Startup Accelerator Vs Incubator: Which One Is Best for Your Business?
Should you apply for an accelerator or incubator? It depends. These startup programs have different goals and are designed for startups at different stages in the development process – and many founders I talk to don’t know the difference. Bottom line: don’t rush it. Choosing the right one has the potential to take you from where you are to where you need to be, so make sure you’ve done your homework and thought it through.
Here’s how I think about startup accelerators vs. incubators so you can choose strategically:
What Is an Accelerator?
Accelerators are designed to create aggressive growth, but they’re not for early-stage startups. I like accelerators for companies with a business model and minimum viable product (MVP) already developed. An accelerator provides a startup with resources to support their rapid scaling, including mentorship from experts or other seasoned entrepreneurs, space to work with their team alongside others, and in some cases, legal services, as well as access to a network of valuable industry players and potential investors.
Business Accelerator Programs
Business accelerator programs typically invest in their members’ seed stages and take an equity stake in the company. Since thousands of startups apply for these programs and accelerators are limited in the mentorship time, office space, and capital they can offer, their acceptance rates can be low. To increase your chance of acceptance, you have to make sure you’re the right fit for an accelerator with a validated MVP and the readiness to scale.
Those accepted typically spend 3-6 months in an accelerator program to get their startup ready for market before a new cohort is chosen. The goal is for their chosen startups to attract new investments within a few months of mentorship and support and move on to their next stage of development.
How Does an Accelerator Work
To get into an accelerator’s cohort, you must earn one of the open spots. Some accelerators accept as many as 45-90 startups. Others, like Tampa Bay Wave’s Fintech|X Accelerator, which I sponsored in 2022 and serve on the advisory council for, opened as few as 15 spots. The application process is broken into a few steps:
- Applying – Providing details such as market, idea, traction, team, business plan, etc.
- Assessment – Assessed for potential profitability, investability, and company strength
- Interviews – Short interviews with startup founders to learn more
- Evaluations – Providing documents to prove statements and claims
- Acceptance – The investment committee finalizes choices for the cohort to receive funding
Once accepted into the accelerator, your startup gains access to a workspace with personalized guidance from mentors, networking opportunities, and other startups to collaborate with as you scale.
What Is A Business Incubator
If you’re early-stage, an incubator might be right for you. An incubator may offer a similar setup to accelerators, but they’re designed for startups at much earlier stages in their development and take a more laid-back approach to support these businesses as they still develop their early-stage company. Rather than an intense, short-term, program, incubators focus on nurturing businesses over more extended periods to help expedite their success and profitability. Scaling is not typically the goal, but rather solidifying an idea, validating product-market fit, or working on an MVP.
In addition to office space and equipment, incubators also provide mentorship and ad-hoc help with business and legal challenges and access to potential investors such as angel investors.
Business Incubator Program
Incubators are good options for startups that aren’t ready to join an accelerator. Their application and acceptance process isn’t as rigorous because incubators can accept more members. The trade-off is that incubators don’t usually offer capital.
Incubator members can spend over a year with an incubator program while they work through business development challenges such as technical problems or team management, but incubator residency can range anywhere from 6 months to 5 years.
How Does an Incubator Work
Incubators are more accepting of applications and selection decisions are guided by the needs of the local area’s business ecosystem. While you don’t need to have a robust business plan or solidified MVP, they’ll still be looking for a great idea with growth potential somewhere down the road, whether that’s 6 months or 3 years.
Once accepted, companies often work from their incubator space or tap into the resources offered as needed to reach key milestones in a much less formal way than at accelerators.
Accelerator vs. Incubator: What’s the Difference?
There are clear similarities between accelerators and incubators: they’re both nurturing environments for startups that provide both resources and mentorship. However, the differences between them are key and define the kind of startups that would benefit most from each.
The stage of the startup is the biggest difference between accelerators and incubators. Accelerators tend to be well-developed startups with validated MVPs focused on scaling, while incubators are designed for fledgling startups still developing their ideas.
It’s standard for accelerators to provide their ventures with seed capital in exchange for equity in the company, but incubators don’t typically offer funding opportunities. Incubators may still require a stage in the company exchange for the resources and services they’re providing.
Accelerator cycles only last about 3-6 months, and time is of the essence. Incubators focus on nurturing a startup as long as is necessary to be successful on their own, which may take several years.
How to Choose the Best Option for You and Your Business
If you’re well aware of the current stage of your business, it might be obvious whether an accelerator or incubator would be a better fit. If you’re not sure which camp you’d more likely fall into, walk through these steps:
- First, assess the state of your product or service. Do you have an MVP or just an idea?
- Next, identify your investment needs. Are you in urgent need of funding to scale or have you not yet arrived at that stage of development?
- Determine your timeline. Are you looking for support for a short time, or years?
If you identified with the first choice of the above three questions, a business accelerator is likely better for you and your business. If the second choice more accurately depicts your state and needs, consider a business incubator.
How to Find the Right Accelerator or Incubator Program
After determining whether you’re fit for an accelerator or incubator, making the right choice of program will help determine your course over the next months to years. As you sort through the options available to you, ask yourself these questions:
- How much space do we need?
- What are my current goals?
- What’s the primary type of support I need?
- How long is the program I’m considering?
- How reputable is the program I’m considering?
- Does the program I’m considering have a good track record of success?
- Where is the program located? Is it accessible? Affordable?
Research your options before applying. Talking to other founders that have participated in the program in the past can also be a great primary resource to gain more insight before making a decision.
Top Accelerators and Incubators
If you’re looking for a place to start, this is it. These are the top-performing accelerators and incubators in the US based on successful exits and some of the most recognizable names in the startup space.
Y Combinator is known as the pioneer accelerator and incubator as it started in 2005 in Silicon Valley. Since then, it’s invested in over 3000 companies. The current value of Y Combinator’s top 30 companies is about $575B. You might recognize some of its investments – Airbnb, Dropbox, Reddit, and Coinbase, to name a few.
500 Startups came about just one year after Y Combinator and is the most active early-stage investor in the world. With its flagship San Francisco program and other accelerator and incubator programs worldwide, 500 Startups focuses on seed funds and serving startups in their initial phase and gives them resources to find more investors. A few of 500 Startups’ successful investments include Credit Karma and Canva, and exits have included sales to Rakuten and Google.
Techstars is the force behind Startup Week and Startup Weekend, short programs that encourage lightning-speed ideation and execution to launch new ventures in just days. Its accelerator program is hard to get into, only accepting fewer than 1% of applicants. But Techstars investment companies have been wildly successful, like ClassPass and Uber. Its accelerator program is centered around mentorship and connects founders with professionals throughout the Techstars network.
An Environment for Success
Make no mistake: choosing correctly between an accelerator and an incubator is critical to your early startup success. While one will nurture you through the early stages and challenges, the other will give you a boost to scale quickly once you’ve already developed an MVP. Deciding which route to take is key and should be based on the evidence of your own business development and current needs.
Choosing the right supporting environment isn’t the only thing that’s critical for a startup. Finding the right angel investor can also greatly influence the trajectory of your business. If you’re looking for the missing investor piece to your startup success puzzle, get in touch with me at MacDonald Ventures. Enjoy the ride.