Roundtable Review

Incubator vs Accelerator – What’s the difference?
Posted 25 February '14
Y Combinator, a business accelerator in Silicon Valley

Y Combinator, a business accelerator in Silicon Valley

A great way for entrepreneurs to launch their technology companies is to join an incubator or a business accelerator and be immersed in a fertile environment for young companies. Companies that do so frequently gain access to an amplified network, quality mentors, and potentially even seed capital. There are, however, subtle differences between an incubator and an accelerator. Inc. Magazine appears to carelessly lump them together, but here’s how you distinguish them:

1) Working Space

Incubators typically provide a space for companies to set up a base in. It includes office space, sometimes with co-working facilities. For a life science company, it is also important that the incubator provides a wet lab space, which can allow the scientist to move benchwork away from the garage or the kitchen counter! Working alongside other startups provides an opportunity to interact with other entrepreneurs. After all, entrepreneurs function best when they are part of a support network. Accelerators do not usually provide a long-term space for companies to work from, but this can vary.

One notable example of an incubator in San Diego is Janssen Labs, an innovation centre which has done a phenomenal job in establishing itself as the leading incubator for life science companies in the region. Janssen Labs provides 30,000 square feet of modern research equipment, facilities, and office space for more than two dozen companies, creating a capital-efficient, resource-rich environment. Independent startups can focus on their research, paying only for the space they need, with an option to quickly expand when they have the need, and/or resources to do so. The key advantage is ease of operation and access to world-class facilities, without the need for huge capital investment.

2) Mentorship

The largest draw of a business accelerator is usually the mentorship that the accelerator program provides.

Ruprecht von Buttlar, VP of Business Creation and Development at CONNECT, describes CONNECT’s flagship Springboard program as such:

“Springboard assists innovators and entrepreneurs with creating scalable business models, compelling go-to-market strategies and financials, that are attractive to investors. The program is supported by CEO-level business advisors, who understand the challenges a new entrepreneur faces in moving a technology from proof of concept into the market place. Springboard has about 150 of these business advisors across life sciences, technology, clean-tech, sports innovation and consumer products. They are supported by domain experts in marketing, finance and technology development.”

While CONNECT’s Springboard is free for participating companies, not all accelerators provide a pro bono service. One very unique distinction about CONNECT’s model is that the business advisors as well as domain experts are all volunteers. Ruprecht von Buttlar elaborates:

“Our mentors benefit from giving back to the community. They get to assist in creating novel products and companies. They expand their network by being infused into many of the programs CONNECT offers. Ultimately, they stay and develop a new deal.”

Incubators, on the other hand, do not necessarily have to place an emphasis on mentorship, but frequently do also provide some level of support. Janssen Labs organizes a year-round commercialization-based curriculum to educate the entrepreneurs of its portfolio companies, but they are not one-on-one mentorship sessions. Melinda Richter, head of Janssen Labs, says:

“Through our programs we provide an ongoing series of educational curriculum designed to help innovators navigate building a company. Topics range from business fundamentals such as creating a cap table and negotiating a term sheet to more sophisticated topics such as creating a regulatory strategy or how to file an investigational new drug (IND) application. Where appropriate, we bring in experts from across the Johnson & Johnson family of companies to present on a given topic. Additionally, most entrepreneurs are fundraising, therefore bringing a wide variety of potential funders and partners to the table is important and a cornerstone of our program. Janssen Lab is a “no strings attached” model and by nature encourages this type of interaction. These events are not only open to companies residing at Janssen Labs, but are open to the regional community at large, which provides a great opportunity for networking and relationship building with others in the industry”

Ben Franklin Tech Ventures provides coaching similar to an accelerator, and could be considered more of a accelerator/incubator hybrid.

3) Funding

Here’s where it gets a little muddier. Accelerators such as Y Combinator in Silicon Valley can provide a small amount (typically five-figure) of seed funding in a large number of startups, and in return ask for a small percentage of equity (5 to 6%). On the other hand, CONNECT does not provide funding but leverages its immense network to link entrepreneurs with investors, via programs such as the Deal Network and Demo Day.

Ruprecht von Buttlar says

“The Springboard program is over 20 years old and has assisted more than 3000 companies. We track our alumni back to 2005 and find that over 65% are still operating; more than half were able to raise capital exceeding $1B from angels, VCs, strategic investors, and private equity as well as grants. Importantly to the San Diego economy, these companies created more than 1300 jobs in San Diego.”

Incubators, because they typically collect rent (albeit reduced rent) from their incubatees, do not provide direct capital funding. One advantage of an incubator such as Janssen Labs is that it is fully integrated with the Johnson & Johnson Regional Innovation Centers, creating avenues for partnerships when the opportunity arises.

Melinda Richter says

“Our collaborative model creates a robust ecosystem across the Johnson & Johnson family of Companies that includes a broad range of custom solutions including equity investments, lab space, education services, and resources, as well as a wide variety of dealmaking capabilities.”

Summary

The decision to choose an incubator or an accelerator depends greatly on what resources the entrepreneur already possesses, and what resources are required to get the startup to the next level. Companies that have already secured Series A venture capital may opt for an incubator because they already have the mentorship and capital, but a startup that is still refining its investor pitch may be much better off getting help from veterans via the accelerator program. Of course, there are many variants of incubators and accelerators, and occasionally there may even be hybrids of the two. Regardless, they are an incredible resource to the entrepreneur!

 

About Login
Oxbridge Roundtable Ltd © 2015. All Rights Reserved.