If you’re a pre-entrepreneur or a young startup, you may have heard of business incubators and startup accelerators.
For the most part, these two types of organisation tend to work with individuals and businesses for broadly the same outcome – namely, to aid growth and stave off the potential pitfalls of fledgling businesses by providing specialist expertise and support.
Because of this, people often get the two confused, or they assume that they achieve their objectives in much the same way.
To be fair, that’s somewhat understandable.
Between the business support and opportunities for training and mentoring provided, individual incubators and accelerators differ as much from their counterparts as they do from each other... while startup accelerators could be seen to be a reboot of business incubators that have been around for some time now.
However, when it comes to how these 2 types of organisations are run, we’ll see that the differences are more than skin deep... particularly when it comes to the most important issues a new business owner wants to know: what incubators or accelerators may ask for in return for their help, and to what kind of businesses they tend to offer their help.
What is a business incubator?
As a rule of thumb, a business incubator will usually be based - or have a presence - in their own premises.
So they’re able to offer a space to the businesses they work with, to get them set up and give them space to grow as needed.
Usually, the occupiers of these incubators will pay to rent their space. In return, they’ll benefit from maintaining a close link with the incubator organisation, and they'll be better placed to receive any additional support as well as being a part of a community, if they are among peers.
The rent paid by occupants is usually a business incubator’s primary source of revenue. The length of their stay is quite open-ended, and as such, incubators are a more suitable choice for younger businesses that may be some way from scaling and reaching their full potential.
Beyond the offer of a physical space for young businesses, other services provided vary between incubators. According to research conducted by Nesta in 2017, just over half of the incubators they surveyed offered mentoring and networking opportunities or access to investors. While others, while not as many, provided support through training, funding or legal and accountancy support.
What is a business accelerator?
Business accelerators (also known as startup accelerators) tend to be much more selective than your more traditional business incubators.
The same research by Nesta cites the average length of collaboration between accelerators and their client businesses as being between just 3 to 12 months in total.
In that time, an accelerator programme will pour their resources and expertise into a business, usually in the form of mentoring and/or by providing funding.
And it's because of this that they’re selective about who they work with. In return, they’ll likely be rewarded with a share of equity in the business they're accelerating – hence they are focused on delivering rapid growth or, in the longer term, supporting more innovative businesses. For example, those businesses that may disrupt traditional industries or bring about social change.
As business accelerators have grown in popularity in recent years, so to have they begun to venture beyond their original stronghold of London. Nowadays, they're spread a little more evenly around the country, providing opportunities to startups with a presence in those areas.
There are also a number of pre-accelerator programmes that aim to provide a boost to companies in their early stages, who may not be quite ready for a full accelerator programme. Pre-accelerators tend to be on the faster end of the scale mentioned above and, in some cases, only last a matter of weeks.
Perhaps unsurprisingly, given the concentration of startup accelerators within the capital, they're often found to be working with businesses within the tech industry. In particular, those operating within financial (FinTech) or medical (MedTech) industries, where London has long been a centre for individuals and organisations who work in these worlds.
So, what's the main difference between accelerators and incubators?
If you’re someone with a bright idea for a new business, or you’re a small business looking to grow, perhaps the most important difference to your mind will be what a startup accelerator or incubator will offer your business and what you'll need to offer in return.
How these 2 business models operate is arguably the main difference between them.
Because business incubators charge rent or membership fees, they're less selective about the businesses they work with. And, because the rent or fees paid usually guarantee a space for businesses to work in, they're typically occupied by businesses drawn from the region the incubator is in.
This is in contrast to business accelerators (or startup accelerators)... individuals or small businesses will usually have to apply to join an accelerator. After an initial application fee (if applicable) successful applicants will then receive funding from the accelerator in return for a small share of the equity of their business.
Because of this, the number of businesses that can join any one accelerator is limited and competition is fierce. And, beyond the potential for direct funding, accelerators are also much more likely to offer mentoring and training in the skills entrepreneurs need.
If you’re looking to learn more about growing your small business, whether before, during or after joining a business incubaror or accelerator, there's lots of information on Farillio – from our guides to setting up a limited company and writing your business plan to your funding and finance options and how to make your business attractive to investors, we can help get your business ship shape.