Quick reads

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The entrepreneurship road can be daunting, even for seasoned founders. Entrepreneurs face the uphill battle of demonstrating disruptive business value in marketplaces that serve host to established players and fragmented stakeholders. In order to stay afloat in such a competitive environment, entrepreneurs require significant amounts of expertise, mentorship, networking, practice, pitching and most importantly, funding.

 

This is where incubators and accelerators come into the mix and provide the most value for emerging founders. Because most founders starting out are novices, many do not have access to all of these resources on their own. As a result, incubators and accelerators, community-based organizations of entrepreneurs, mentors, advisors and investors, run programs that provide services to these ambitious entrepreneurs looking to make an impact in their respective fields.

 

Our first blog in the Healthtech Incubator/Accelerator series will discuss the nuances between an incubator and accelerator. While incubators and accelerators generally offer the same services, the two are slightly different in nature. Incubators are programs that support startups or ideas in their very infancy. Incubators devote time, space and other resources to help articulate and develop these ideas that have the potential to reach the startup stage. Accelerators are programs that help fast track startups, already past the incubation stage, to help them scale and attract funding for future growth. Accelerators are a key resource in providing workspace, mentorship, networking and access to investors so startups can build out their sales pipeline, establish new customers, form new partners or undergo product development.

 

If you are an entrepreneur and are unsure about which stage in the process you are at or which program is more beneficial for you right now, then consider these three points:

 

Time: For the most part, incubators run programs for an indefinite amount of time. They are largely backed by large organizations such as universities and institutions and funded by grants or donations. Accepted entrepreneurs/founders that enter a program can remain in a cohort anywhere from several months to even a few years. Founders can remain in the program so long as they are making progress, per terms designated by the Incubator. Accelerators on the other hand, operate on a fixed schedule generally between 2-3 months. Accepted startup founders enter the cohort and go through a structured program, usually culminating in a demo day.

 

Equity: Typically, entrepreneurs/founders accepted into incubator programs are not required to give up equity stake in their business. Because many incubators are funded by large organizations or receive money from donors, the emphasis on those accepted is strictly on expanding upon and articulating well-thought out ideas with startup potential. Accelerators, however, usually do claim an equity stake generally between 5-8%. In exchange, the Accelerator will offer seed funding in the range of a few $10,000s to a few $100,000s.

 

Exit Opportunities: Because accelerator programs operate on a fixed schedule, almost all of them finish with some form of a “Presentation Day,” when startup founders get to pitch their businesses to investors in hopes of attracting funding to raise capital. Typically, events like a demo day and other formal meetups are wound into an Accelerator’s program schedule, giving startups in the cohort tremendous visibility with establishment stakeholders in the entrepreneurship community. For those coming from an incubator program, the exit opportunities are a little hazier. Since there is no clear indication of when a founder “graduates” from the program, the exit opportunities available are dependent upon the stage and comfort level the founder is at with his/her idea. This could very well mean that the founder can go out and attract investment dollars or even be ready to enter an accelerator program, but the amount of visibility a founder has coming out of an incubator program will be less than that from an accelerator program.

 

So which program is ultimately the best fit for you? If you have a relatively early-stage concept with the potential to create a company around it OR if you currently lack the resources and are not able to cede some of your ownership, then an incubator program probably makes the most sense to pursue. If you have a concept that has already progressed into a startup and you are looking to work on the business model, build out a sales pipeline, manage the development of a prototype or bring a product to market, then an accelerator program is the better option for you.

 

Disclosure: Please advise that this is an opinion piece. If you are an entrepreneur, please perform your own due diligence but take into consideration the key inputs before making a decision. 

 

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