Hatching or Accelerating Your Business: Incubators vs. Accelerators

If you are an entrepreneur growing a startup company, you’ve probably heard about accelerators and incubators. You’ve also probably heard the terms used interchangeably. However, these programs are quite different, and knowing the differences is important for determining whether one of these programs could benefit your small business.

Before delving into their differences, it is probably most beneficial to discuss their similarities. At a fundamental level, they have a lot in common. Both provide startups with business services, guidance, mentorships, legal counsel, and connections to help them grow. They can provide investor introductions and assist with critical business functions, such as human resource functions. They can also provide valuable public relations support and exposure.

Accelerators and incubators both provide a physical workspace for their startups—with the exception being some that are entirely virtual. The shared space can take many different forms. It may just be office space, or it may include access to specialized equipment, manufacturing space, or wet labs. In addition to reducing costs, sharing a space with other startups enables entrepreneurs to receive peer support and learn from each other’s mistakes and successes.

Some accelerators and incubators accept startups across a wide-range of business sectors, while others have a narrowed focus, such as those specifically focused on biotech, clean energy, or information technology startups. This focus will largely determine the workspaces and resources available.

In addition, both types of programs will facilitate connections with experienced entrepreneurs, investors, venture capitalists, angles, and federal resources that can provide advice and strategic support. These experts can help with grant applications, technical questions, and accessing additional collaborators and funding. The Frederick National Laboratory for Cancer Research, for example, has relationships with several local incubators to support the startups residing there.

Despite these similarities, there are still critical differences between the two programs.

Incubators

Business incubators are designed to help fledgling startups and early stage companies. The startups going to incubators are often looking for assistance with transitioning their novel ideas to commercial realities. Incubators are focused more of the longevity on the startup than on rapid growth. Hence, companies can be at an incubator for years, making incubators especially beneficial for slow-growing companies.

Incubators do not provide capital or take an equity stake in their startups, although they often offer pathways to capital from angel investors, government programs, and others. To join an incubator, startups pay a monthly rent, which is usually dependent on the space they occupy at the incubator and can range from a few hundred to a few thousand dollars. Many universities, community colleges, and others offer reasonably priced programs.

Accelerators

Accelerators, on the other hand, are geared toward fast-tracking already developed startups. They are focused on rapid growth, and consequently, startups are in accelerators for only a short, pre-determined period, typically three to four months. The accelerator is designed to improve a startup’s chances of raising venture capital from a third-party entity, so after its time at the accelerator is up, the startup will pitch its business to investors and be on its way.

The investment capital is also different for incubators and accelerators. Accelerators invest capital in startups in exchange for equity. As a result, accelerators have a greater stake in the success of each startup. Because of this, accelerators are often more competitive than incubators—although there is a wide spectrum of variation between programs. To get accepted to an accelerator, companies need to show that they are readily scalable, investable, and have potential for rapid growth.

What is best for you?

If your startup is far from commercialization and has not yet developed a strategic business plan, an incubator is likely a good fit. An incubator can provide necessary structure for a new business to keep it focused and on track. The incubator is especially beneficial to a first-time entrepreneur.

In contrast, an accelerator is likely a poor fit for a company at an early stage of development, for example, if you are still looking for co-founders or still figuring out a business model. However, if your company is in a later stage of development and has demonstrated that it is investable and scalable, an accelerator may prove to be an effective springboard for your business.

While both can offer tremendous value, they also have their downsides. They can be time-intensive; some require rigorous training and have strict schedules, and although there are many benefits of sharing space with other startups, there can also be clashes and issues that arise from that arrangement.

There are other options out there for budding companies. For example, coworking space allows startups to work together in a shared space, sharing costs and resources. In addition to the physical workspace, this offers networking opportunities and a community of peers. However, this does not provide mentoring or the other expert guidance of incubators and accelerators.

Whether you are considering becoming an accelerator or incubator resident or neither, as a small company with limited startup funding, you want to maximize the output at minimal cost. This is where funds, grants, and federal resources come in handy—and they are likely more accessible than you think. For example, the Frederick National Lab is always looking to expand its portfolio of unique research technologies and make advances for the benefit of the wider cancer research community. “If your unique technology or specific research direction aligns with our national lab mission, we would love to collaborate with you,” said Vladimir Popov, Business Development Manager at the Frederick National Lab. “We are always looking for novel approaches that will fuel and accelerate development of new therapeutics for cancer patients.” And while being part of an incubator or similar program can help you gain access to these resources, it is far from the only way to engage with an investor, national lab, or similar resource.

If you are interested in applying to an accelerator or incubator, look around and see what is available in your area; across the United States, there are approximately 1,400 business incubators and a growing number of accelerators. Each has different offerings and specialties. One may align nicely with your business needs.