Small Business Incubator vs. Accelerator- What's the Difference?

Small Business Incubator July 26, 2020

Jin Hyun

Writer

Small business incubators and accelerators are common startup business terms. Both incubators and accelerators offer businesses professional guidance, tools, facilities, and support in the developmental phase to get their feet off the ground.

A startup can seek out accelerators to take on an intensive program to open and expand their business quickly or seek incubators to receive steady support along their journey at their own pace.

Pros vs. Cons of Incubators and Accelerators

There are many benefits for utilizing accelerators and incubators, though of course, as with any venture within the world of business, there are also some disadvantages to consider.

The main difference between the two is the pace at which support is being given. Intensive, short-term acceleration, or long-term, slower-paced incubation - as the names suggest.

Business Accelerators

Business accelerators are intensive programs that equip startups with resources to enter the market successfully. The goal of these programs is to do years worth of business building within a much shorter time frame. Accelerator programs can also be used to advance growth in existing companies, often leading them to investor and influencer support as they evolve.

Pros-

Offer opportunities for direct investment in exchange for equity in the company
Additional outside investors are easily accessible within accelerators
Access to a large mentorship network of venture capitalists, industry experts, and start-up executives to help grow your business
Businesses accelerate and evolve in a short, set timeframe, e.g. 3-4 months

Cons-

The set time frame is intense and requires a lot of commitment from founders
Top programs can be very selective, thus hard to enter
If a startup is still fleshing out ideas for employees and founding partners, it's not the right time for an accelerator
Requires business owners to be at the specific location for the whole period - often resulting in full relocation for all members of the startup

Business Incubators

In contrast, small business incubators are more long-term business development centers. They're often run by government groups, economic development agencies, or nonprofit organizations, to provide facilities and tools to nurture companies in their early stages for the first few years of operation.

Pros-

Incubators are great for beginning stages when businesses need help with ideas, partnerships, and business plan creation
With an open-end timeline, focused on the longevity of the startup, there's more space for the creative process
Often very focused on specific markets
Great for networking with other companies, assisting with defining product ideas, marketing strategies, set-up concepts, and business plans

Cons-

Startups generally have to relocate to the incubator area to work within the shared coworking space and receive the mentoring support
Larger teams that prefer private office space may find it difficult in the set up of coworking shared spaces
If business funding is needed immediately, accelerators often give funding faster than incubators
Not focused on instantly entering the market, so committing to an incubator could last up to a few years

How Small Business Incubators Support Business Funding

Though incubators don't always offer financial support as part of their programs in the way accelerators do, there are alternative ways incubators can assist startups in securing capital.

1. Investment
The direct investment model is where incubators trade having an equity stake in your company for the use of their program's mentoring services and office space. In some cases, incubators may also offer grant programs to companies as well. Direct investments are more common in accelerators, but can also be part of incubator programs.

2. Solicitation
Being introduced to investors within an incubator gives companies the opportunity to meet the trip venture capitalists, angel groups, and banking organizations that can provide investment. This is known as a direct solicitation and is often more common than direct investment.

3. Coaching
Industry experts, mentors, coaches, and executives will assist start-ups in the development of a business plan, which details how the model is fundable. This saves extra capital spent on costly consultants charging up to $20,000 or more for putting together a business funding plan. Incubators can indirectly offer this valuable advice.

How to Find the Right Incubator

Startups should consider the following steps when selecting the right incubator program in order to get the most out of their energy, time, and financial investment.

1. Explore the Mentorship
The depth and offering of mentorship programs within small business incubators can have a big effect on the success of the startup. Take into account the number of mentors and who they are, as well as their experience.

Do your own market research for different incubator models and their key mentors and look at their success stories and professional accolades to be sure they are best suited to support your growth.

2. Determine if it's the Right Time
If a company applies too early for an incubator program, it may be denied entry as it is not yet in the stage of concept planning. Generally, it's best to wait until there's a network established, a team in place, and some clear goals set with a strong vision to articulate to mentors.

3. Create a Company Story
To get accepted into a program, businesses need to have a clear, detailed narrative of the vision. Consider the overall goal and what problem in the market is being addressed by this startup idea. Reflect also on the history of the startup from idea conception to the current context and where this is leading the company in the future.

4. Get Clear on Equity
Entering an incubation facility could mean parting with equity to receive funding. The percentage will be different for each program - a common amount is 5%. Get clear on the financial standing of your startup so you know how much equity can be offered if any.

5. Seek Referrals
Getting approved by business incubator programs can be tricky, so knowing the right people will put you at an advantage. Seek out companies and mentors that are participating in the program and develop relationships with them in order to receive a referral to enter the program. Network before you apply to leverage the value of who you know.