Incubators vs Accelerators vs Traditional Venture Capital
usiness, or venture incubators and accelerators have been around for quite a time, but now business accelerators are spreading across the US, as early stage investors, entrepreneurs, and policymakers try to speed how long it takes to create new ventures.
Unlike many business assistance programs, business incubators do not serve any and all companies. Entrepreneurs who wish to enter a business incubation program must apply for admission. They also tend to be physical places where you can start your business under a collective roof.
Other differences are that while one of the benefits of either business assistance programs or incubators is the ability of participants to network, the accelerator does as well, but also actively supports entrepreneurs in their search for finance and introduces funders to the participants.
Venture Incubators
Venture incubators and accelerators are not quite the same kind of place. An example of incubators is theBEGIN New Venture Center that offers start-up and early-stage companies, as well as non-profit organizations daily business assistance, access to experienced service providers, shared administrative services, guidance from an advisory board/mentor program, marketing assistance and a professional business location. This particular one has a special social vocation, as Dinah Adkins, President & CEO,National Business Incubation Association, says, “While there are more than 1,100 incubator programs in the United States, this is the first incubator with a focus on the homeless.”
Many are sponsored by Universities and Business Schools. An example is the University of Northern Iowa Regional Business Center that is host to two business incubation programs. The downtown Waterloo center consists of eight business suites, conference and computer lab facilities and support offices for the UNI Small Business Development Center. The Innovation Incubator on UNI’s campus offers campus and community participants a comprehensive array of market research services, business assistance and training, student support and educational/networking opportunities.
So, it’s evident that incubators come in many varieties, though in general they all have some common characteristics:
- help with business basics
- networking activities
- marketing assistance
- high-speed Internet access
- help with accounting/financial management
- access to bank loans, loan funds and guarantee programs
- help with presentation skills
- links to higher education resources
- links to strategic partners
- access to angel investors or venture capital
- business training programs
- advisory boards and mentors
- technology assistance.
If you want to find an incubator near you, then the National Business Incubation Association is the place to go to find an Incubator Index.
Venture Accelerators
In comparing venture incubators and accelerators, venture accelerators are more hands-on and intense, making use of a kind of boot camp approach to venture creation..
One example is The Brandery–a seed stage consumer marketing venture accelerator. They run a three-month-long program in Cincinnati, Ohio that is focused on turning your great idea into a successful, brand-driven start-up. Started in 2010, they annually select 5 companies for their program, with each receiving $20,000 in seed funding, three months of mentorship, and the opportunity to pitch to angel investors and venture capitalists at the end of the program.
Tech Ranch Austin is a community of vibrant tech start-ups surrounded by the people, processes and materials needed to drive business success. Tech Ranch Austin is focused on accelerating pre-seed and seed stage technology companies that can change the world. Tech Ranch was founded by long-time Austin entrepreneurs Kevin Koym and Jonas Lamis who together have a long history of startup ventures, and shared the desire to help technology entrepreneurs take it to the next level. One special feature of Tech ranch is their weekly Campfires, informal and simple, hosted gatherings in an intimate, “around the campfire” setting. There is an exchange of ideas while sharing an abundance of experience, knowledge, and wisdom primarily for the purpose of enjoying the pleasure and the process of doing it. They declare “issues of the day” and facilitate a non-directed dialogue among an inspired group of thought leaders offering varying points of view.
The best-known is probably Y Combinator that in 2005 developed this new model of startup funding–for tech businesses. Twice a year they invest a small amount of money (average $18k) in a large number of startups (currently 43). The startups move to Silicon Valley for 3 months, during which they work intensively to get the company into the best possible shape and refine their pitch to investors. Each cycle culminates in Demo Day, when the startups present to a large audience of investors. But YC doesn’t end on Demo Day.They and the YC alumni network continue to help founders for the life of their company, and beyond. They have worked with more than 250 ventures.
TechStars is a mentorship-driven seed stage investment program. They run a three month long program in Boston (MA), Boulder (CO), New York City (NY) and Seattle (WA) once each year. Hundreds of companies apply and they only take about ten companies per city. These companies get up to $18,000 in seed funding, three months of intensive mentorship, and the chance to pitch to angel investors and venture capitalists at the end of the program.
Here’s what a Boulder CO accelerator, the Unreasonable Institute has to say about what they do, “Create effective, internationally scalable solutions to the biggest global challenges of our time. Support the international collaboration of the world’s most promising entrepreneurs. Educate Unreasonable Fellows in the most innovative principles of entrepreneurship & equip them with integral skills, support, & financing. Elicit an international community of the world’s most innovative investors, entrepreneurs and thought leaders… what we like to call the International League of Unreasonables. Ensure that Boulder, Colorado is recognized an international hub for innovation and entrepreneurship. Work relentlessly and have fun doing it.”
Hybrid Incubator-Accelerator-Makerplace
Lemnos Labs, a hardware incubator based in San Francisco, provides mentorship and resources to talented engineers with innovative ideas and a passion for making things. It’s a kind of hybrid place and they consider any innovative technology that involves moving atoms or electrons. They believe that the same core product development principles apply to a wide range of industries. Their entrepreneurs typically have backgrounds in mechanical, electrical and aerospace engineering, but a well-rounded team also includes some software expertise as well.
They also typically invest up to $100K in exchange for a 2-10% equity stake. Their terms are based on the stage of the company, the experience of the founders and the amount of previously raised money. The main advantage is the availability of warehouse-type space, with a range of tools, a bunch of like-minded engineering types at pre-seed or just-seed stage of business life. There;s access to legal and other professional help and mentors who have been-there-done-that.
Lemnos Labs is not far from TechShop, which is a playground for creativity. There’s something there for everyone. Part fabrication and prototyping studio, part hackerspace, part learning center, TechShop offers access to over $1 million worth of professional equipment and software. They provide comprehensive instruction and expert staff to ensure you have a meaningful and rewarding experience. Most importantly, TechShop is a hub where you can explore the world of making with the motivational support of a vibrant and creative community.
Make-it-Yourself + Learn-for-Yourself + Fund-it-Yourself
Business incubators and accelerators are now joined by (i) the ability to learn what you need to do, rather than going to someone else to get things done and (ii) the ability to find funding on your own, too.
The Maker movement allows people to manufacture products themselves on a micro-scale and at speeds which were unheard of when a startup wanted to have someone make products, by setting up a factory or subcontracting.
Many professionals have become too expensive and inflexible for many entrepreneurs, so there’s no reason not to learn (quickly) how to do things yourself.
The classical startup funding process involves financiers and bankers. But that’s no longer completely necessary, with the advent of crowdfunding and other forms of social lending and investing.
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