Many entrepreneurs and startup founders have great ideas; however, first-time founders often lack knowledge about finances, investment, and lack a strong network. Ambitious founders who want to succeed with their new startup, sometimes feel overwhelmed when confronted with new and unfamiliar vocabulary such as “incubators and accelerators.”
The process of starting a new business can be confusing; startups should be aware of where they can go to get the advice and guidance they need to succeed. Aside from networking events and cold-calling people, other options exist; incubators and accelerators. This blog explains what incubators and accelerators are and how working with either can be a game-changer for a startup.
INCUBATORS vs. ACCELERATORS
Both incubators and accelerators provide startups with valuable insights, connections, and support. However, they are not the same thing. The most significant differences between the two are; (a) the time a startup spends with each, and (b) the stage each individual startup is in, in its life-cycle.
This is how Entrepreneur explains the difference between incubators and accelerators:
“Incubators support startups entering the beginning stages of building their company. The startups possess an idea to bring to the marketplace, but no business model and direction to transition from innovative idea to reality. Accelerators advance the growth of existing companies with an idea and business model in place. These programs build upon the startups’ foundations to catapult them forward to investors and key influencers.”
HOW LONG WILL YOUR STARTUP WORK WITH AN ACCELERATOR OR INCUBATOR?
Since every startup is different, there’s no single incubator or accelerator relationship that applies to all. In general, however, incubators tend to work with new startups over a longer time frame than accelerators; typical a year or more. Their emphasis is on ensuring that startups make prudent decisions, financially or otherwise, in their early development. They don’t want to see the startups they work with fail like nearly 90% of other startups (according to Medium). It should be noted that 8-10% of startups fail due to legal issues!
Accelerators, on the other hand, typically have a laser focus on helping more mature startups grow; ensuring they’re able to make a strong business case to prospective investors. For this reason, their relationship with a startup tends to be shorter-lived, usually between 3-6 months.
CAN ANY STARTUP WORK WITH AN INCUBATOR OR ACCELERATOR?
Generally, it’s easier to form a partnership with an incubator than an accelerator—and that has to do with the purpose of each. The goal of the incubator is to help new startups make it successfully out of the gate. They tend to focus on things like having a solid business plan and making prudent decisions to secure intellectual property. They’re less concerned with how quickly a startup grows or how attractive it is to investors. For this reason, they tend to work with a much larger number of new startups than accelerators.
Accelerators are far more selective than incubators. This is because their success is based on their ability to deliver business growth that makes startups appealing to investors. For that reason, accelerators require startups to apply for a limited number of spaces. The application process for accelerators is highly competitive. The selected group is the startups the accelerator deems most likely to achieve rapid growth and investor appeal.
DO THEY INVEST IN STARTUPS?
Both incubators and accelerators may invest in startups. Some incubators are funded by grants or operate as non-profits, and either don’t take, or take a small percentage, of equity. Other incubators take a significant equity stake in a startup due to the length of time they provide resources to the startup. Similarly, accelerators usually take an equity interest in the startups they help. They do so in anticipation of a return on their investment in the startup.
Navigating the financial twists and turns that challenge every startup involves a thousand small—and significant—decisions. For example, startups that need the help of an incubator or accelerator should know which are the best in their field or geographic location. A non-exhaustive list of the best incubators and accelerators in New Jersey can be found here, and the same in New York can be found here. There are also some incubators and accelerators who bring international startups to the U.S. such as 365x Scale Up.
As a startup looking to get into an incubator or accelerator, you should do your homework, research the programs they offer, and make sure to review their terms and conditions.
Contact the Brown & Blaier, PC today for a free consultation to help you review those terms and conditions, or to learn more about the transparent, flat-fee legal services we offer startups and small businesses.