Understanding the value of start-up programs
In the business world, accelerators and incubators are used interchangeably to reference a body that helps young companies find their feet. Last year, the UK saw 225 deals between venture capitalists and startups, which was by far the highest number in Europe. The startup market has expanded considerably in the last five years, driven largely by the UK tech scene, growing by 80% since 2011. In London alone there are 24 accelerators and 12 incubators. They have facilitated this expansion of innovation, giving early-stage companies a leg up via a range of services. However, accelerators and incubators aren’t the same thing. The services offered by the host organisation totally depends on whether they are an accelerator or an incubator, and they will create different business outcomes. First of all, though, prospective beneficiaries have to apply to the programs – and competition is fierce. So, what’s the difference between an accelerator and an incubator, and which one should startups apply to?
Startup accelerators, or seed accelerators, are intensive courses that usually run for a number of months. They typically take 5 – 10% equity in exchange for seed funding of around £20,000 – £30,000. They can be either publicly or privately funded, and focus on various different industries. It isn’t just about funding. The services offered by accelerators include general business etiquette and advice from a well-established company. At the end of the course, the startup usually has a ‘Demo Day’ in which it gives a presentation to investors.
Incubators, on the other hand, primarily provide management training, accounting skills and office space. They run for a far longer timespan than accelerators, often for a number of years. They are more likely to be run by non-profit organisations like universities, for instance.
Although they provide different services, both incubators and accelerators have one thing in common – they’re highly competitive. The best programs will only accept a tiny percentage of applicants, sometimes as little as 1%. So which one should hopeful companies go for? If a company is looking for a longer term, collaborative experience with physical office space, they should look to incubators like Google Campus or the University of Manchester Innovation Centre. If the company wants a quick-fire, clearly defined course teaching them how to navigate the business world, then they should apply to accelerators like Entrepreneur First or Seedcamp.
What to consider when choosing a program. . .
Once a startup has decided whether or not they want to work with an incubator or an accelerator, there needs to be serious consideration as to which organisation they want to go with. Not all programs are created equal, and sometimes they can actually hold a startup back as opposed to helping them. Especially when it comes to accelerators, startups will only apply to the best. This has led commentators to suggest that the number of accelerators will actually drop as the more successful names gain a monopoly. Y Combinator, for instance, was the very first accelerator and was founded in 2005. Today, it’s still the biggest and most sought after – notable Y Combinator startups include Airbnb and Dropbox. Once a young company has been accepted, they can hopefully begin to reap the benefits of an association with an experienced business. However, as much as accelerators and incubators can help a startup to find their feet in business, there can be downsides. Accelerators can vary hugely in quality and can force difficult terms upon their chosen startups such as complete exclusivity. They sometimes require relocation, and are very short term (which isn’t necessarily always a bad thing). If a startup fails to impress on Demo Day, it can have serious implications for future investment. Incubators, on the other hand, last significantly longer without clearly defined expectations. They can also take a greater share of the young company. Startups need to be fully aware of these potential problems before they submit their applications.
In short, it’s important for startups to understand the difference between accelerator and incubator programs, and it’s equally as vital that they do their homework and apply to a programme that meets with their ambitions. Incubators and accelerators are far from the only solutions for aspiring start-ups.
There are other platforms available to young companies. This includes makerspaces, which offer high-tech equipment and space to startups for a membership fee, and meet-ups where early-stage companies can get exposure and make contacts. Accelerators and incubators are still the most well-known platforms, however, and as more UK startups spring up, it’s possible that there will be an increase in platforms looking to gain a return on their investments. Accelerators and incubators aren’t a fix-all for emerging businesses though – the startup has to present a strong package in order to even be considered for acceptance. In the growing UK innovation scene, this competition will only intensify.