Difference between Accelerators, Incubators, and Startup Studios
Early-stage startups often require professional guidance, office space, equipment, capital, and so on to kickstart the business. Luckily, there are various mentorship, executive programs in the startup ecosystem to assist in the process. These institutions and programs assist startups in becoming successful companies down the road. They also offer access to a productive, shared environment, and all the resources and tools that you can use to get your business thriving. But these benefits do not exist under the same umbrella. We have often seen people get confused when talking about accelerators, incubators, and startup studios. What services do they provide? Who to approach and at what startup stage? How to choose the most relevant option for me? And are these worth joining? Hope this blog helps you to answer these questions clearly.
Let’s understand what Accelerators, Incubators, and Studios mean in the Startup world
The incubator is usually the first place where startups go while launching their business. They help startups structure their ideas properly with the right tools and steps. They also coach with the financial planning and legal areas. These are most commonly free institutions set up by universities and governments. For example, T-Hub by the Telangana government.
Accelerators also act as a coach, but not for the ideation stage startups, rather they help startups who have started generating some traction and are looking to grow and scale further and get proper funding. Usually, accelerators organize demo events at the end of the program where they invite investors and startups to pitch in their ideas and oftentimes they get funded from here. They work for a shorter period as compared to the incubators.
Startup Studios are private companies that help in the creation of startups. Everything from the creation of an idea to transforming it into a viable business opportunity and hiring the right people to run the business is done within these studios. They have a large network and act as executors rather than coaches or advisors.
The process usually goes like this: a viable startup is formed mainly by the internal studio team - takeover by a new founding team - independent execution by the new team with little to no involvement of the Studio team - once it is well-established and positioned in the market, the startup is sold and key equity stakeholders are repaid.
By being under the guidance of such institutions, not only can common mistakes be avoided with valuable mentorship and capital assistance but it also lets you engage with a large number of useful connections which can be helpful in your long-term journey.
Incubators: Their main goal is to help your startup progress from the idea to the MVP stage and eventually attain a product-market fit with relevant knowledge and skills. They will also help you build a viable business model and get your 1st set of customers.
Accelerators: The main goal of accelerator programs is to help your startup grow, scale and establish value for the coming rounds of funding. They are also teamed with investors and VCs and they aim to align such investors with startup founders with similar interests and facilitate the funding process.
Startup Studios: Startup Studios' main goal is to build a company from scratch or very little pre-input. With the internal studio team as key players, new ideas are created, validated, and launched. Under this setup, the startup founders, investors, and studios have the same goal, the Exit. Most of these studios liquidate their investment through an exit.
Globally, Startup Studios are regarded as third co-founders of ventures due to their increased involvement in the execution of the product and ideas.
Both the stage during which these institutions come into help and the time frame of their program differs in all the 3 cases.
Incubators: Incubators come in assistance for the very early stage, and sometimes seed level startups, who are just building their first prototype. Their operating time usually varies from 6 months to 2 years including future iterations and in some cases even pivots. They work on a medium-term time frame.
Read more on how incubators can help your startup here.
Accelerators: They usually assist startups who are pretty much ready with their first set of revenue and customers and need to grow. The time frame is usually 3 to 4 months. They work in a short-time time frame.
Startup Studios: They work on a long-term frame and do not have a fixed curriculum. The time largely depends on the startup's potential to grow.
Incubators: Simply put, incubators take in very early-stage startups and germinate them, just the way a bird keeps its eggs warm to bring them to hatching. With a somewhat hands-off approach, (that is with limited personal involvement or investment) they guide such startups with the right mentorship, tools, knowledge, sometimes even a working space to help startups draw their first blueprint, and eventually a well-grounded business model.
Accelerators: As stated above, accelerators take in more mature startups that already have defined business models and their first few customers. They help startups with scaling, globalization, and even internal issues such as getting the Human Resources aspect sorted following a hands-off approach. Their services mainly focus on consulting and assistance.
