Both Incubator/Venture building and Startup Accelerator programs help early-stage startups to grow and scale their business. It is no surprise then that these terms are often mixed up and misused, despite being very different entities.
So what exactly are the differences between the two and what kind of services can they provide for your business?
For early-stage startups, accelerators and incubators offer great ways to grow their businesses. Albeit in different manners. We can start by separating the goals of the two programs. Startup accelerators aim to “accelerate” the growth of an existing company, while incubators “incubate” disruptive ideas in the hope of further building out a business model and company. Basically accelerators are set on scaling a business, whereas incubators are more focused on the earlier stages of innovation and validation
What do startup Accelerators really do?
Some of the main differences between a startup accelerator and incubator lie within the structures of the individual programs. Startup accelerator programs commonly have a specific timeframe in which the startups spend several weeks or months engaging with mentors to further build-out their business and learn what to do and avoid to gain future success.
Startup accelerators kickoff with an application process. Startups can apply for an accelerator program, however, the selection process is often very thorough. Only a small number of startups are selected for the program.
Startups typically receive a small seed investment, and more importantly, access to a large network of experienced mentors. In return, the investors/mentors gain a small amount of equity in the startup. The network of mentors is generally composed of startup executives, outside investors, industry experts, and venture capitalists. For startups, this mentor network is usually the most valuable aspect of the startup accelerator program.
Proper accelerator programs should have all different parties completely aligned. All the partners providing advice to startups, should have a stake in the startup’s success.
When the startup accelerator program ends, a so-called demonstration day is often held. The startups present their business and progress. These events are usually attended by investors and media.
The goal of the startup accelerator program is to aid a startup in doing two years worth of work in a matter of a couple of months.
Malaysia-based startups can apply for an accelerator program at NEXEA through The NEXEA Startup Accelerator Program.
To find a list of all the major startup accelerators in Malaysia, click HERE.
What is the role of Incubators/Venture builders?
Startup incubators will commonly start with businesses, sometimes just a single entrepreneur, that are in the earlier stages of their life cycle. Furthermore, unlike startup accelerator programs, incubators usually do not operate on a specific schedule.
Startup incubators can independent entities but they can also be a part of or be sponsored by venture capital firms, angel investors or angel investment networks, government entities and major corporations. The selection process also differs among startup incubators. Some, similar to startup accelerators, have an application process, while others will only work on ideas and businesses suggested by trusted partners.
Incubators, depending on whether they are independent or not, can be focused on a specific market. For instance, if a startup incubator is sponsored by a hospital, the incubator may only be targeting health technology startups.
In many instances, startups that have been accepted into startup incubator programs need to relocate to a specific geographic location to work closely with other companies within the incubator. The startup incubator will help the startup further develop their ideas and validate the business plans and markets. Moreover, the startup incubator will help the startup with networking within the startup ecosystem.
Generally, startup incubators have a shared space in a co-working environment and some sort of connection to the local community.
Co-working has become a common part of the startup incubator scene. Co-working spaces charge rent to gain access to utilities. Some startup accelerators also offer a co-working space, however, most provide businesses with their private office spaces or let them sort out the office space issue by themselves.
NEXEA Venture Building/Incubator is an example of a Malaysian incubator/venture builder. The program gives entrepreneurs that do not require immediate funding a chance to work with mentors and receive support from industry experts.
How do Startup Accelerators and Incubators differ?
Let’s take a look at the structural differences between a startup accelerator and an incubator:
- Startup accelerators receive funding from an existing company or network. Oftentimes, incubators are independent although they can have connections to venture capital firms, angel investors, funds, universities, angel or government entities.
- Incubators are mainly focused on stimulating a startup’s innovation by incubating disruptive ideas. Startup accelerators, on the other hand, focus on accelerating the growth and scaling of a business. A slightly more complicated scenario exists where incubators function as a preparation stage for startup accelerators.
- Startup accelerators usually adhere to a fixed timeline for their programs which are usually a few months long. Contrarily, incubators do not have a fixed timeline but are generally committed to a startup for a longer period of time than startup accelerators.
- Compared to incubators, startup accelerators are commonly more selective when choosing what startups to support. This is also because an accelerator program includes funding and equity in the startup for the investors.
- Startup accelerators tend to have a more structured program in which the accelerators seek to form a certain alignment between the startups. Incubators, on the other hand, are more focused on creating an environment for co-creation.
- Startups seeking incubators are usually in earlier (idea) stages of their business life cycle. Startup accelerators only accept startups which are already more established, in essence, startups who are beyond the idea stage and have some kind of prototype or product made.
You could compare a startup accelerator to a greenhouse with the best conditions for small plants (startups) to grow. The role of the incubator would be to match the best seeds with the right soil for sprouting.
Which one is right for your startup?
When deciding whether a startup accelerator program or incubator is the right choice for their startup, entrepreneurs should look for the right fit. Most startups could benefit greatly from joining an incubator, but not as many are fit nor eligible to join an accelerator.
Incubators mostly go for startups that are still in formation (idea stage), may not necessarily require investment capital and already familiar and part of the local startup community. Time till commercialization is often longer, in some cases the startups are in such an early stage that the basics have not been covered yet, basically they are built from the ground up.
Startup accelerators usually have many applicants of which only a handful will be chosen to pursue further and receive funding. To be considered for a startup accelerator program, the startups need to be able to show that they are investible and have the potential to scale rapidly. If necessary, the startup should also be willing to relocate for the duration of the program to a geographic location where personal meetings with mentors are viable. In most cases, the funding received by startups from accelerators, are the first outside investor funds they receive.
While both startup accelerators and incubators can contribute greatly to a startup’s success, they should not be considered the same. Entrepreneurs should be able to determine which of the two options is a better fit for their startups at its specific stage.
Through careful self-reflection and critical observing, the right answer should appear naturally.
Both incubators and startup accelerators offer great opportunities to aid young businesses and support innovative ideas. Furthermore, they both ensure startups get headed in the right direction, albeit in different ways for startups in different stages.