For many, a business startup incubator and a startup accelerator might seem like they have the identical objective and perspective, to get your business a jump-start—most startup fantasies of being accepted into a world-class mentorship program and the opportunity to pitch big-name investors.
Still, they don’t know the difference between two of the significant funding options that deliver these opportunities: accelerators and incubators. Often used conversely, accelerators and incubators perform different missions. They have different outcomes and accept various startups.
Understanding the difference helps entrepreneurs to focus on the search for funding in the right tracts, and improves their odds of success. Another misunderstanding from early entrepreneurs is the usage of accelerator and incubator interchangeably as synonyms, which is sensible but incorrect.
What are Startup Accelerators?
Accelerators play an escalating role in startup organisations throughout India and beyond. Early testimony shows the significant potential of accelerators to improve startups’ aftermaths, and for these advantages to brim over into the broader startup community.
Startup accelerators aid early-stage and growth-driven companies through education, mentorship, and financing. Startups enter accelerators for a limited or fixed time, and as part of a companion of companies.
Startups like Y Combinator tend to work on more defined timelines. The motive here isn’t to establish a sustained business atmosphere, but to get an entrepreneur’s business off the ground, usually in a hurry. For some business people, this is less about developing and improving long-lasting abilities as an entrepreneur and more about the business figures.
Startup accelerators possess an application process, so a business entrepreneur must have an MVP to apply. As with startup incubators, an accelerator looks after equity for the venture capitalists and permits a more comprehensive network of mentors.
Aaron Harris, a Y Combinator partner, highlights that the best accelerators tend to work with motives and abolish distractions. Accelerators focus less on building the ideal environment for growth and more about making the fastest growth feasible.
Advantages of Accelerators
- An accelerator program looks forward to rapid growth. It is resulting in investors willing to pay for results. Various top firm accelerators propose plenty of seed funding to jump-start a startup in a hurry.
- In a fixed timeline, some entrepreneurs soon discover that a startup accelerator knows what to do and when to do it, which turns out to be a tremendous “crash course” in running a business.
- An entrepreneur can anticipate that a startup accelerator will give him/her widespread access to a hierarchy of contacts in the startup community, mentors, and vendors. In this way, the entrepreneur can assemble the business in haste.
Potential Drawbacks of Accelerators
Giving up company equity is a significant drawback. Along with substantial funding comes sacrifice. An entrepreneur might be asked to give up a heftier equity stake of his/her business with a startup accelerator. Subsequently, accelerators trying to help you accelerate are trying to hasten their bank account.
While on the one hand, incubators focus insufficiently on hitting each business landmark. On the other hand, the startup accelerator might concentrate on running a cookie-cutter operation. Business terms will incline to function something like a flight plan. The application process can also be somewhat like wringing someone’s neck for many businesses.
What is a Startup Incubator?
While some people assume that startup accelerators and incubators are nearly the same, there are some specific disparities. An incubator is about defining the conditions through which a startup might flourish and prosper.
Incubators contribute an environment for early-stage startups to acquire a minimum viable product (MVP) and foundational business model.
The idea behind a business incubator is to create an ideal environment for young businesses.
An incubator might work in the same space as other companies within the incubator as it works on its fundamental vision, its business plan, and technological issues like developing and amassing intellectual property rights.
The incubator programs usually last a few months. Still, it is often indeterminate or unlimited. The process ends with a pitch or demo day where the entrepreneur proposes their business idea to the community of incubators and investors.
Some incubators are focused on specific channels. For example, Monarq Incubator supports female-led startups through their programs.
Advantages of Using a Startup Incubator
- The social advantage is one such advantage. Working in shared spaces, attaining mentoring from them can be a great advantage to people using startup incubators. Entrepreneurs can also access other people experiencing the same challenges.
- For a solitary entrepreneur, finding the right doors and getting them open is challenging. But with a startup incubator program, more networking resources will be convenient to them.
- Startup incubators provide mentoring and training, which can curtail the understanding arc and hinder some of the noticeable and apparent mistakes that other entrepreneurs make.
Potential Drawbacks of Startup Investors
Entrepreneurs are assigned to set their own goals and set the timeline for their success. Devoid of a predetermined time frame to meet these goals, a business incubator can sometimes feel passive.
Entrepreneurs have the advantage of running a startup because they have 100% ownership and possession over the assets and strengthen control. They can forego some of this when they work within a startup incubator.
For early-stage startups, accelerators and incubators offer great ways to grow their businesses. Here are some of the key differences between a startup accelerator and a startup incubator.
Based on Motive
INCUBATORS: Strengthen startups penetrating the beginning stages of building their company. The startups possess an idea to bring to the marketplace, but no business model and direction to shift from innovative idea to reality.
ACCELERATORS: Boost the growth of prevailing companies with an idea and business model in the niche. These programs erect upon the startups’ foundations to launch them forward to investors and key influencers.
Based on the Business Model
INCUBATORS: People speculate that incubators should be nonprofit and should not take equity. Incubators should be publicly funded to boost local businesses.
ACCELERATORS: Take equity in the companies that they expedite. Entrepreneurs use them as instruments to find investments for their start-ups.
Based on Duration
INCUBATORS: Incubators manage to be open-ended projects. They work based on the entrepreneurs’ needs, having no time limit to the incubation services’ duration.
ACCELERATORS: They are bound by time, which means that accelerators tend to carry entrepreneurs in comrades and provide intensive training for a limited period. They give entrepreneurs the extra escalation needed to launch their venture successfully.
Based on Investment Capital
INCUBATORS: They do not traditionally furnish capital to startups, often funded by universities or economic development organisations. Usually, they don’t take an equity stake in the companies they support.
ACCELERATORS: Invest a specific amount of capital in startups in trade for a predetermined percentage of equity. Due to which, they carry a greater responsibility in the success.
Based on The Project Maturity
INCUBATORS: They are seen as aimed towards startups. Provides guidance and mentorship. They nurture startups through the beginning phases of their project. It is really in incubators where companies set the foundations for their ventures.
ACCELERATORS: Accelerators are seen as aimed at scale-ups, which are ventures that have already developed a prototype, done project development, planned out their business, and completed customer discovery. These startups have a robust foundation, looking for more crucial business traction and seed investment.
Startup Accelerators or Startup Investors?
Eventually, for an entrepreneur’s business, the best incubator or accelerator comes down to the specific epochs as what are their priorities? Do they want a long-term programme, or do their ideas need immediate support?
Rather than jumping in the deep end entrepreneurs should prefer based on what the incubator or an accelerator can procure that they need.
While both the accelerator and incubator provide crucial benefits to startups, they are not assessed the same. Through careful self-righteousness, entrepreneurs will determine which is the right fit for their business at that moment.