Startup Studios: These studios have a hands-on approach with direct involvement in services, funding, and other resources. However, different studios have different avenues to start with; some start by generating their own ideas while others use external entrepreneurs' ideas and invest in external startups. A common approach is where they begin by identifying common problems and generating ideal solutions for them. After testing the market need and viability of the solution, they hire an external individual to become the startup CEO. With a significant percentage share of the startups’ equity, such CEOs continue to make the business grow as their own.
Cost and Financing/Equity
Incubators: Most incubators do not charge anything for such assistance
They provide little to no capital funding and this is why they take little to no percentage share in the company's equity. They usually receive funding from Universities and governmental grants. Some of the private institutions or ones run by VC firms do charge a little, 2% to 10% of the stocks.
Accelerators: Most accelerators do charge some equity taking around 7% to 10% of the equity depending on the program.
Startup studios: Studios own a part of the companies that are created or fashioned by them. They take around 30% to 60% equity in each venture they incubate. In many cases, founders working under these Startup Studios are paid and financed. The capital invested by them is spent on the following:
Read more at 10 FAQs About Startup Studios.
Incubators: Not many criteria or guidelines, they are even open to letting solo founders into the programs without an A team yet. If you have a good idea and passion, you might get in but the competition makes it slightly harder.
Accelerators: Startups do not necessarily have to be at a full product-market fit stage yet. But it is not very easy to get into these programs because of increasing competition these days. You might have to apply several times and keep improving your product idea gradually.
Startup Studios: These are the hardest to get in from the stated list. It depends on the skillset and interests of the internal Studio team and not primarily your idea or efficiency.
Platforms like https://www.f6s.com/ and https://angel.co/ can be of great help to connect with such institutions/communities.
What benefits to expect?
Incubators: Nascent startups can benefit from their support services and facilities like office space and equipment, corporate legal structure, digital exposure, and support network, which can, in turn, open opportunities for future business collaborations. Along with this, you get mentorship from incubator alumni and other expertise and funding.
Accelerators: You can expect skill development in finance management, sales, marketing, communications, business development, and even technical skills, in a structured program format. You will also receive direction and support from mentors as well as other founders in a collaborative environment and continued support from their end. You should not expect direct funding here but a good deal of long-term connections with investors and also potential customers.
Startup Studios: Startups collaborating with such studios can benefit profoundly from pre and post-operational support while entrepreneurs can work on more important things as per their expertise. You will receive easy access to funding, shared workspaces, and tremendous pooled resources to launch that accelerators and incubators usually do not provide and expedite business ensuring long-term success.
How to choose?
Most accelerators and incubators operate within a niche; you need to search for the one that aligns closely with your startup idea.
It is clear from the above discussion that if you have a promising idea of your own and are looking to attain product-market fit or grow your business further and get funded, then incubators or accelerators are the way to go. On the other hand, if you want to be a part of an already validated Idea business when you can be a part of startup studios. Studios essentially act as an investing cofounder of your startup.
Going in deeper, for the first-time founders, who have identified a problem or even a potential solution to it but are not sure how to structure it into a business and accelerate its growth, incubators are a good option. In addition, you will get the required market exposure, mentor networks and partnerships, low-cost workspace and equipment, and so on.
If you are already pretty much set up with a working MVP and have started generating some revenue and customer base but are facing difficulty in growing further or getting proper funding and are looking to build connections with VCs and like-minded people then accelerator programs might be right for you.
Know more reasons to join an accelerator program.
Lastly, reconsider! Sometimes, founders regret going into an accelerator program, at later stages of their business.
As we know, a high equity percentage is charged in return for their mentorship and guidance. Let's say a startup under such a program takes off really well and you get a valuation of around 20 to 30 million dollars, at that point, one often regrets the decision. If you think that things are going pretty well for you, have a good understanding, and can raise funding properly then you should not go for such programs, rather discuss with experts regarding any facing issues that you might be facing in a particular aspect, be it funding-related, HR-related, or partnerships-related.
Looking for financial advisory for your startup?