An entrepreneur has several different options to choose from when it comes to getting help with their scalable startup. Sometimes they need a mentor. Other times they need a developer, an accountant, a lawyer, or funding. In the end, entrepreneurs will almost always need some kind of help to either get their business off the ground or to grow and scale it. Two commonly used options are an accelerator and incubator. You may have heard these two terms thrown around before, but what are they, and what are the main differences between them?
The goal of this program is to “accelerate” the growth of these companies by preparing them to be attractive to early-stage investors in a short amount of time. An accelerator is a program that runs for a predetermined period of time (typically 2-4 months) for startups that already have some kind of product or MVP (minimum viable product). They have meaningful sales and are ready to take the next step on their business journey to scale their startup. Typically, you will find high growth, high tech companies in accelerator programs. Acceptance into these programs is highly competitive. Accelerators usually operate in cohorts, where several entrepreneurs or companies go through the program together. Along with advisors and mentors, founders do a deep dive on the core elements of the company’s business model with a focus on scalability.
Accelerators take the idea of ‘learning by doing’ and put it on steroids, working through various common problems in an environment that allows the startup to learn and move quickly. Accelerator programs are highly rigorous and not all companies will make it through; some drop out while others merge to optimize strengths and minimize weaknesses.
Typically, at the end of the accelerator program, the startups pitch their ideas to a group of early-stage investors in a “demo day” or pitch event leading to funding opportunities (equity, non-dilutive cash, favorable loan conditions, etc.) from investors or the accelerator program itself.
Incubators differ greatly from accelerators. They provide a safe place where companies can grow until they’re ready to strike out on their own. Incubators are for startups and entrepreneurs who have an idea but do not have a product just yet. Normally there is no set time period for the program. Some companies will stay as clients of the incubator for several years.
An incubator’s main purpose is to help the entrepreneur flesh out a business idea by validating it, conducting market research, and ultimately finding product-market fit. From there, the entrepreneur can develop a business plan and take the appropriate next steps, depending on what they learned during their validation process. Entrepreneurs in an incubator typically need general startup aid, such as help with validation, putting together a business plan, office space and in creating a pitch deck. Startups who participate in incubators can be from all different kinds of industries and they aren’t typically grouped in a cohort or according to specific industry verticals.
Other Key Differences
The availability of these programs will also be different depending on your location. Most American cities have at least one incubator, so you should always start your search in your own backyard. In Fort Worth, be sure to check out Tech Fort Worth and Accelerate DFW.
Accelerators are typically more scarce, but there are sometimes several options in larger cities. If you’re willing to travel, and if you can get accepted, there are accelerators that might be worth joining. These would include Y-Combinator, Techstars, 500 Startups and a few others whose reputation, network and record of success rank them ahead of others. Techstars offers programs around the world, so the right accelerator for your industry could be anywhere.
Which one is right for you?
- Am I trying to scale quickly? If yes, then an accelerator might be the best bet. If not, then time is on your side and an incubator might be the better choice.
- Am I willing to give up equity and/or raise capital for my company? If not, then an accelerator, particularly the big branded ones named above, would not be for you. Though some incubators provide services in exchange for an equity stake, most typically charge rent or a small fee for their services instead of requiring an investment.
- Would being around like-minded peer entrepreneurs benefit my startup? If yes, then an accelerator might be best. Some incubators are oriented around industry clusters, but due to their lack of a cohort approach, they aren’t typically all in the same stages of development.
- Has my company established “product-market fit?” This is typically one of the main signals that accelerators are looking for. Do you have customers? Are people (who aren’t friends or family members) paying you for your product or service? If not, then an accelerator is probably not an option. If so, then at least you know that is an option you should explore.
Incubators and accelerators can both be good options for growing your startup company. Be sure to do your homework and ask lots of questions before choosing your path. But in Fort Worth, a local accelerator program is not currently an option. Stay tuned for a future post about why that is holding our city back and what some people are doing to fix it.
For more Accelerator and Incubator resources, be sure to visit:
To learn more about Y-Combinator hear from Cam Sadler, founder of New Craft on his podcast episode. Sadler was the first entrepreneur from Fort Worth to get into this prestigious accelerator.