Accelerators and incubators can help founders grow and refine their start-ups. Although these programs are often assumed to be the same, there are key differences you should know if you’re considering joining one. In this article, you’ll learn more about accelerator and incubator programs, including the key differences and how to determine which type is right for your business.
Accelerator programs
First, let’s look at accelerator programs, including their program structure, application process, and benefits.
What is an accelerator?
An accelerator provides start-ups with valuable resources, like mentorships, legal services to help secure intellectual property (IP), access to industry leaders and potential investors, and capital in exchange for an equity stake. Accelerators focus on expediting the growth of existing start-ups that have already developed their business model and have validated products or services. Examples of accelerator programs include Y Combinator, MassChallenge, and The Brandery.
What is the duration and program structure of an accelerator?
Accelerators are intense and fast-paced as they want to ensure a start-up is ready to go to market as quickly as possible. Their duration ranges from just a few weeks to six months.
Start-ups joining an accelerator have already done much of the legwork required to prove their product or service. Once they join, they’re typically given a small seed investment and access to an extensive mentorship network in exchange for a small equity stake in the company. The mentors often comprise start-up executives, venture capitalists (VCs), industry experts, and other investors. Each start-up works with these mentors throughout the program to build their business and learn how to avoid common problems.
Most accelerators hold a demonstration day (or demo day) at the end of the program when all the participating start-ups pitch to investors and the media. By this point, each company’s product or service has been further developed and vetted, making it attractive to potential investors.
What is the application process?
The accelerator application process is highly competitive, with some top programs only accepting 1% to 2% of applicants.
Although each process may vary slightly, accelerators tend to follow similar steps:
- Application: The program asks each start-up for specific information about their idea, market, traction, team, and other aspects vital for business success.
- Assessment: Promising applicants are further evaluated to determine their revenue potential, the strength of their offering, and their ability to attract investors.
- Interview: From there, the program will invite the most promising start-ups to an interview. A panel will ask each founder to share more about their team, product, and evidence of traction.
- Evaluation: Start-ups will then provide documentation proving their statements about revenue, legal standing, and any other claims made about the business.
- Acceptance: The accelerator finalizes which start-ups will be accepted into the program and receive funding.
Who are accelerators looking for?
Accelerators typically look for start-ups with a strong founding team and validated minimal viable product (MVP). An MVP is a lean, working version of a product or service that demonstrates its use case. MVPs allow businesses to collect information about how customers will use the product or service. These types of companies typically have a solid foundation to build on but need capital and expertise to scale quickly, which an accelerator can provide.
Is an accelerator right for your start-up?
If your start-up has an MVP that has been validated (such as by having a few paying customers or showing early signs of product-market fit), an accelerator may be the right program. This is especially true if you’re ready to scale and are willing to exchange some equity for funding.
What are the benefits of joining an accelerator program?
There are many advantages to joining an accelerator program, including the following:
- Investment capital: Most accelerators provide capital, often anywhere from $20,000 to $80,000, to start-ups in exchange for an equity stake in the business.
- Networking opportunities: After joining an accelerator, you can network with well-established companies, seasoned founders, influencers, and industry experts.
- Growth expedition: During the program, you’ll work with experts and seasoned founders to further develop your business plan, fine-tune your product, create a marketing strategy, and guide your growth process. This helps you decrease the time it would typically take to learn all these things on your own.
- Avoiding costly mistakes: The experts you’ll work with can help you avoid costly mistakes and reduce the costs associated with cycles of trial and error that are common in start-ups.
Incubator programs
Now, let’s look at incubators.
What is an incubator?
An incubator is designed to help early-stage start-ups further develop their business models and products by providing resources and a coworking environment. Incubators are typically more open-ended and laid-back than accelerators.
Although some independent incubator programs exist, many are sponsored by VC firms, angel investors, government entities, and major corporations. Examples of incubators include Idealab and 500 Start-ups.
What is the duration and program structure?
Incubators are typically longer and less intense than accelerator programs and can run anywhere from six months to several years. This gives start-ups plenty of time to work through the problem their company is trying to solve.
Unlike accelerators, incubators do not typically provide capital to start-ups. Instead, they offer office space, mentoring opportunities, and a connection to the local community. This allows businesses to refine their ideas and business models, work on product-market fit, identify potential IP issues, and network with industry experts and other start-ups.
What is the application process?
The application process will vary from one incubator to another. But in general, you’ll go through a process that involves showing that your start-up meets the incubator’s specific criteria and submitting a viable business plan.
Who are incubators looking for?
Like accelerators, incubators look for promising companies. However, they tend to focus on early-stage start-ups that need to develop their product idea and business model further.
Incubators will not necessarily look for businesses already showing signs of rapid growth. This is because incubators are longer-term programs, giving companies more time to learn and grow as the program continues.
Is an incubator right for your start-up?
Incubators are great for solo founders with unvalidated ideas because they can help the company formulate a business model, build a strong team, and get past the idea stage. They’re also ideal if you want help solving technical or design issues or learn to run a lean company.
What are the benefits of joining an incubator program?
There are many reasons to join an incubator, including the following:
- Networking opportunities: Networking is essential for both short-term and long-term growth, but it can be challenging for first-time founders to develop a strong network. An incubator gives you access to other companies in the program, making networking simple and easily accessible.
