What's the difference between a startup accelerator and a startup incubator? The terms may sometimes be used interchangeably, but there are many differences between the two. Learn what they are and why a founder may prefer one over the other.
A Business Incubator is an organisation that helps startups and entrepreneurs develop their businesses by providing a range of services and office space and in some cases access to ve.,mnture capital and angel investors.
Unlike incubators, Business Accelerators are application-based, fixed-term, cohort-driven programmes that include mentorship, educational components and in many cases seed funding. Some accelerator programmes are highly competitive, and most culminate in a public pitch event or demo day.
While both incubators and accelerators help startups develop immensely, they are often an overlooked funding source for your startup.
This article looks at incubators and accelerators as a source of equity funding and provides more information on the difference between accelerators and incubators and how they may help your business.
Accelerators vs Incubators
It can be challenging to raise capital for your startup without understanding your product/market fit, especially in competitive areas like mobile apps. If you are an early-stage startup, accelerators and incubators are often an excellent place to start your business as they can provide some seed funding besides other resources.
What’s the difference between startup incubators and accelerators?
Many founders mistakenly use the two interchangeably! Accelerators and incubators are very similar in nature, but there are vital differences.
Accelerators typically provide support services, including mentorship, networking and access to funding, to help expedite the growth of startups within their cohorts. They run cohorts within a well-defined term and can be very selective in their startup selections. Some accelerators also invest in their cohort startups; some invest fixed amounts for equity, while others may take in some equity in return for all the services they provide throughout the programme.
The majority of accelerators finish their programme with a demo day. Think of it as the graduation ceremony, but you need to present to a room full of investors, including venture capitalists, angel investors, private investors, and other investment firms! Most accelerators take in already formed startups, but accelerators also take in individuals and help them build their startup from the ground up, starting with finding them a co-founder in the programme!
On the other hand, incubators are more flexible and provide startups with the right environment to get off the ground. Many incubators provide office space and networking opportunities. In an incubator, you will co-locate with other entrepreneurs in a similar sector or stage of development. Founders can benefit from a range of perks and benefits that may be available to the members. Incubators are less selective than accelerators and typically don’t invest themselves in the startups but provide them with access to their network of angel investors and early-stage venture capitalists.
How much do accelerators invest in startups?
£10k - £100k
What is a typical timeline for accelerators and incubators?
Accelerators generally operate as cohorts over anywhere from three months to a year or more, with application deadlines for each cohort. While most incubators operate as cohorts as well on similar timelines, there are some who may have open-ended programmes.
Who are the key accelerators and incubators in the market?
There are close to 200 accelerators and incubators with different stage, regional, or sector focusses in the UK. Here are some of the most extensive accelerator programmes in the UK:
What are the pros of being part of an accelerator or incubator?
An opportunity to expand your network, especially angel investors, advisors and mentors.
Access to the accelerator or incubators’ networks and perks such as free legal advice, access to designers, financial planners and even discounted rates on web services. The social events (COVID aside, of course) are usually pretty great, too.
Often provide seed funding (accelerators mainly) and office space, as well as hands-on support and mentorship
Working alongside other startups can help with motivation and, over time, act as a support system.
Association with an accelerator or incubator is often a good chance to make your brand visible and to distinguish it in your sector. Should you join, your accelerator or incubator will be a big advocate for your business to the outside world.
What are the cons of being part of an accelerator or incubator?
Programmes can be extremely difficult to get into and the level of commitment required from a founder can be intense.
Mentorship in some accelerators or incubators can be better than others.
Programmes can be long compared to the amount of funding received.
You won’t retain 100% equity. On average, accelerators require 5-10% of company equity. Make sure the value you gain is worth it.
Accelerators tend to require their startups to scale quickly, hence the name. If you prefer slower growth for your business, this may be a problem.
Both may charge rent and other fees.
Final Thoughts
Accelerators and incubators provide supportive environments for startups to grow. That includes space, access to professionals, mentoring, legal advice, workshops, and access to funding! If you are an early-stage business, you might want to give them serious consideration!
Where Can I Learn More?
Capital Pilot is here to help founders value their startup. For more information, check out all our Startup FAQs here. Or, if you are ready to get your investability assessment and rating, click here.
Helpful Links
F6S - Find and apply to accelerators all over the world.
Crunchbase - List of accelerators.
Beauhurst - UK accelerator programmes