I’m confused! How is an accelerator different from an incubator? | VentureSpur Accelerator
We often receive questions from entrepreneurs about our program. We attempt to answer these questions in our Program FAQ.
This particular question is one we receive frequently and merits its own blog post:
How is the LaunchOklahoma accelerator different from an incubator that I recently heard about or the university accelerator that I’m considering?
There are a wide variety of resources available in the marketplace to help startup companies. We strongly encourage entrepreneurs to look around, learn about these resources, educate themselves about the differences and decide what combination might be best for their startup.
At LaunchOklahoma, we believe that almost all of the resources available have their place and their use for different types of startups and different stages of the startup lifecycle.
For example, it’s not unusual for a startup to begin in a university accelerator, rent some space in a state-sponsored or certified incubator, take some entrepreneurship classes, apply to an accelerator, win a place in the accelerator and a seed investment, go back to the incubator office afterwards, raise some venture capital investment to follow on the accelerator seed investment, and then go into growth mode in a larger office with an advisory board or board of directors. Or any other sequence using those same resources. That’s why they exist and you should take advantage of any of them!
Generally, “incubators” are sponsored and subsidized by some kind of economic development agency. Sometimes that is a state, county, or university system, or through simple tax subsidies to a non-profit or for-profit incubator corporation.
Generally, incubators are required by their funding entity to provide some amount of educational and mentoring resources to their tenants and will usually be charging rent. A few incubators are entirely subsidized by their sponsoring organization and can forgo requiring rent payments from the startups.
In addition, some incubators help to qualify their tenants for special tax benefits. You’ll have to check with each individual incubator on these special tax conditions.
In Oklahoma, here is complete info and a list of state-certified incubators maintained by the Oklahoma Department of Commerce. Here is the same thing in Texas [PDF] maintained by the Governor’s office.
In addition, there are a variety of academic and private startup resources in the marketplace that don’t exactly fit the definition of an incubator. These vary widely, but are usually either paid commercial services, like Tech Ranch in Austin, Accelerate Genius in Oklahoma City, or are subsidized by tuition and tax dollars for economic development and educational purposes, like the CCEW program at the University of Oklahoma. (These are great programs run by friends of ours! Check them all out!)
Typically, when you call something an “accelerator” or a “mentor-driven seed accelerator,” you’re talking about an organization that follows the model pioneered by TechStars andYCombinator. These accelerators, including LaunchOklahoma, invest in startups through a venture capital seed fund and then put the startup company through some kind of structured venture development program with a strong emphasis on networking and mentorship.
All of these typical-model accelerators exist to create a return on investment for their fund and to raise follow-on investment for fantastic, highly-competitive, fast-growth startups. These accelerators primarily exist as the forward, bleeding-edge branch of the venture capital markets. Unlike the incubators and other programs referenced above, accelerators must produce at least a few highly successful startups each year that promise excellent returns to their investors through acquisition events, IPOs, or dividend distributions.
As a result, accelerators have a strong incentive to invest their resources only into companies that have a good chance of growing quickly and being backed by venture capitalists with a major funding round. Accelerators survive by picking only the best, fastest-growing, most-likely-to-succeed companies and then pouring resources, introductions, beta testers, and the kitchen sink into those companies.
One question helps to distinguish between types of programs quickly:
Venture accelerators are typically investing money into startups while incubators and academic programs are generally either charging the startups rent or paying the bills with tuition and taxpayer dollars. Incubators and similar programs have a focus on economic development in support of a particular city, county, state or institution while accelerators are focused on return-on-investment for their investors. Its really that simple.
Finally, one important note: We would caution entrepreneurs to avoid any program or organization that claims to be “the only” organization of its kind, claims to have “exclusive access” to resources, or claims that it is “the only path to success” for your startup. No one organization has all the answers and any organization that makes these claims is misleading entrepreneurs for its own benefit. At LaunchOklahoma, we firmly believe that entrepreneurship is a team sport!
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