The Problem With Slash
On Business Plan Competitions / Incubators / Accelerators
Fellow readers — I’m sorry to disappoint you. This article isn’t about my gripes with Guns N’ Roses ax-man Saul Hudson, better known by his stage name, Slash. What’s not to like? The top hats? The tasty riffs? The man was a guitar god among men.
But I digress.
What I really want to talk to you about is the difference between business plan competitions, incubators, and accelerators. Too often, I am intro’d to someone who isn’t too familiar with our accelerator program, and it goes something like this:
“I want you to meet Matt Menietti. Matt is a Venture Partner at SixThirty, an incubator/accelerator program for fintech companies.”
Well, my friends, there is a problem with this slash. Let me tell you why.
What’s the Difference?
The term accelerator is a now often-overused, sexy term, for mentoring and funding programs that seek to, for lack of a better word, accelerate the progress of early stage startup companies. Let’s take a crazy trip back to your fifth grade physics class to learn more about the concept of acceleration:
Acceleration (a) is only occurs if there is a change (or delta) in the speed of an object, or, in our case, a startup company. Successful startup accelerators increase the speed of a company after joining their program such that speed_end is much greater than speed_start . This increase in a company’s speed is not accomplished without intention and focus on behalf of the accelerator’s program staff and mentor team.
Now, let’s look at the word incubator. What comes to your mind when you hear that term? Personally, I’m reminded of the incubator in the famed science fiction movie, Jurassic Park, where the baby raptors wait to hatch right before the eyes of their creator and founder, John Hammond. These incubates are in need of a healthy, safe, and warm environment while they eventually grow into the knob-turning, pack-hunting, Samuel-Jackson-killing machines (spoiler?) we all know and love.
And if you think for one second I couldn’t make comparisons between velociraptors and startups, then you’re wrong. Dead wrong.
At the end of the day, the word incubator implies more of a passive approach to helping startup companies. The intensity and focus is less than that of a typical accelerator, and that’s OK.
Let’s review common definitions for these types of programs:
- Invest a small (usually $20K to $100K) amount of seed capital in a set amount of early stage companies per year.
- Offer funding, mentorship, office space, connections, and other perks (like discounts or credits with service providers) in exchange for equity in the company.
- Last for a fixed amount of time, typically 12 weeks or 3 months.
- Provide office space for early stage startup companies. Some will offer shared programming (lunch and learns, happy hours) for their members or tenants.
- Members (tenants) will pay a monthly fee for access to the space, shared services like conference rooms, printing, mail boxes, and incubator-sponsored events or programs.
- Incubator programs rarely take equity. If they do, be very, very clear on what they’re provide in exchange for a percentage of your company.
Business Plan Competitions:
- Give out non-dilutive funding (as a grant or sponsorship, not an investment) to a select number of startup companies.
- The funding awarded is typically based on the company’s ability to write and pitch a business plan.
- While non-dilutive, the funds awarded can come with stipulations including, but not limited to, relocating to a city, or hitting certain milestones in order to release funds.
The Roles Business Plan Competitions, Incubators, and Accelerators Play in Startup Ecosystems
The point I’m trying to make isn’t that any one of these programs (nonprofit or for-profit) is inherently better than the others. I’ve come across several poorly run accelerators, incubators, and business plan competitions. Under the guise of ‘we help entrepreneurs’, several fail to deliver on their promise due to poor management, communications, and lack of focus. Much like the startup world, it is rarely the idea or form the organization takes on, but its ability to execute that moves the needle. Nevertheless, all are necessary for successful startup ecosystems to thrive.
So, given the subtleties and differences between them, what roles do they play in a thriving startup community?
- For the most part, business plan competitions create value by providing funds to entrepreneurs who have an idea and need startup capital to implement it. In theory, their money helps convert ideas into products, and hopefully, investable companies. That being said, some competitions place too much value on the uniqueness of the idea and the founding team’s ability to write a good business plan, instead of their ability to create products or execute on that plan.
- Incubators (or co-working spaces) provide startup companies with the necessary environment in which to start and grow their company. They are often surrounded by other, like-minded founders, and have access to networking and educational events that will connect them to helpful resources. The best incubators maintain a healthy balance of programming, back-end services, and flexible, affordable office space.
- Accelerators (often near or inside incubator spaces) provide startup companies with seed capital and focused, intentional mentoring and guidance. Successful accelerators pick good companies and add value so they are more attractive to follow-on investors. They provide companies with fuel (connections and cash) and direction (feedback and mentorship). Unsuccessful accelerators struggle to pick strong, investable companies and place too much value on service provider-relationships and ineffective (middle-management, consultants) mentors.
What do you think? What roles do these types of organizations play in your community? How important is the difference?