October 6, 2019
The Difference Between Tech Incubators and Tech Accelerators
Many founders assume that tech incubators and tech accelerators are the same thing. They are clearly not, but I can certainly understand how founders could see them that way. There are a few distinct differences between accelerators and incubators and it has everything to do with when in the startup’s growth cycle they are looking for funding. Founders should be aware of this before they start their funding road trip because it could save him/her a lot of time and expense. Both tech incubators and tech accelerators offer great opportunities to assist startups and founding teams to head in the right direction, but it’s up to you to identify where you need to start.
What Makes Tech Incubators and Tech Accelerators the Same
- Both can offer founders help with structuring their company
- Both can assist in talent acquisition
- Both can help founders find and negotiate with vendors/partners/distributors
- Both can provide small seed capital in exchange for a small amount of equity
- Both can better your chances of attracting top Venture Capital (VC) firms for later investments
- Both have mentor networks typically composed of startup executives, industry experts in their vertical, VCs, and other potential investors.
What is Different About a Tech Incubator
- Tech incubators are all about innovation.
- Tech incubators take disruptive ideas and work closely with the founding team or company (sometimes even a single entrepreneur) to create their Minimally Viable Product (MVP) or service.
- Tech incubators assist founders in creating a sustainable business model, revenue options, and help commercialize their idea.
- Tech incubators come in all different sizes and are funded by several different types of organizations, from government agencies, VCs, angel investors or major corporations. The amount of money can be very limited.
- Some tech incubators focus only on certain industry verticals such as fintech/finserv/cryptocurrency, education, health technology, or robotics.
- Once accepted into the program, you may have to move your team in order to be close to other companies focused on the same industry vertical. Within this startup ecosystem, you can network with other entrepreneurs, build out your business plan and revenue model, identify any intellectual property issues, as well as work on market-product/service fit.
What is Different about a Tech Accelerator
- Tech accelerators are all about scale.
- Tech accelerators usually select early stage companies already in business.
- Tech accelerators attempt to hack the growth of an existing company that already has their MVP, perhaps a few clients, and need guidance on increasing marketshare, monetizing their product or service, advising the team on how to prepare for their next round of funding, etc.
- Tech accelerators have a set time frame for an individual company to work with a group of mentors to build out their company and avoid problems mentors have already solved.
- Accelerators typically end their program with a pitch day, where external VCs, investors and media are invited and the Q&A can be brutal. Understand your business, the marketplace, your revenue model, and the rest of the numbers and be ready to defend them. After this you are on your own. You and your founding team should be developed, vetted and ready to lead.
When Planning Your Fundraising Program
- Decide whether a tech incubator or tech accelerator is right for you based on what stage your company is in.
- Find the tech incubator or accelerator that specializes in your industry vertical, if there is one (or two or three). Make these part of your fundraising program.
- Search through their mentors and see which incubator/accelerator has mentors in your industry. Make these firms a priority.
- Most tech incubators have an application process. Read through each application to understand what eligibility requirements you need to meet and the information required to apply. Follow the deadlines and ensure your application is written flawlessly and thoughtfully.
- If you have an MVP and a few clients you may want to skip the incubator and go straight to an accelerator. Tech incubators focus on getting a couple of year’s experience into the founding team through an intensive development and mentoring program. Some tech incubators have an application process, but most rely on their network of mentors and partners in order to get nominated to apply to the incubator. You’ll probably need to pitch your idea, so be prepared. For more information on pitching, read here.
- Most tech accelerators rely on their networks while some still like to conduct pitch days to identify new companies to add to their organization. Put these events in your calendar and don’t miss the opportunity to pitch. Practice will help you perfect your presentation.
The Co-Working Option
While some tech incubators feature a shared space in a co-working environment, a month-to-month lease program, additional mentoring, and some connection to the local community, independent co-working options are readily available in most major cities. Co-working is a separate business offering, with co-working spaces charging rent for access to utilities, conference rooms, reception services, etc.
For those companies that haven’t been able to get funding through a tech incubator or tech accelerator, this option gives you access to other companies in varying stages of growth and networking with other firms and founding teams sharing the same space. This access can be worth much more than the money provided by the incubator or accelerator. Getting your company to the accelerator-ready stage can help you avoid giving away equity you may not need to provide in exchange for cash.
Bootstrapping – the Final, Most Frightening Frontier
Many companies simply start with a little bit of money borrowed from friends and family and go it alone. This is by far, the riskiest but most advantageous option of all as it enables you to create your vision your way. If you have already worked in a series of startups, or are a serial entrepreneur with a number of companies already exited, you may not need to go for any funding. For more information on the pros and cons for bootstrapping, read here.
Whichever way you go, if you have an idea that you want to move forward with, there are multiple ways to see that dream come true. It just takes work. A lot of it. But it’s all worth it.