- Professional resources: Incubators can provide access to many resources, including education, software, and business tools. Additionally, they may host workshops focusing on topics like forecasting, business fundamentals, and how to obtain funding.
- Office space: Most incubators offer various types of office space, including coworking environments, private offices, and single cubicles. These are provided at a fraction of the cost you would typically pay to purchase or lease the space on your own.
- Access to industry leaders and mentors: Learning from others’ experiences can help you avoid some of the most common mistakes an early-stage start-up can make. An incubator can provide you with access to industry leaders with vast experience who can act as mentors as you build and grow your business.
- Potential access to funding: Although incubators don’t typically provide capital, they often provide access to funding opportunities through the program’s partnerships with investors.
Comparison: accelerator or incubator?
Accelerators or incubators, both are excellent opportunities for start-ups who want help growing their business and increasing their chances to attract investors.
One of the biggest differences between the two programs is that accelerators provide resources and capital primarily for companies that already have an MVP, and incubators work with businesses that need help refining their idea and building their business from the ground up. Other differences include the average duration of each program, program structure, goals, and location.
1. Duration
Accelerators are short-term programs that typically run from just a few weeks to six months. Incubators, though, can last from six months up to several years.
2. Program structure
Both programs provide networking and mentoring opportunities throughout the program, but incubators tend to be more relaxed in how the program is structured. Accelerators typically demand an equity stake because they invest capital in the start-ups participating in the program. Incubators do not usually require equity and do not typically invest capital.
Since accelerators are so short, they quickly integrate start-ups into the mentorship cycle and provide them with investment opportunities as early as possible through a structured program. Incubators do not necessarily operate on a set schedule to give start-ups time to refine their ideas.
3. Goals
Accelerators expedite the growth of an existing business, and one of their main goals is often to help start-ups do roughly two years’ worth of business buildings in just a few weeks or months. On the other hand, incubators nurture early-stage start-ups with disruptive ideas. The goal of many incubators is to turn these start-ups into viable businesses.
4. Location
Accelerator programs may allow start-ups to continue working in their current location because the company may already have a physical location and customer base. Incubators, though, typically prefer start-ups to relocate to allow for more effective communication and collaboration.
Which type of program is right for your start-up: Accelerator or incubator?
To help you determine which type of program is the best for your start-up, you will need to look at your ideal timeline, funding needs, and the current stage of your business.
- Determine your ideal timeline. Because incubators tend to support businesses over a longer period, they may be the better choice if you’re willing to spend more time growing your business. Accelerators, though, can help you scale rapidly in just a matter of weeks or months.
- Identify your funding needs. If you need capital to help your start-up scale and are willing to give up some equity, then an accelerator may be the right program. If you’re not quite ready to seek capital, then an incubator can help you grow your business to a point that makes it more appealing to investors.
- Assess the current stage of your business. Most accelerators will require start-ups to have an MVP because they look for companies with high-growth potential. An incubator may be your best option if you’re still developing your product idea.
How to choose the right accelerator or incubator for your business
Accelerators and incubators are highly selective, and the application process is competitive. So it’s crucial to choose a program that fits your business to increase your chances of acceptance and success.
Here are a few factors to consider when selecting an accelerator or incubator program:
- Industry fit: Many programs focus on specific industries or verticals, so it’s essential that your business matches any such requirements.
- Stage fit: Some accelerators or incubators may require companies to be more fully developed than others. Honestly assess what stage your business is in to ensure you fit what the program is looking for.
- Resources and services provided: Look into what resources and services the program offers to ensure they can help your business grow.
- Mentors: Don’t just look at which mentors and experts the program gives you access to; look into how those mentors could help your business.
- Past graduates: Research past graduates to ensure they continue to be successful and that the program has the experience necessary to help you develop your business.
Common mistakes to avoid when applying to or joining an accelerator or incubator
When applying to an accelerator or incubator program or joining one, you will want to avoid a few common mistakes.
1. Lack of focus
Because entrepreneurs tend to be passionate about their ideas, they often lack focus. This lack of focus can significantly hurt their chances of being accepted into the program.
Because these programs tend to be extremely competitive, the application often asks for many details about the business. If you don’t have a clear focus, you will have difficulty providing the necessary information, and the reviewer may think you don’t have a clear plan for your company.
If you develop a clear business plan before applying, practice your business pitch to ensure it’s concise, and prepare to answer tough questions from interviewers, so you can show the program that you have a clear focus and plan for your company.
2. Underestimating the time required
The application process can be lengthy and involved, so it’s crucial that you give yourself enough time to compile a strong application. Besides filling out the application, you will also need to research the accelerator or incubator to ensure it’s a good fit for you and gather supporting documentation, such as a business plan, financial projections, and product information.
3. Overlooking the value mentors can provide
Business mentors can provide invaluable guidance and advice while acting as an important sounding board for your ideas. When building mentorship relationships during an accelerator or incubator program, ensure you’re willing to listen to their feedback and input. Mentors can help you refine your business model, connect you with key contacts, and help you overcome common business challenges.
4. Choosing the wrong program
Your success in an accelerator or incubator largely depends on choosing the right program. Thoroughly research a program before applying to ensure you know what it’s looking for in a start-up and that it’s a good fit to help you grow.
Do you need funding for your small business?
If you’re considering joining an accelerator or incubator to gain access to potential investors, it’s crucial to understand the different types of investors you may be pitching to. To learn more, read “Everything You Need To Know About Different Types of Investors.”