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What is a startup incubator, and how does it differ from a startup accelerator?

Posted by Shivali Anand

October 19, 2021    |     4-minute read (788 words)

When chatting with other entrepreneurs, you've probably heard the terms incubator and accelerators. Startup incubators and accelerators are similar in that both assist early-stage firms to scale up. 

It's no wonder that these words are frequently used interchangeably, even though they pertain to different phases of a startup, serve different objectives and result in different outcomes.

A startup incubator essentially develops creative company ideas and creates favorable conditions for a firm to succeed. A startup accelerator, on the other hand, aids in the growth or acceleration of a firm already in its early stages over a certain period.

If you're thinking about joining a business accelerator or incubator, here's what you should know.

More about startup incubators

A startup incubator aims to provide an optimal environment for early-stage companies to establish a minimum viable product and a solid business strategy. An incubator frequently provides office space, startup money, training, coaching and reduced or free professional services to entrepreneurs, such as accounting and legal help. An incubator isn't restricted to a particular industry, market or vertical.

Typically, a nonprofit organization operated by public and private institutions, startup incubators are frequently linked to colleges and universities. Students and graduates of some business institutions are also permitted to participate in such programs. On the other hand, many incubators are founded by other companies, successful entrepreneurs, governments and civic organizations.

Pros of joining a business incubator:

  • Instruction by professionals
  • Witnessing how other businesses deal with similar issues.
  • Networking opportunities.
  • Mentoring and training can help you avoid common errors that come with establishing a new business.
Cons of joining a business incubator:

  • Lack of a predetermined timetable can make an incubator atmosphere appear too casual at times.
  • In exchange for training investors generally want some shares, meaning you lose some control over your firm.
  • You may need to relocate to the incubator's location.
More about startup accelerators

Capital, coaching and connections to investors and business partners are all available through a startup accelerator. To expand quickly, accelerators select businesses with potential founders and MVPs.

Most accelerators operate on a predetermined schedule. The objective is to have the company up and running as fast as feasible. Startup accelerators have a rigorous application procedure, and one of the most common requirements is that your company have a minimum viable product.

An accelerator program typically lasts a few months, usually three, during which time investors provide cash and serve as mentors in exchange for a significant portion of the company's ownership.

Pros of joining a startup accelerator:

  • Investors are typically ready to pay for outcomes in accelerator programs. Many provide initial funding to assist businesses to get off the ground fast.
  • An accelerator program can provide a crash education in business management.
  • Provides connections in the startup ecosystem, like vendors and mentors.
Cons of joining a startup accelerator:

  • In many situations, financing entails giving up stock.
  • Accelerators work with many companies, making them appear to be cookie-cutter operations in the eyes of some executives.
  • The application procedure can be arduous.
Incubator versus accelerator: Which is better for you?

Before you choose a program, figure out where your company is right now. An incubator may be a better choice if you have a small team, are more flexible, have a less-defined timeframe for your long-term goals and are still working out crucial aspects like product development or market fit. A business incubator is generally preferable for entrepreneurs who wish to develop long-term skills and learn things they wouldn't have access to in a more autonomous setting.

On the other hand, an accelerator could be the best option if you already have an MVP, a robust financial plan and are seeking professional coaching and assistance on how to move to the next level of your business's growth. A business accelerator may be a fantastic motivator, because some of the best programs employ incentives and reward you when you reach milestones.

Application process

Acceptance to a prestigious incubator or accelerators like Y Combinator, Techstars or 500 Startups can be highly competitive. Each year, these organizations reject hundreds of applications. 

Here are four steps to undertake to improve your chances of being chosen:

  1. Explain what problem your product or service addresses, why your team is the best one to solve it and why now is the optimal time to do it.

  2. Make sure your company's foundation is in good shape. Consult a lawyer about your legal needs and, if feasible, put in place required agreements with investors or future consumers.

  3. Have a fundamental grasp of your firm’s finances. This will let you make use of the incubator or accelerator's resources to help your company develop.

  4. Be able to articulate how you will build momentum for your product or service.

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