Incubator vs Accelerator: What’s the Difference?
The terms “accelerator” and “incubator” in the startup world are often mistakenly used synonymously. However, there is a difference, and we must understand it! After doing some research, and discussing amongst ourselves, we’ve narrowed it down to the top 4 differences between the two programs.
Accelerator: a fixed-term, cohort-based program for early-stage startups that aims to accelerate company growth through mentorship, capital and execution in exchange for single-digit equity to investors.
Incubator: a program for early-stage startups that helps launch companies through foundation building and goal setting for an indefinite amount of time.
Of course, this is just our take on it, and you may have a different definition yourself. Regardless, if you are looking for an easy answer, check out this infographic we made:
According to Extreme Accelerator’s Lucy:
“When I think of accelerators, I think quick, speedy, growth. I think of a hustle. It is not as relaxed and long term as an incubator. Accelerators have a definite approach for their startups, filled with mentorship and set plans to get them to the next level. Incubators are quite resource-based, where accelerators are mentorship-based.”
According to Extreme Venture Partner’s Amir:
“Accelerators are programs that are held for a defined period of time, and help early stage startups by providing mentorship and networking opportunities in a classroom setting. Their goals are to help get their startups from one stage to the next, essentially bridging the gap between two phases of the business cycle. They usually welcome founders that do not have experience in bridging this gap, and seek guidance through collaboration. They have most likely already built their foundation. And incubator, however, focuses on creating companies from scratch. They aim to formalize and finalize the business model and structure for the company. An example I think of when I think of incubator programs is Extreme Innovations (link to their website), as they help build startups from scratch.”
Both terms aim to help launch and grow early-stage startups in various industries, such as tech, retail, e-commerce, healthcare, education, etc. The two programs may also provide their startups with training, mentorship, office space (often coworking space), management and administrative support. Some may say that a defining factor between the two is that accelerators, said to be funded by venture capitalists and private firms, take a 3–8% equity stake in their startups, while incubators take little to none, and are usually funded by governments or universities. We went back and forth on whether this was a general case, and found that it wasn’t necessarily true anymore. Incubators and accelerators can both be for-profit, and can be backed by both public and private firms in exchange for equity. Nonetheless, for both programs, the percentage of equity taken by investors remains in the single digits.
While the two programs share the same objectives in regards to helping startups grow, how they do so varies. Incubators generally aim to build the foundation of the business model, and help perfect their startups’ ideation and development phases. While still offering training and mentoring, their main focus is on idea research and development, discovery, and providing services/resources needed for the business. Accelerators, however, may help startups who have already surpassed the ideation stage, and are ready to really accelerate (hence, the term) their growth in the market. With the idea development and business model already in place, they provide their startups with a small amount of seed-capital and focus more on mentoring and networking opportunities with investors and important industry-related corporations.
Simply put, incubator programs do not put time restrictions on their startups. Companies may choose to stay for three months, six months, or even two years. The goal is to meet benchmarks at a steady pace, until they are ready to spin off. On the other hand, an accelerator program host startups for a definite amount of time, which is usually 3–4 months. For example, in the EA Acceleration Program (connect to page), our cohorts stay with us for a period of 12 weeks. In this sort of program, there tends to be more pressure to meet deadlines and show exponentially results, but if done right can have really positive effects for both the startup and its investors. Since shareholders usually have a single-digit equity stake in the company, they are really motivated and involved in the growth process. They aim to introduce their startups to the right people, provide them with the capital they need to improve, and give them guidance from their own experiences along the way. When you think of accelerator, think speed. When you think of incubator, think nurturing, like with eggs in an incubator.
Incubators tend to be more selective with who can apply to their programs (limiting their recruitment to only university students, for example). They may also pick their startups based on recommendations from reputable business relationships, or based on the importance of the idea to a specific industry (Connor, 2016). On the other hand, accelerator programs are open to all applicants, but these programs select very few into the program, making it highly competitive in comparison to incubators. In the EA accelerator, we look for tech-based startups, and often seek to help international startups create a foundation here in North America.
Finally, an accelerator program is cohort/class based, while incubators are not. A “cohort” can be described as “small founding teams with externally developed ideas” (Get2Growth, 2016). Tied into the time aspect of the accelerator program, cohorts have a set graduation date or Demo Day, where they can present to potential investors. The startups graduate as a class, and move on so that the next batch of startups can move in.
And that’s about it, thanks for reading! We hope this clears things up. Please feel free to leave your comments and share your definition of the terms with us! We are always looking to learn.
Hathaway, Ian. “What Startup Accelerators Really Do.” Harvard Business Review. 01 Mar. 2016. Web. 02 June 2016
“What Is a Startup Accelerator, Business Incubator…? | Get2growth.” Get2Growth, 2013. Web. 31 May 2016.
Forrest, Connor. “Accelerators vs. Incubators: What Startups Need to Know — TechRepublic.” TechRepublic. CBS Interactive, 17 Nov. 2014. Web. 31 May 2016.
“Using Corporate Incubators and Accelerators To Drive Disruptive Innovation.”ReImagining Corporate Innovation with a Silicon Valley Perspective. Corporate Innovation, 2014. Web. 02 June 2016.