While interacting with Chinese startups or overseas startups stepping into China, a regular question that pops up is if we are an accelerator or an incubator and how the two differ from each other.
While the lines are blurring between the two since both try to focus on supporting a startup in different ways, there are specific elements such as the startup’s product maturity stage, funding and timeline which differentiates the two.
The majority define an incubator as a shared operation space where ideation and conceptualization is nurtured. It provides assistance for early-stage startups to develop their ideas, understand their market, build a team, get early customers and feedback. The rental shared space and admin assistance is low cost and the timeline varies from few months to years. It is a place to mould your idea, to create your product or service for the market without much haste. An incubator often has academic affiliation, government funding and fosters slow growth.
While an accelerator usually takes a startup in a much mature stage and thus enable a push for further growth. These organizations offer support services like mentorship, funding opportunities, office space and supply chain resources. For funding, they usually require startup equity in exchange for investment and capital unlike incubators. Their programs are time sensitive, intensive and compact ranging up to few months.
Let’s start with understanding the various stages of a startup for you to figure out which of the two will suit you as per the services offered.
Startups go roughly through three stages:
Focusing on understanding customers’ needs. From Customer discovery, retention and creation to company building. It the initial stage where you are trying to gauge your market.
Defining a rough timeline on how to develop your product. From finding if your service or product is offering a solution, to checking if people are interested in your product or service, to polishing it as per your market fit and lastly driving growth.
In both these stages a startup can reap benefits in an incubator.
Seed Stage: Focus on product development which is at its testing and feedback phase. As a beginner, seeking funding through angel investors or family channels.
Early Stage: In this stage, depending on the maturity of seed stage investment, the investment is structured as convertible notes i.e a short-term debt which later converts into equity or equity in exchange of investor funds. In the startup investment lexicon this is termed as series seed, series A and sometime Series B funding round.
Late Stage: The company is beginning to stabilize with adequate market penetration and product visibility and profit, investors are looking for liquidity. This stage also has exit where the company may look at acquisition or an initial public offering.
Once the startup reaches the funding stage, it is advisable to settle for an accelerator.
During our research, we also found that a lot of coworking spaces which started as a real estate business are entering the innovation industry. Similar format businesses are also being defined as pre-accelerator, corporate accelerator, coworking accelerator like ours, innovation centers or hubs, all catering to bringing innovative business solutions to the market at different stages.
Lines will be blurred even more with all those entities. We bet that in the future, since everybody will be providing same solutions, the difference will be made through value added by people on those spaces, either managing teams or community. Because at the end of the road, doing business is a matter of people and connexions.
To over simplify:
You put a seed in the soil and nurture it. This is incubation.
You already have a flower or a little tree, and you try to make it stronger, bigger. This is acceleration.
As a way to rent empty spaces, the first incubator, Batavia Industrial Center, came into existence in a warehouse in Newyork in 1959.
By 2000, several organizations started evolving as a subgroup of incubators to cater to the needs of the beginning of the booming internet era of the 1990’s. Such as the Cambridge Innovation Center (CIC) which was founded in 1999 near Massachusetts Institute of Technology (MIT).
Whereas, Y Combinator which was founded in 2005 in California, started the accelerator phenomenon.