In recent years, thanks to the growing startup culture, along with the entrepreneurial tendencies of the current generations, a spotlight has been thrown on the four major institutions that support the startup environment – angel investors, incubators, accelerators and a hybrid program.
While the role of an angel investor is pretty clear cut, the terms accelerators and incubators are often erroneously used interchangeably. However, incubators and accelerators are very different from one another, and should not be confused with each other.
In this post, we will clear any and all confusions you might have, and help you determine what is best for your business idea.
Definitions and Main Differences
Accelerator programs provide early-stage startups and companies that already have an MVP (Minimum viable product) with the required training, mentorship and networking to provide short term rapid growth burst.
Incubators, on the other hand, can be useful to a startup much before they even have a Minimum Viable Product. Incubators take a much more laid-back approach and attempt to redefine (and in some cases define) the entrepreneur’s business sense.
There are several other differences between these two commonly confused terms, like the duration of the programs, the business models of these programs, the selection criteria involved, the education they impart, and even the levels of mentorship the different programs impart.
We’ve elucidated on these differences in the following sections and summarized them as a table near the end of this article.
Why an Accelerator Is Right For Your Startup?
If you already have a validated business model, along with an MVP, and are ready to part way with a small stake in your company in exchange for the jam-packed 3 to 6 months for rapid, short-term growth, then an accelerator is probably best for your business.
During these 3-6 months, your startup will benefit from the mentorship of business stalwarts and experts in your vertical, helping your startup, and as a result, your team grow significantly during this period.
However, there is a prerequisite that often goes unmentioned in most articles that bring out the differences between accelerators and incubators. You should be able to thrive in a high-intensive, pressure loaded work environment, with the capability to afford to spend all your time on your startup before considering applying for an accelerator program.
Admission to an accelerator program is extremely difficult, as their selection standards are extremely competitive (top accelerator programs accept only around 1-2% of all applicants).
In general, if you are a solo founder, still working on recruiting your founding team, and attempting to validate your business ideas, perhaps you should look at incubators for helping you form a business model, networking and even perhaps your team in the longer run.
Duration and Benefits of An Accelerator
An accelerator program is typically fixed term and lasts for a short duration. Typically, the term is anywhere between 3 to 6 months.
The benefits of an accelerator include –
Intensive Mentorship Programs
Access to the best and the brightest of the business world. One on one meetings with veteran angel investors, venture capitalists, business founders, and even experts in your field, will guide your team, and point you on your path to success.
Accelerators provide the necessary seed funding in exchange for a stake in your business.
Apart from the connections you gain with your mentors and potential investors on demo day, it is important to remember that accelerators are cohort-based. You will be in the program, along with several other startups working in a collaborative environment, connecting you with like-minded individuals and other budding entrepreneurs.
Accelerator programs tend to culminate with demo days. All graduates will be given an opportunity to pitch to potential investors for further investment (and further growth) during this demo day.
The prestige and the brand value of being graduated from one of the best accelerators in the world cannot go unmentioned. Investors view this as a medal that proves that you have what it takes to survive in the business world and would do what it takes to take your business to the next level.
Why an Incubator Is Right For Your Startup?
Incubators, on the other hand, are for just about any startup in the world. There are no specific selection criteria (you don’t even need to have a validated business idea), you don’t necessarily need to have a team. Incubators are typically fee-based, don’t usually take a stake in your business, and offer much more laidback guidance to the startups. If you have design issues or even technical issues when you’re building a product, incubators will help you solve them.
Unlike accelerators, incubators are often open-termed. There is no fixed duration, and can even last for as long as 5 years – all the time in the world you need to (for the lack of a better word) incubate your business idea. They also provide other ad-hoc services, like legal and HR services to help your business be sound during this very crucial period.
Naturally, the selection for incubators is less competitive. However, incubators tend to favor local businesses more.
In summary, incubators are the best for very early-stage startups that don’t already have a defined MVP, may not have a validated business model, may not have a founding team, and are looking to nurture and grow their idea in the long run.
Duration and Benefits of An Incubator
Incubators are not fixed-term like accelerators and focus on the long-term success of a business. They are open-termed and can last anywhere between 1 to 5 years, depending on what your business needs.
The benefits of an incubator program include-
- Less intensive learning environment – Provides the entrepreneurs ample time and space to make mistakes and learn from them. The environment is much more laid back.
- You don’t need to have an MVP. If you’re looking for support even before you have a validated business model, incubators are the perfect place for you.
- Other Miscellaneous Services – Help with recruitment, legal organization, and other ad hoc services.
- Coworking Environment – Usually, depending on the sponsoring party, incubator programs are situated in a coworking space, making the economics much more manageable in the initial stages of your startup
What To Choose For Your Startup?
In summary, accelerators are better for an early-stage startup with a minimum viable product, looking for short term rapid growth, while incubators are for nascent startups looking to validate their business model and nurture their business sense. Check out the following table to know all the differences between the two programs to help you choose one.
Check out the following table to see which program will be the best for your startup.