What Are the Differences Between a Startup Incubator and Accelerator?

Introduction

Before we address the differences, let’s address the similarity between an incubator and accelerator: both are programs that help a startup grow. And that’s where the similarity ends. Now, coming to the differences. Both of these come at different times within the life cycle of a startup.

The stages of a startup

Incubators come in relatively early during the early/seed stage, when a startup is just beginning or building its first prototype. On the other hand, accelerators come at a later stage, when a startup starts generating revenue or when a startup gets its early-stage customers. This is when startups look to scale their operations.

The setup

Incubators are generally set up by universities, state governments, or the central government. And most of them run on authorized grants, which is why they don’t demand equity in return for their support. However, some might charge an amount. These are usually private institutions or VC firms. On the other hand, accelerators are run by VC firms or larger financial entities. The salient point to note is that accelerators charge you equity in return for their support.

Duration

Incubator programs are longer in duration. They can span from a period of 6 months to 2 years. On the other hand, accelerator programs are fast paced. They’re shorter in duration, and they can last for anywhere between 3 to 6 months.

Examples of incubators and accelerators

Common examples of an incubator include Dlabs: Indian School of Business and T-Hub (Technology Hub), which was set up by the Telangana government. Common examples of an accelerator include Y Combinator and Sequoia Surge.

The description

A startup gets into an incubator at the earliest stage, when it’s just beginning, when you’re really just working on your idea. You could be a university student or a pass out looking to build upon your startup idea, and the problem you face is that you don’t know how to begin or where to go for help. That’s when an incubator comes in. It brings with it a set of mentors who help you chart your course from an idea to a real-life product. Experienced entrepreneurs too are a part of incubators. They help you with their hands-on knowledge and experience. Incubators also help in other ways such as providing you with a working space when you have limited funds to invest in real estate. They also provide you with connections to investors. In this way, you can pitch your ideas early on.

On the other hand, accelerators charge you a bit of money or a percentage of equity for their support. They scrutinize the fundability you have and the kind of product you have. On the basis of this assessment, they then connect you to investors in their own circle or outside their circle. Basically, they connect you with VCs.

Eligibility criteria for incubators and accelerators

There is no certain eligibility criterion when it comes to being a part of an incubator. However, some universities might just prefer their own students, or some state governments might prefer their own citizens. Apart from this, there is no other filtering criterion. It’s comparatively easy to get into an incubator.

On the other hand, getting accepted into an accelerator is much more laborious. It’s highly competitive. An accelerator program is coveted because they offer funding the moment you get in, that’s why there’s so much competition. It becomes a barrier to entry. Also, accelerators too have strong connections that can be leveraged once you’re in.

So, should you be getting into an incubator or accelerator program?

There is no downside to being a part of an incubator, because it’s mostly free. It’s meant for first-time founders who’re looking for guidance or mentorship. On the other hand, many entrepreneurs flock to accelerators because of their perks. But, some regret joining it too, mostly because they charge a hefty amount of equity in exchange for their support.

Imagine giving 8% of equity in exchange for $50K early on in your venture, and if your startup really picks off and gets valued at $10 million, then giving that 8% of equity in that early stage pinches you.

However, if you’re doing relatively well on your own and you don’t want to shed the equity, it’s not necessary to be a part of an accelerator program. In such cases when you know you can raise funds, when you know the market well, and when you have product-market fit, it’s not always advisable to turn to accelerators. Other than that, except for the cost, there is no con of being a part of an accelerator program.

Conclusion

And with that the comparison ends. The takeaway is that accelerators and incubators are useful in different situations for different organizations. It depends on you whether to incubate or accelerate. So with the information at hand, make sure you make the decision wisely.