Although many people use the terms "incubator" and "accelerator" interchangeably, they are actually two different but related concepts, explained National Business Incubation Association (NBIA) CEO and President Kirstie Chadwick in a recent interview. Both structures support entrepreneurial ventures in distinct ways. Here are the key differentiators between a startup incubator versus accelerator:
Space to Grow and Collaborate
Incubators and coworking spaces are facilities that provide startups and growing companies with a place to work and resources to help them grow their businesses. "They are spaces where entrepreneurs aggregate and learn," said Chadwick.
Coworking spaces generally offer an open floor plan. Individual entrepreneurs or independent freelancers typically pay a monthly fee for as-needed access to a desk.
Incubators, on the other hand, are often designed for teams. "They are for early-stage companies to come together to work as a team," said Chadwick. Dedicated offices are more the norm, but many incubators also offer coworking space within their facilities.
Whereas coworking spaces are more geared to software or technology ventures or to professionals, incubators frequently have niche populations they serve. For example, some incubators provide wet lab space for biotech research and development work, while food-related incubators may have commercial food kitchens available, according to Chadwick. Furthermore, many incubators are "mixed use," meaning they serve both technology and traditional small business ventures depending on the market and the types of startups the community is trying to foster.
Accelerators Offer Guidance for Growth
Within such entrepreneurial enclaves, incubators often offer access to other programs and resources, such as "programs and services geared to the audience located in the space," Chadwick explained. These programs consist of three types of help: education, mentoring and access to service providers. The goal is to provide entrepreneurs with all the resources they need to succeed.
One particular type of program offering is an accelerator. "An accelerator is not a place, it is a type of program that combines targeted mentoring, education and, in most cases, a small amount of equity funding into an intense, short-term program," clarified Chadwick. Typically three months in duration, the goal of an accelerator is to propel high-potential ventures forward in a short amount of time.
Many accelerators run two or three cohorts, or sessions, a year, according to Chadwick, each of which comprises 5–10 participating companies. To be selected, companies must have submitted an application and, in most cases, give up a small equity stake in exchange for a cash infusion, which can range "from $25,000–$100,000, depending on the accelerator," as estimated by Chadwick.
Most accelerator sessions end with a "Demo Day," during which teams show off their concepts or prototypes in the hopes of securing first-round funding from those in attendance.
Where Does the Money Come From?
"Another difference between a startup incubator versus accelerator is their legal structure," said Chadwick. Most incubators are not-for-profit and may be affiliated with a college or university; accelerators, conversely, are often for-profit and funded by early stage investors.
Chadwick mentioned that there has been a recent trend in the formation of non-profit accelerators, often tied to university space or student entrepreneurship programs, as confirmed by the First Nonprofit Group. Money invested in these types of accelerators often comes from an "evergreen fund," which invests in accelerator companies and reinvests any money made in the fund for future companies to utilize.
"While this is the state of incubators and accelerators today, the model is changing," said Chadwick.
More of a Life Cycle Than Path
"Where incubators and accelerators used to be separate and distinct, the two terms have begun to converge, with incubators, coworking spaces and accelerators being housed under one roof," Chadwick noted. A company may cycle through a coworking space to incubator space as it grows, subsequently joining a three-month accelerator program — which often resides inside the incubator or coworking space — for funding and returning to the incubator for follow-up access to mentors and resources focused on the startup's longer-term growth.
Where there was once a stark difference between startup incubator versus accelerator, there now exists a simpatico relationship. You should investigate both options, depending on your business's unique needs, and determine whether you may benefit from the shared workspace and resources of an incubator, the financial leverage afforded by an accelerator or perhaps both. These institutions could be exactly the next step you need to take to break through existing barriers and amplify your business.
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