Several people use the terms “business incubator” and “startup accelerator” interchangeably, but they are not the same. In this week’s Startup Words Wednesday, we’re looking at the general definitions of an incubator and an accelerator, and then exploring their differences. If you’re an entrepreneur trying to decide between the two, hopefully this will help give you some basic knowledge of what their programs entail and encourage you to research deeper.
First, let’s start with the definitions.
“Seed accelerators, also known as startup accelerators, are fixed-term, cohort-based programs, that include mentorship and educational components and culminate in a public pitch event or demo day.”
“Business incubators are organizations geared toward speeding up the growth and success of startup and early stage companies. They’re often a good path to capital from angel investors, state governments, economic-development coalitions and other investors.”
These definitions are very similar and that can be confusing, probably because in reality, these programs are fluid and there are new ones formed every year that can encompass components of both stricter definitions. Both programs offer invaluable mentorships and advice, can involve or lead to some sort of funding, are great for building a strong network of connections, and give you the tools to foster growth. So what’s the difference between these two? The major distinguishing factor is duration, structure, and funding.
Incubator: Typically lasting between 1-2 years, incubators are primarily focused on very early stage businesses. They help startups develop an idea and find a scalable business model through mentorship, providing a workspace, simple services, and lots of networking opportunities. By the end of the incubation period, they ideally have a minimal viable product with some sort of product-market fit and traction. The incubator business model has varied over the years as some didn’t originally provide capital or take equity in the businesses. With the expanding definition of incubators, some include investments before or after completion in return for equity while some simply charge a fee for entry. Finding an incubator that doesn’t take equity is often more attractive to founders because they want to retain that 3-8% in their company that they would have to give up in an accelerator.
Accelerator: As stated in the definition, startups typically operate in an accelerator program for a fixed 3-6 month time period. Where incubators often leave off with businesses, accelerators pick up and offer services similar to management consultants like assistance in branding, fundraising, design, strategic advice, etc. Most of them have an open application process and are very selective. Their businesses receive invaluable industry contacts, capital contributions, and strategic advice in exchange for a small portion of equity in the company. The ultimate goal of an accelerator is rapid growth in preparation for an initial seed round of funding to continue the company’s growth trajectory and provide a return to the accelerator.
It’s important to note that incubator and accelerator programs and resources are not all created equal. Many more have popped up over the years, but some of the most prominent ones are Y Combinator, Techstars (full disclosure: I sold my last business, NameLayer, to Techstars), and IdeaLab. Overall, incubators and accelerators can widely differ even within these general definitions. Their curriculum and networks will continue to change and likely broaden over time. It’s best to look into each individual program and see which one best fits the stage and market of your business.
Have a story about an incubator or accelerator you participated in? Share in the comments!