Incubators and Accelerators: Hotbeds of Innovation
September 24, 2013
As any entrepreneur knows, building a startup from scratch is a complex and daunting undertaking. Even the smartest, best-prepared business owners can benefit from operational resources and a collaborative atmosphere with like-minded people. Perhaps even more important is developing a network of contacts and identifying viable ways to fund expansion.Venture capital professionals are acutely aware of these entrepreneurial needs and have responded by initiating so-called incubators and accelerators across the country. Companies must apply in order to gain access to an incubator or accelerator, and competition for the limited supply of openings has been continuing to increase. The phenomenon is beginning to catch on overseas as well. Here is a brief overview of the two specialized hubs for business development:
Incubators: Incubators are concerned with fostering growth during the earliest stages of business development. Many incubators were created by and have sponsorship from major universities and business schools, affording students the opportunity to explore their entrepreneurial aspirations. The goal of businesses in an incubator is not necessarily to achieve rampant growth and revenue expansion, but rather to develop a comprehensive business model with a long-term path to profitability. Many companies will spend upwards of three years with an incubator. Some of the common ways incubators support nascent companies include providing access to capital, educational resources, industry experts and extensive networks; assisting with marketing, accounting and technology; and supplying high-speed internet and office space.
Accelerators: While functioning in a similar fashion as incubators, accelerators focus their attention on companies that are ready to make systemic changes to position themselves for exponential growth. The parties that sponsor and operate the accelerator typically take a small equity stake (about 6%) in return for their services. While incubator programs can last for years, businesses typically spend just a few months in an accelerator. During this time, companies prepare to introduce their products or prototypes on the market and take the necessary steps to address issues pertaining to strategy, operations and management.
Following their time in an incubator or accelerator, companies are often given the opportunity to present their business plan in front of potential investors, usually the most prominent names in venture capital.