How to raise money. Incubator and accelerator

Have you already reached the stage to make your side hustle the main? Or maybe you have a great idea and need assistance from industry brightest minds? In case you are considering accelerator or incubator programs for the above mentioned purposes, first make sure you clearly define goals. Analyze idea/ team potential in achieving your startup goals even without any program. As you might know, the whole application/ selection program itself might take too long. Be honest with yourself to understand if that time could be spent on startup tasks and needs without giving equity.

Whether you are new to the startup game, or you are operating in this sphere for long years, you might have heard terms “accelerator” or “incubator”. It is quite possible that you might have a friend, whose startup is connected to an accelerator, or maybe you have attended events hosted by local incubator programs.
Both program types may sound the same, but they do differ in terms of what companies they are looking to bring in, and what they offer to startups.

So in this article, we will break down the differences between these two programs and also will try to understand if these options are right for you. What is the difference between an incubator and an accelerator for startups, and is either option right for your business.

Let’s start by understanding each program goal first. Accelerator programs “accelerate” existing startup growth. Incubator programs “incubate” ideas, hoping to build a solid business model or startup. In other words, accelerators focus on scaling a business while incubators are normally focused on innovation.

So how do the two programs differ and what kind of services they offer to startups?

For early-stage startups, startup accelerators and incubators offer great ways to grow their businesses. Basically, accelerator programs are created for scaling existing business, while incubators are for early-stage startups to guide through the validation process, and help with the innovation component.

Which program is suitable for your startup?

No doubt, both accelerator and incubator programs guide teams through the most essential stages, providing guidance for business model creation processes, helping with strategies. Both programs’ key purpose is to make startups competitive, valuable for potential investors. 

Anyway, both programs clearly have important differences that you should consider before joining one.

Incubators

Incubators programs are mostly interested in early-stage startups or even single entrepreneurs. Programs can be independent structures, but mostly they are run by angel investors, VCs, universities, or even governmental organizations. Another essential part is the program track, depending on the sponsoring organizations, the incubator tracks might be different. For instance, if the program is run by an organization that is specifically focused on artificial intelligence, the program might accept only AI technology startups.

Also note, incubators can require accepted entrepreneurs/ startups to relocate and work in that startup ecosystem. To cut it short, the incubator’s main goal is to guide the entrepreneurs along the way to develop the business model and turn the idea into a real innovative company.

Most incubators are not focused on the fact of how fast a startup grows. Generally, the program timeline is more open-end, and entrepreneurs are mentored around a year or maybe a year and a half.

Incubator programs try to invest resources/ time into promising local startups and entrepreneurs. In this case, program has relatively less pressure on entrepreneurs delivering product fast. So, this means that even a slow growing startup can be a good candidate.

Usually, incubator programs don’t offer capital to startups, as they are generally run by government organizations or universities, this fact also excludes equity part from supported teams.

Accelerators

Accelerator program’s main purpose is to help existing companies grow quickly and become fundable and attractive for investors. Mentors’ group helps teams to avoid potential problems along the way, build solid companies.

What greatly differs accelerators from incubators is timeframe. Accelerator program is well-structured, runs on a set timeframe (mostly 3-4 months). This time is used to work with the mentors, improve every possible aspect of the startup, and even get ready to pitch the business idea.

Teams apply for a selection process, which is generally very selective and competitive. For instance, Y Combinator accepts only 2% of applications, as the program goal is to find startups with an ability to grow fast, which are scalable and investable.

Normally, accepted teams that demonstrate fast growth and are invested in exchange for pre-agreed equity. The teams are also assigned to mentors, access to a large investor network, which is a great value for the startups.As soon as the program ends, the demo day is organized to showcase the idea both to startups and media.

Consider the following points before joining an Incubator program:

  • Check the mentor list first

Make sure the program has suitable or relevant mentors for your startup specifically.

  • Honestly question yourself if investment is needed now.

If the answer is yes and you have reached the funding stage, the accelerator is a better fit.

Consider the following points before joining an Accelerator program:

  • Is your idea ready for program? 

If you are a solo entrepreneur and only have the business idea, consider applying for incubator program.

  • Are you ready to relocate?

As mentioned previously, after being accepted the program may require relocation to participate.

To sum up

When considering joining one of startup programs, look for right fit first, as many teams can greatly benefit from incubator program, but not be a right fit to join accelerators. Or maybe your startup doesn’t even need this kind of program. This is  crucial question every entrepreneur should honestly answer after careful observation and understanding startup long-term goals and needs.