s true that joining the right program has the potential to give your company the kickstart it needs to thrive in the industry.
But joining the wrong one can also derail your company’s progress.
Careful reflection is one of the best steps you can take when deciding between an incubator or accelerator.
By working through the points in the guide above, you've already done important work. So pat yourself on the back — then keep going.
Jerilyn Laskie is a corporate attorney and freelance writer focusing on business and legal topics.