Business Incubators vs Accelerators: A Review of Literature

Although the literature about incubation programs and business accelerations is recently developing, it can be said that a maturity level of literature has started to arise. Almost all the papers I reviewed claim the fact that there is an ambiguity about the definition on business accelerators and incubators as well as their differences.

In this study, I go over 35 papers on accelerator phenomena in order to understand what business accelerators are, how they work and how they differ from incubation programs. Although the services both incubators and accelerators provide are almost the same, the differences appeared to be in the business model. The differences mentioned on various papers and studies are assembled and I come up with a new strategy on the source of differences between two strong and trendy business innovation processes: focusing on their business models.

Introduction

Entrepreneurship is a value within an ecosystem. Any entrepreneur with a fascinating idea in mind needs a nutritive atmosphere in order to make her idea evolve. Although there are evidences of success of both incubated and non-incubated enterprises, it is an observable fact that there is an increasing popularity of business incubators and more recently, business accelerators. Startups from various industries search for programs or institutions which can provide them technical assistance, mentoring and even funding. Business incubation centers and accelerators have sprung up to meet these needs of entrepreneurs. The accelerators are recently established institutions whereas the incubators have a long story. After the penetration of accelerators into the industry, a misunderstanding about the definition of incubators and accelerators and about their differences appeared as a challenging issue. This leads to difficulty for entrepreneurs to assess these mechanisms.

In this study I reviewed the literature on these new comers, accelerators, and tried to come up with a systematic approach to its aspects different from the incubators.

Definitions

The International Business Innovation Association (InBIA) defines incubation programs as business support processes that accelerate the successful development of start-up and fledgling companies by providing entrepreneurs with an array of targeted resources and services (INBIA).

On the other hand, Cohen and Hochberg, the collaborators of Seed Accelerator Ranking Project, define an accelerator as a fixed-term, cohort-based program, including mentorship and educational components, that culminates in a public pitch event or demo day (S. G. Cohen et al., 2014).

In addition there are many other definitions for both programs. Although some definitions like the Cohen and Hochberg’s one, can give a sense for differentiation of these two phenomena, after the survey of the literature it appeared to be difficult to come up with exact definitions for figuring out the differences.

The Structure of Accelerators

Although there is no consensus on the definition and structure of accelerators and there are various examples of accelerator structures; by combining eight recent papers (Caley & Kula, 2013; Christiansen, 2009; S. Cohen, n.d.; S. G. Cohen et al., 2014; Dempwolf, Auer, & D ’ippolito, 2014; Isabelle, 2013; Porat, n.d.; Radojevich-Kelley & Hoffman, 2012) on accelerator phenomena, I drive the structure of accelerators as follows:

Organization

  • Legal Status: Mostly for-profit
  • Manager Profile: Mostly entrepreneurs or angel investors
  • Aim: Return on investment
  • Goal: Fast test validation of businesses/innovation
  • Program Duration: 3–4 months
  • Scale of Region: Regional, national, global

Services

  • Mentoring
  • Technical Assistance
  • Education

Finance

  • Seed Funding
  • Equity Stake
  • Private Funds

Social Capital

  • Networking with Investors
  • Networking with Customers
  • Demo Day
  • Cohort & Alumni Networking

Business Model

Table 1. Business model of accelerators

Differentiation

Since the accelerators recently penetrated the industry at the beginning of 2000s, there are few publications including quantitative research on the phenomena. Nevertheless, there are many qualitative researches about accelerators and the differentiation from the incubation programs and angel investors. On the other hand, each publication providing the differentiation gives many different aspects for comparison of two processes. The common points of the studies on accelerators differentiation are, more or less, the limited duration of the programs, for-profit legal status and cohorts, and/or classes of start-ups who enter and graduate together (Isabelle, 2013).

To me, the confusion about the differences of accelerators and incubators stems from the fact that they provide almost the same services to their clients, as can be seen on Table 2. Hence I suggest focusing on their business models to identify the differences. For this strategy the accelerators or incubators with very different structures that result in the difficulty of even classifying them are excluded. Table 2 below gives the fundamental differentiation aspects of incubators and accelerators.

Table 2. Business models of accelerators and incubators.

As can be seen in the Table 2, the key activities of incubators and accelerators are the same. This is why there is a big confusion on the definitions of two phenomena. On the other hand, if we do the research based on the business models of the programs, we can see the other entries of the business plan varies appealingly.

Considering this business model approach and gathering all the information provided within the surveyed publications about the differences between two programs, I come up with the table of differences given below.

Table 3. Table of differences

Conclusion

Accelerators entered the industry in the beginning of 2000s. Hence, there is not sufficient literature about accelerators. Although the history of incubators goes back to 1950s, there is also few publications about the phenomena (Pauwels, Clarysse, Wright, & Van Hove, 2016; Van Huijgevoort & Ritzen, 2012). In this study, I reviewed the publications, which provide information about the differences between accelerators and incubators, and come up with a new strategy for identifying the distinction. For further studies, I offer to focus on the business model of two types of institutions in order to be able to clarify the differences.

Figure 1. Infographic of differences

References

Caley, E., & Kula, H. (2013). Seeding Success: Canada’s Startup Accelerators. Retrieved from http://datacatalyst.marsdd.com/startupaccelerators/.

Christiansen, J. D. (2009). Copying Y Combinator.

Cohen, S. (n.d.). What Do Accelerators Do? Insights from Incubators and Angels. MIT Press Journals.

Cohen, S. G., Hochberg, Y. V, Gilani, A., Henikoff, T., Kamath, K., Quann, K., & Robb, A. (2014). Accelerating Startups: The Seed Accelerator Phenomenon.

Dempwolf, C. S., Auer, J., & D ’ippolito, M. (2014). Innovation Accelerators: Defining Characteristics Among Startup Assistance Organizations.

INBIA. (n.d.). InBIA. Retrieved from https://inbia.org/

Isabelle, D. A. (2013). Key Factors Affecting a Technology Entrepreneur’s Choice of Incubator or Accelerator.

Pauwels, C., Clarysse, B., Wright, M., & Van Hove, J. (2016). Understanding a new generation incubation model: The accelerator. Technovation, 50, 13–24. https://doi.org/10.1016/j.technovation.2015.09.003

Porat, J. (n.d.). Exploring the Policy Relevance of Startup Accelerators.

Radojevich-Kelley, N., & Hoffman, D. L. (2012). Analysis of Accelerator Companies: An Exploratory Case Study of Their Programs, Processes, and Early Results. Small Business Institute® Journal, 8(2), 54–70.

Van Huijgevoort, T., & Ritzen, D. (2012). The “Business Accelerator”: Just a Different Name for a Business Incubator?