Both accelerators and incubators help startups grow. Yet these terms are not synonymous. In this article, we’ll explain the difference between accelerators and incubators. You’ll be able to decide which format suits you best, depending on the stage and type of your business.
The primary difference between accelerators and incubators
Both accelerators and incubators can provide startups with
- business support.
Both are selective about companies they’re ready to help.
Incubators are focused on startups that have just been launched. They help such companies develop from scratch. When a business joins an incubator, both parties don’t set a fixed term when the former should leave the latter. The duration of their collaboration will depend on its efficiency. The startup will get access to physical space and technical facilities on a fee-based approach.
Accelerators provide resources, education, and mentorship to companies that already have a minimum viable product. Such businesses have proved they can grow and generate income without third-party help. Thanks to an accelerator, they will be able to achieve their goals much quicker. The collaboration will happen on a fee-based approach. The payment is typically carried out through equity rather than fees. Startups get access to seed funding. The duration of their collaboration with the accelerator is fixed.
The essence of a startup accelerator
To join an accelerator, you should prove that you have already validated your MVP. For instance, you need to
- witness early signs of strong product-market fit,
- have a group of free users,
- have a few paying customers.
If you haven’t validated your idea yet, you should turn to an incubator instead. It will help you to formulate a business model and find a team for it. Incubators are focused on startups that are trying to find product-market fit and are engaged in customer development. Accelerators are better suited for those that are planning to scale.
This is how an accelerator selects the most promising startups to support every year:
When submitting an application, founders should be concise. They don’t need to tell everything about their businesses. Instead, they might find it useful to leave room for conversation. The information they share should motivate the representatives of the accelerator to ask them questions. Founders can also provide the accelerator teams with links to references, videos, LinkedIn profiles, and slide decks that clarify the potential of their businesses.
To attract capital through an accelerator, startup founders need to share equity with them. These calculations are taken from real-life examples:
The share that the founders hold should be large enough to keep them motivated for further development.
Which startups get support from an accelerator and which don’t
A startup that is likely to receive support from an accelerator is expected to have
- a strong founding team,
- a validated MVP,
- but no capital to scale and get traction.
A startup with no team that is only represented by its founders has much lower chances to get support. Also, companies lacking a business model and proof of concept will hardly be invited to join the accelerator.
How to create a compelling MVP for an accelerator
Accelerators expect to see a product that is already working and can generate income. It might lack features that increase its value, but it should be able to fix at least the basic pain points of its target audience.
This checklist comes in handy when evaluating the MVP:
- Does it fix the pain points of its target audience?
- Is the audience ready to use it? (Can consumers afford it, do they have enough expertise and resources to use the product?)
- Which value does the product offer to consumers?
- Can the consumer get a notion of the final version of the product by looking at its MVP?
Let’s use an example to back up the theoretics. A startup came up with an idea of food delivery that creatively solves that last-mile problem. At the moment of submitting the application to the accelerator, the mobile app of this startup lacks some features, such as
- rewards program,
- extensive range of payment options,
- opportunity to switch to a lighter version if the user’s Internet connection is not too stable.
Nevertheless, users can order food using one payment method. In the end, they benefit from the solution to the last-mile problem.
Advantages of a startup accelerator
Once a startup joins an accelerator, it can benefit from:
- Networking. Founders get access to decision-makers, influencers, visionaries, and established businesses.
- Personalized guidance. Upcoming entrepreneurs can get mentorship from experienced founders, venture capitalists, and angel investors. At the end of the program, they might be ready to invest in accelerated startups themselves.
- Collaboration and partnerships with innovative startups. Accelerators work with dozens of startups simultaneously. Entrepreneurs can meet fellow founders and discuss ways of overcoming common issues together.
A startup that graduates from an accelerator can get up to $80,000. Almost 40% of accelerated startups raise Series A — compared to their non-accelerated counterparts, they have almost 50% better chances to succeed at this stage.
Which startups should choose an incubator instead of an accelerator
Startups that fail to meet the criteria of accelerators can try to join an incubator. The latter don’t strive to rapidly boost growth. Instead, they’re focused on mentorship and nurturing. A startup can stay in an incubator for up to a year or even longer. It will benefit from business and legal services. Its concept will get a product-market fit.
Accelerators are more intense and pay more attention to each startup. Incubators are more laidback — nevertheless, they provide an excellent environment for collaboration.
Startups that join incubators usually meet the following criteria.
- A startup is at a very early stage.
- It strives to solve technical and design issues when building the product.
- A startup is looking for professionals to join its team.
- It has no experience in operating venture-backed projects.
- There are legal and operational issues related to the company’s structure.
An incubator won’t ask for equity in exchange for support. But it won’t provide capital to a startup. Founders will benefit only from the expertise of professionals they will get access to.
The application process for an incubator is not as rigid as for an accelerator. The requirements differ significantly from one organization to another. The competition is not too fierce. Incubators strive to support their local business ecosystems. They might accept even those startups that lack signs of rapid growth.
To join an incubator, a startup doesn’t need to have a business plan and an MVP. But if it has them, it could give a competitive edge to the company. Nevertheless, having a great idea is an absolute must for any startup.
Hybrids between accelerators and incubators
Some organizations that support startups are intermediate between two formats. For instance, they
- have a physical space where members can meet,
- are ready to support businesses as long as they need it (from a few months to a few years),
- usually operate on a for-profit model (but some organizations might stick to a non-profit model),
- conduct competitive ongoing selection (a startup can submit an application at any moment without waiting for a specific date),
- look for startups at an early stage,
- offer expert support and mentoring.
Hybrids borrow such practices from accelerators and incubators that they find the most valuable.
If founders of a startup fail to enroll or find an option that suits them, they can look for angel investors. Angels can provide ongoing support to a business for a few years. They won’t offer a physical space to a startup, and the entrepreneurs won’t get access to a network of useful contacts. But they will get capital in exchange for equity.
Hopefully, now you have a better understanding of how a startup accelerator differs from a startup incubator. Both look for businesses at an early stage. The application process for an incubator is less competitive since it’s enough to have a great idea to enroll. The business won’t get financial support but will benefit from mentorship and expertise.
When applying for an accelerator, a startup needs to have a strong team and an MVP. It will get capital in exchange for equity. An accelerator will provide rapid growth to a startup within 3–6 months.
There are hybrids between accelerators and incubators. Alternatively, founders can ask for financial support from angel investors.