Incubator or Accelerator: What’s the Difference?
Accelerators and incubators have a lot in common, they are the two great ways to boost your startup. However, there are several key differences you need to know if making a choice between them. This article breaks it down in detail and offers an exclusive 2-minute test so that you can find the best fit.
Meaning of terms
“Startup accelerator” and “startup incubator” are the two terms often used interchangeably. They were both popularized in hubs like Silicon Valley, with the top representatives like Y Combinator Startup School which are highly competitive. Today, they are spread all over the world, providing startups with opportunities early on.
Both accelerators and incubators offer expert mentorship & guidance. Still, their programs and goals are different. It is evident from the name itself: while incubators “incubate” early-stage ideas and innovation, accelerators “accelerate” the growth of a working startup. Let’s compare the 7 key nuances: Requirements, Goal, Selection, Funding, Environment, Support, and Duration.
Requirements. Early-stage companies or even single entrepreneurs, who may not necessarily require funding. They need nurturing through the beginning phases and tend to already be part of the local startup community. Incubators usually focus on the local representatives or require relocation. Sometimes, an incubator can only accept startups focused on a specific market or vertical. Usually, a working MVP (minimum viable product) and established processes are not required.
Goal. Incubators are aimed at stimulating innovation. They select and help develop disruptive ideas. Mentorship provided by business incubators guides startups through the discovery phase: prototyping, product development, planning out the business model, etc.
Selection. Incubators usually focus on larger numbers and have a non-competitive selection. Some receive applications, some can only accept newcomers through trusted partners.
Funding. Typically, incubators do not provide capital. They tend to have a fee-based (rent) or nonprofit business model and rarely take any equity in the startups they support. Some of them are independent, and some are publicly funded, linked to universities, sponsored by government entities, corporations, or other investors.
Environment. A common incubator “package” includes access to a co-working environment with a lease program, business mentoring, and connection with the local community. Co-working is a big part of the experience; however, they might be distracting and too expensive for larger teams.
Support. Startup incubator program includes minimal, tactical education ad hoc (for example, legal, human resources, etc.) Participants would spend their time networking with colleagues and fleshing out ideas. Mentorship is typically provided by experienced investors and experts. They help refine the ideas: determine product-market fit, work on intellectual property issues, build out a business plan. Typical incubators focus on creating a productive, innovative environment.
Duration. The incubator process can last from a few months to a few years and is often open-ended. However, there can be a demo day where the startup pitches the idea to the community or investors. Incubators work based on the startups’ needs and are more concerned about longevity than the speed of growth. Therefore, there is usually no time limit, it is not uncommon for startups to be incubated for more than a year.
Requirements. What is a minimum viable product which fits for an accelerator? Typically, the accepted startups have already completed a discovery phase, developed a prototype, and planned out the business model. Their ideas are proven and working, they are growing fast, and need mentorship guidance and funding according to their project development plan.
Goal. Accelerators programs are aimed at rapid scaling up in preparation for initial funding. They offer investment capital and mentorship in exchange for equity. Oftentimes, they are the first outside investors for startups.
Selection. Accelerators have a competitive, cyclical selection, usually through national calls. Startups need to go through an application process and demonstrate that they are investible and rapidly scalable. Top accelerator programs are highly selective.
Funding. Startups pay via a small predetermined percentage of equity (typically 4-15% for an investment of $20,000). Due to this approach, accelerators bear more responsibility for success. Mentorship & network is often valued most. Top accelerators offer links to hundreds of executives, VCs, industry experts, other investors, etc.
Environment. Accelerators normally require relocation. While most of them provide startups with private offices, some offer a co-working space or let them find it on their own.
Support. Startup accelerator programs are intense, usually come in a form of seminars, and are much more structured compared to the Incubators’. The legacy company will likely be your startup mentor. In addition, accelerators try to align the participants in some way, while incubators focus on providing an environment for co-creation.
Duration. Unlike Incubators, Accelerators operate on a set timeframe. They usually last 3-6 months, in which startups work to scale up their businesses and avoid problems along the way. At the end of the program, all the startups from a particular cohort pitch to investors and media at a demonstration day.
Note: There are also hybrid institutions that combine accelerator and incubator features in various proportions. Turning to an angel investor is one more way to support your startup. What is an angel investor? An individual who provides capital for an early-stage start-up, usually in exchange for equity or convertible debt. They do not provide education or require relocation, but sometimes can mentor as needed.
Bonus: Accelerator vs Incubator Test
- I have a solid business model and a working MVP (1).
- I have a business idea without a solid business model and a working MVP (0).
- I am in search of a team, or a solo first-time founder (0).
- I have a small tight-knit team (1).
- I am growing fast, have solid financial planning, and need funding right now (1).
- I am at the beginning, but I want to move fast and have an MVP in weeks (0).
- My growth plan is still developing (0).
- I need specific intense mentorship and networking (1).
- I need education on business and general networking (0).
- I only need general networking and a space to work in (0).
- Education and networking are not a priority (0).
- I don’t mind a complicated application process (1).
- I don’t want to relocate (0).
- I don’t mind sharing equity, that’s the only way I can grow (1).
- I think I can get by without sharing equity (0).
If you get more than 5 scores (and/or answered True for 1, 5, 15) you should consider an Accelerator.
If you answered True for 2, 9 you should consider an Incubator.
If you answered True for 1, 5, 11, 14 you might want to consider Angel Investors.
If you answered True for 10, 15 you might want to consider a simple Coworking space.
If you answered True for 2, 6 you might want to consider our 12-week MVP development program, which will help you start fast and wise due to the discovery phase and outsource development to experienced professionals.