Funding a business is often the biggest challenge for many startup founders, but there are certainly many ways to fund your startup business aside from the traditional way of getting a bank loan.
Among these are business incubator and accelerator programs. These terms, however, are often used interchangeably, when in fact, there are a few key distinctions between the two programs that first-time startup founders should know about when planning to sign up for one.
Incubators vs. Accelerators
In a nutshell, the difference between incubators and accelerators lies in their purpose: Incubators focus on “incubating” disruptive and innovative ideas to build a feasible business model. Accelerators, on the other hand, are focused on “accelerating” or scaling the growth of an already existing and running startup.
The chart below summarizes the key differentiators between the two funding frameworks:
How Incubator Programs Work
Incubator programs are usually run by independent firms, but they can also be sponsored by universities, government entities, major corporations, venture capitalists, or angel investors. These programs usually do not have a formal application process, and some local startups gain entry into incubator programs through trusted partners.
Incubators usually focus their efforts on early-stage startups, or even single entrepreneurs, ideally those that already have a brewing innovative idea in mind but with no set business model. Depending on the sponsor, some incubators may focus on a specific market; for example, tech companies may specifically look for tech startups, and so forth.
A collaborative environment is key for an incubator program, and most programs offer a co-working space where participants gain access to mentorship and collaboration with other startup founders. Other programs, however, provide startups with a private office space or let them find one on their own.
Incubator programs typically do not have a set timeline, though it could typically last for more than a year and a half. Within the duration of the program, participants are trained and mentored to help them overcome the challenges of the early stages when starting a business. This is one of the reasons that incubator programs are often referred to as a “business school.”
Some incubators do not invest capital in their participating startups, while some provide access to seed funding but usually without having an equity stake. At the end of the program, startup founders will have refined their business idea, worked out a business and marketing plan, and received legal counsel.
How Accelerator Programs Work
Accelerator programs operate more or less the same with incubators, but with a few key differences. First is that, while incubators focus on early-stage startups, accelerator programs are tailored for later-stage startups that have already been in operation for a time. These programs typically have a formal application process; startups that have a huge potential for growth and investability have a better chance of gaining entry to the program.
As the term suggests, accelerators focus on scaling up the growth of a fledgling startup, and as such, these programs have a set timeline, usually for 3 to 4 months. As Mike Bott, General Manager of accelerator program Brandery puts it, “The goal of the accelerator is to help a startup do roughly two years of business building in just a few months.”
Similar to incubator programs, accelerators also provide a co-working space or a private office of their own, with access to a huge mentorship network where founders can collaborate and receive mentorship from industry experts and seasoned entrepreneurs. Often, this requires participants to relocate to the area during the duration of the program.
Participating startups are typically given a small seed investment in exchange for a predetermined percentage of stock equity. At the end of the program, startups usually have a demo day, where they are able to pitch and demonstrate their business to investors.
Need Help with Your Startup Business?
Incubator and accelerator programs both provide viable means for startups to grow their business and connect with potential investors. Choosing which program is right for your startup depends highly on which stage you are at in your startup journey and how much time you are willing to spend on the program.
After “graduating” from these programs, the next logical step is to maintain and further develop the growth of your startup. Lykwyz offers affordable solutions for startups, enterprises, and everything in between.
If you need help with web development, graphic design, video production, mobile apps, AR/VR or blockchain technology solutions, Lykwyz can lend you a hand. Just send us a message at firstname.lastname@example.org.