Incubators and Accelerators
Maybe running your business from your mother's basement or your uncle’s garage was a good idea when the entire staff was you and a partner. But now you're growing fast, and you need dedicated desks for the tech staff and their multiple computer screens and a conference room where the marketing team can meet with potential clients. Before you lease your own space, consider checking out an incubator.
An incubator is a company that helps new startups develop by providing services such as management training or office space. This offsets the cost of hiring fulltime staffers or paying an arm and a leg for rent in major cities like Los Angeles and New York City.
Incubators differ greatly based on the industry they serve. Some are dedicated to tech innovations, some are focused on cutting-edge design, and others are open to environmentally friendly projects. It's worth doing your research to find one that's right for your business.
The first business incubator, Batavia Industrial Center in New York, launched in 1959. But it wasn’t until the 1980s that the concept gained traction. In 1999, popular incubators in the tech scene included HotBank, TechSpace, and 100x. These organizations offered office space in exchange of equity in the companies they were hosting. Overtime, the business model changed, and incubators started charging a monthly fee.
Incubators help speed up the growth of startup and early-stage companies. Today there are more than 1,400 members of the National Business Incubation Association, and many more based around the world. Some incubators have their own buildings, while others operate virtually. Most have service like coaching in specific areas like branding or finance and have access to lawyers, accountants, and other professionals. Many of them have capital to invest or links to potential funding sources.
Incubators differ from research and technology parks, which tend to host large-scale projects like corporate, government, or university labs. Most research and technology parks don’t offer business assistance services, which is what incubators are known for.
Incubators are also different from the Small Business Development Centers operated by the U.S. Small Business Administration. By law, SBDCs are required to offer general business assistance to any company that contacts them. SBDCs work with small businesses at a variety of stages, not just startups. Incubators often partner with local SBDCs as a “one-stop shop” to support startups.
Some incubators have an application process, while others work with companies referred to them through trusted partners. Incubators generally offer office space with a month-to-month lease program, access to meeting rooms and business services, and connections with the local startup community.
You may have heard the words “accelerator” and “incubator” used interchangeably. There are similar components, but both play a different role in the life stage of a startup. If an incubator is the seed and soil that grows your business, an accelerator is like the greenhouse that provides the optimal environment for the plants to grow.
A startup accelerator is a short-term program that focuses on ironing out all a startup's internal problems on the operational or organizational level. They do this through mentorships with industry leaders and educational opportunities from experts in the field. Accelerators are a recent phenomenon compared to incubators, and have only emerged within the last decade or so.
The concept was launched in 2005 when Paul Graham founded Y Combinator, a high-speed program that moved past the incubator model. Companies in accelerator programs generally receive seed money and access to a large network of mentors in exchange for a small amount of equity.
Some of the oldest and largest accelerators in the U.S. include Y Combinator, TechStars, and 500startups. DreamIT Ventures, Startupbootcamp, and Seedcamp have also had plenty of participants.
Accelerators are not just for companies that haven’t managed to raise significant financing. Plenty of late-stage companies that have already generated seed funding have benefitted from accelerators, according to Alex Iskold, a managing director at Techstars.
Accelerators have an application process, and the top programs are very selective. For instance, Y Combinator accepts about 2% of applicants. Meanwhile, Techstars fills 10 slots from about 1,000 applications.