In the course of developing their projects, almost all founders sooner or later think about getting outside help. Many manage to find one or more mentors who are willing to share their experience and insights (sometimes even altruistically), but as a rule, these mentors have narrow expertise.
In search of comprehensive expertise, founders sooner or later consider collaboration with an incubator and/or accelerator. But the trouble is that those who are far from the venture capital market or start-ups often mistakenly believe that these organizations are almost identical (if they know about their existence in principle). This is a serious misconception that we will try to “eliminate” with this material.
First the Incubator
The first and most fundamental difference has to do with the stage of development of the accepted projects: incubators usually admit startups at the idea stage, when the project founders just begin to discuss the future business model, look for a team of like-minded people, study the market, and think through the architecture of the realized solution. In their turn accelerator take more mature startups-usually at the prototype or MVP stage or if they have their first users, preferably paying ones as well.
Most incubators are spaces where entrepreneurs get a workspace, mentorship support, access to private events and other valuable resources through which they learn how to build and grow a business from the ground up for a monthly fee.
Incubators typically do not charge for their services, but they do not provide funding either. Their main goal is different: not so much to give startups cheap office space, but to help aspiring entrepreneurs avoid rookie mistakes and thereby increase the survival rate of businesses at the earliest stage.
Once the funder(s) bring the startup to the incubator, they typically build a prototype or MVP, build a team backbone, and prepare to bring the MVP to market. Then the company grows and the value of the incubator starts to drop.
There is no universal algorithm for knowing if a project has outgrown the incubator level-usually it’s a story about how the founders feel. If you feel that the offered space is already too small for your growing company and mentors’ advice seems to be more and more banal, it is time to decide for the next step – to move to the first own office and to start free floating.
Then the Accelerator.
If, having made this very important step, the founder feels the need for further mentor support and assistance in further development and promotion, he should think about going through an acceleration program-study the local and international market and choose the most attractive options (as a rule these are either acceleration companies with a reputation, or narrowly focused acceleration companies offering very deep expertise in their industries).
Accelerator are programs that give the company individual mentorship and access to a network of partners during the course of the program. These programs typically last from 3 to 6 months and end with a demo day in which the projects pitch to investors, marking the beginning of a fundraising campaign.
Classic equity accelerator typically invest in selected companies at the beginning or during the program (usually amounts in the order of $50-100K) in exchange for a share (usually 3-10%). The exception is accelerator that work on the non-equity model – they do not give financing and do not take a share in the project, but startups have to pay for most of the programs (except for non-equity accelerator financed by the government and/or universities).
In fact, the main task of a accelerator is to help the project find the points of explosive growth and prepare it for institutional money: to find the right and scalable business model, to test the channels of attraction, to crystallize a plan for exponential growth.
The biggest and best-known accelerator are Y Combinator (among its outgrowths are Reddit, Airbnb (attracted more than $4.4 billion in investment), Dropbox (IPO at $9.2 billion) and 500 Startups (Twilio (IPO at $1.2 billion, valued above $18 billion as of July 2019), Behance (bought by Adobe for $150 million)). On their heels is Techstars (Rover.com (valued at $970 million), SendGrid (bought for $3 billion)).
