Incubators vs. Accelerators—What's the Difference?
Perhaps you have a great idea for a product that you would like to turn into a business, or maybe you need funding to take your existing business to the next level. The problem is that you aren't quite sure where to go from here. If this describes your present situation, you may want to investigate the differences between an incubator and an accelerator. While both exist to provide funding and create business growth, there are significant differences as described below.
What is an Incubator?
An incubator is designed to help entrepreneurs flesh out ideas and turn them into minimally viable products (MVPs) that can be pitched to investors or sold to consumers. Most incubators provide access to office space, mentors and other shared resources necessary to kickstart a business. Simply put, the goal of an incubator is to help new entrepreneurs succeed.
Who Sponsors Incubators?
Most incubators are collaborative efforts sponsored by major corporations, governmental bodies, venture capitalists and angel investors. Incubators will typically allow a startup business to locate within their facilities for a period of time that might range from a few months to as much as a year or more. In many cases, the sponsors will provide the needed resources in exchange for an equity stake in the company.
What Types of Businesses Benefit From Incubators?
Any type of business can benefit from an incubator. Survival rates of 90 percent or more have been reported for companies that complete an incubator program. However, it is important to understand that an incubator is only designed for businesses in their infancy. Once a startup has developed a marketable product, an accelerator might be more appropriate.
Things to Consider Before Joining an Incubator
There are several things to consider before joining an incubator. To get the maximum benefit, you will want to make sure that the incubator can provide the specific guidance that you need to develop your idea into an MVP. You will also want to make sure that the mentor is the right one for you. The last thing you need at this point is a mentor whose experience is totally unrelated to the product you are attempting to develop!
You will also need to know how much funding you need and whether that amount will be made available to you. Additionally, an incubator should be able to assist you in developing a business plan and show you how to pitch it to investors. However, if you are looking for substantial capital to grow your existing business, you may be better off in an accelerator.
What is an Accelerator?
Whereas incubators are for the purpose of developing ideas into minimally viable products (MVPs), accelerators are designed to help entrepreneurs pitch their products to investors. As its name implies, the primary goal of an accelerator is to provide the resources, mentorship and networking required to accelerate the progress of a company with a proven business idea. Accelerators also provide seed money, detailed product feedback and financial consulting. Most companies spend a few weeks to a few months in an accelerator.
What Types of Businesses Benefit From Accelerators?
To benefit from an accelerator, a business needs to be far enough along that it has developed an MVP and is beginning to experience significant growth. Startups that are attempting to turn an idea into a marketable product would likely be better off in an incubator.
How Does an Accelerator Select Candidates?
Most accelerators are extremely selective and require candidates to go through a rigorous application process. The competition is fierce, and many accelerators accept less than two percent of candidates. Once accepted, new companies typically receive a small amount of seed money and are paired with accelerator mentors. At the end of a fixed term, the company pitches its products and business plan to potential investors.
Things to Consider Before Joining an Accelerator:
Just like with an incubator, there are several things to consider when joining an accelerator. First of all, make sure that you are joining the accelerator at the right time and not too early. While incubators are designed for companies that are still developing their growth plans, accelerators are for companies that are beginning to experience significant growth.
Another thing to consider is whether you are willing to relocate. This is an important consideration because an accelerator may want you to relocate for a few months while you are in their program.
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