The Difference Between Incubators and Accelerators

Posted: April 18, 2014 by the Startup San Diego team

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The Difference Between Incubators and Accelerators

Starting a business is hard. Very hard.

Deciding to utilize an accelerator or incubator program can be a make-or-break moment in that process. At least 16 local incubators and accelerators took part in an event hosted by San Diego Venture Group last month. AngelList, Silicon Valley’s website for startups and investors, lists over 60 incubators and accelerators. The choices can be overwhelming.

Incubators provide guidance and advice to help startups grow and succeed in an unstructured program, with no specific goal or timeframe.

Accelerators provides structured curriculum in a short period to help rapidly grow the size and value of a company to get ready for a specific goal, typically to raise financing.

Both can help young companies figure out how to get through some of the early difficulties of starting a business. Both help create successful companies on a scale that has never been done before.

But one important question can help guide entrepreneurs who aren’t sure which path is right: What is the goal of the program? Once you’ve established that, compare it to your own company’s goals and see whether they align.

Either type of program can include some big benefits to a startup, including:

• Free office space

• Formal curriculum

• Mentor program

• Financing

• Links to strategic partners

• Marketing assistance

• Advisory boards

• Management team identification

• Access to angel investors and venture capital

• Help with presentation skills

• Networking events

Key Differences

The key difference between and incubator and an accelerator is what happens at the end of the process and what you and your company walk away with.

Typically incubators have a process of getting into the program, but that process is often unclear. Incubators help you build a company. Incubators take little or no equity in your company. Incubators are great if your goal is the get some help and retain control of your business or get prepared to go into a more competitive accelerator program. Incubators provide these services to a group of companies with no specific goals for every startup.

Accelerators prepare you for a major milestone – usually the ability to fundraise and attract a large investment round. Accelerators take anywhere from 3 percent to 8 percent or more of your company equity. The goal is to scale you fast and rapidly increase the value of your company. Scale is a characteristic of a business that describes its capability to grow as clients and customers grow while increasing its level of performance or efficiency.

There are many arguments for and against giving up equity but most of them can be boiled down to one question, Neil Senturia said at a San Diego Venture Group event for incubators and accelerators last month: “Do you want to be king or rich?” – basically, do you care more about control, or about growing the business quickly to increase its value? This is a question that all entrepreneurs need to ask themselves early in the process.

Accelerators typically have a more rigid process that governs how a company gets accepted into the program. Once accepted, a company goes through a very specific program to gain market traction and start an investor funding campaign.

Here are two examples of local accelerators:

Founder Institute: An after-hours, before-you-quit-your-day-job program that provides a structured curriculum. It’s a step-by-step process with experts to get you started. Founder Institute offers no investment in the startups that go through the program.

(Full disclosure: I went through this program, and thought it was amazing.)

Plug and Play San Diego: One of the most successful accelerator programs in the Bay Area now has a branch in San Diego. It offers local entrepreneurs an opportunity to pitch their startups, get an investment on the spot and enter the program. After the startup is in the accelerator program, startup founders are introduced to a wide range of strategic partners in a hands-on, structured program.

And here are two local incubators:

EvoNexus: This one’s centered on web or mobile technology. EvoNexus provides free office space and other benefits in an unstructured, a la carte way – startups can use various services if they want to. All EvoNexus incubator services are free to startups in the program.

CyberHive’s iHive: iHive is all about The Internet of Things (the connected technologies around home, wearables and auto in a structure connected to the internet). iHive provides a combination of co-working space and incubation services.  Visit iHive’s startup, music and art event SAM Fest to learn more.

Better Together

Yes, it’s important to seek out an incubator or accelerator that syncs up with your company’s goals. But there’s a wrench: Many startups go through more than one of these programs.

Why would they do this? Because most programs are not designed to create absolute success. Startups need to take advantage of every opportunity they can.

Startups must also remember that many of these programs have sponsors and are structured in a way that might not be entirely focused on the success of the startups in the program. As the founder it’s up to you to make the right decisions to guide your company. No one knows your business like you.

A more complete list of various programs can be found here.

I want to hear your stories of success and growth, frustration and failure with incubators and accelerators.

Blair Giesen is a VOSD contributor, serial entrepreneur and founder. Join the conversation by following him on Twitter @BlairsReport, or emailing him at [email protected].

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