Once you have your basic business education, what comes next? We talked about business assistance programs in Part II. While these programs offer the basics of starting and operating a business, they don?t necessarily provide a connection to market makers and equity investors.
In some circles, incubators and accelerators are the Holy Grail of business creation and funding, but beware because this is an area rife with errors and confusion. The terms incubator and accelerator are often used interchangeably, even within the industry. In Inc. Magazine, TechStars is noted as a top start-up incubator in one article, then described elsewhere in the magazine as a classic accelerator (by Paul Bricault, co-founder of accelerator Amplify, who should know!)
In fact, there are critical distinctions between incubators and accelerators that the savvy entrepreneur needs to understand.
And while business assistance programs accept all comers, the same cannot be said for incubators and accelerators. From hundreds of applications, they choose the business ideas most likely in their view to have a chance at success. The applicants tend to at least have a business plan already prepared, usually in a high-growth industry.
Among incubators, the common denominator I’ve observed is the growing of an idea, over the course of a couple of years, usually within the space of a larger and more developed organization which provides access to supporting administration services as well as mentorship. Incubators serve a diverse range of industries, although science and technology make up the lion’s share of most incubator’s focus. Within incubators the time horizon is not fixed, but rather the “graduation” is pegged to development milestones. Incubators provide many business services for which they may charge a fee. They may also lease space at a reduced rate.
In contrast, accelerators work intensively to bring a company from idea through to proto-type or market-ready product or service.
They assist early-stage companies, but those companies are started separately and remain independent. They supply mentorship, connections, assistance with marketing and other business services.
Accelerators are also distinguished by their format: an accelerator accepts a class of entrepreneurs to work intensively for a relatively short window. But most importantly, the accelerator’s assistance culminates in a presentation of a company’s product or service to a highly interested audience of investors, which can include venture capitalists. This is called a demo or pitch day. Accelerators like to boast of the number of their companies funded, and total dollars invested. Accelerators may provide seed capital or a stipend, and in return, they extract a single-digit equity position.
Patricia Calfee, serial Internet entrepreneur and current co-founder of MySaleTable.com, summed up the differences between incubators and accelerators like this: “…incubated companies are started within an already established company or venture fund; e.g., Zulily was incubated in Maveron; Accelerators help early-stage companies, but the companies are started separately and remain independent from the firm (e.g., Y Combinator).”
For women entrepreneurs, there are some unique programs that don’t fit squarely into the incubator OR accelerator category, yet provide elements of both.
Take for instance Astia, a non-profit that focuses on women-led businesses in high growth industries. Astia leverages its 3.000 plus member network of serial entrepreneurs, investors, industry leaders and leading service providers to assist companies at all stages of growth. Companies can apply to have their investor proposition screened. Only companies who are invested in, will be assisted throughout the entire lifecycle, from ideation to IPO and be eligible for their entrepreneur programme. Applications are competitive and the results impressive. Astia network companies have raised just over $1B.
Other organizations, like SpringBoard Enterprises, provide a variety of accelerator-type programs in addition to a more general platform for female equity seekers. Also a non-profit, Springboard is composed of “Been There, Run That” female leaders across diverse industries. Their signature program is a six-month accelerator that culminates in a pitch day to private equity investors. Although, SpringBoard Enterprises assists a range of high-growth, women-led companies, it has found a niche in the life sciences and digital media.
Another popular training program at SpringBoard, called the Dolphin Tank, provides a supportive environment to craft and practice company pitches. Unlike the cable network show Shark Tank, the Dolphin Tank provides feedback in a “swim alongside you” versus rip-you-to-shreds approach. Since its inception, Springboard Enterprises companies have raised $5.5B in equity. Out of the 481 participating companies, 80% have been funded, with 10 IPO’s.
It’s important to recognize that, despite these statistics,?simply getting into an incubator or accelerator program doesn?t guarantee your business funding or success. Nevertheless, working with one of the top-notch accelerators like TechStars or LaunchPad can give your business a powerful advantage.
Some accelerators have been so successful, that there is even talk of a process for mass producing start-ups, compliments of the legendary Paul Graham, founder of Y Combinator.
The final note of caution would be to look at the equity stake that many accelerators demand. I saw a range of seed-capital-in-exchange-for equity-ratios, but virtually all of them offered an anemic sub-half a million valuation, or agreed-to dollar value/worth of a company. The accelerators tend to have the upper hand in pegging the valuation, since there are so many companies eager to be part of their programs. This is great news for the accelerators themselves; it’s only good news for you if they deliver the contacts and grooming that lead to the funding and ultimate success of your business. Bottom line: do not make the mistake of handing over a 6% stake in your equity to an accelerator without headliner mentors and VCs on tap, as well as a solid track record of funding success.
One entrepreneur confessed to me that she had been advised not to divulge that she had been through an accelerator program. It seems the terms of some accelerators can scare off investors.
Below is an abbreviated chart to help you discern the differences between programs and decide which, if any, makes sense for your business.
Looking for funding? Check out my first two article in a 12-part funding series on TheNextWomen. Funding 101, Part I: Bootstrapping and Funding 101, Part 2: Business Training Programs for Women.
Elizabeth Crowell is the co-owner of Sterling Place, a multichannel retail company that sells eclectic antiques, fine home decor and specialty gifts. Profitable from year two, the business has steadily grown, with two store locations in Brooklyn, as well as a website. Sterling Place has been profiled by the NY Times and Elizabeth has been a repeat guest expert on Martha Stewart Living Radio. In 2011, Elizabeth was selected as one of 10 in the inaugural class of Pipeline Fellows, a program designed to train women to angel invest in women-led triple bottom line ventures, ie. profitable, environmentally responsible and delivering social impact. She is in the process of building out her own angel portfolio.