Incubators vs. Accelerators

I have been using the terms incubators and accelerators quite interchangeably until I figured there has to be a difference between those two terms (otherwise we would not have needed two different words for the same meaning is not it?). After a few investigations I found out there is actually differences between incubators and accelerators both in terms of experience and results (returns) but sometimes VC runs their own accelerator programm, or accelerators are also incubators…


Accelerators:

  • are NOT protected or nurturing.
  • bring together entrepreneurs and mentors/advisors
  • bring peer exposure, connections, mentorship and futur funding for the company
  • take a single-digit chunk of equity in externally developed ideas in return for small amounts of capital and mentorship
  • share the same construct: three to four month program followed by a demo day and the best companies will go on to raise follow-on funding
  • are a great way to find and test talent that might not be ready for a larger round (from an investor standpoint)
  • Return for the investor: Hard to measure as they are a newer phenomenon. Not big exit number but small investment. [2]

Incubators:

  • offer a protected, nurturing environment
  • execute on the entrepreneur’s idea or a home-grown idea.
  • offer common services from back office to marketing, UX, etc.
  • Entrepreneur can focus on core product and leverage outside resources.
  • take larger amount of equity than an accelerator (from 20% or more)
  • When the bubble burst, incubators were among the 1st casualties
  • Data is incomplete but incubators have largely not delivered results (with very few exceptions like Idealab) [2]

Sources:

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