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Entrepreneurship 101 is a new section that will be featured on arabnet.me. The aim of  is to provide basic information and expert thoughts on topics related to entrepreneurship, investment, incubation, acceleration, and more. The first article in this series clears up the confusion that often builds around the concepts of business incubators and seed accelerators to those new to the ecosystem.

Business incubators and accelerators both support the entrepreneur and share the same end-goal: to turn innovative ideas into successful business ventures. They provide business strategies, mentorship, workspace and the means for funding (but according to different models) in a business-fertile environment. What’s the difference, then, between incubators and accelerators?

As both of these entrepreneur support efforts seem to be cropping up in different countries, even policy makers are sometimes confused about which strategy would best lead to job opportunities and economic development. In this article, we’ve tried to categorize their differences as accurately as possible. 

The birth of business incubators and the evolution to business accelerators

The first incubator, named the Batavia Industrial Center, was founded in 1959, at a time when it was a bit too early for governments to realize the importance of business angels in reviving the economy and creating job opportunities. A significant time would elapse until the early 80s, when incubators, supported by the governments, started springing up all over the US and Europe. 

By the 1990s, the USA-based National Business Incubation Association (NBIA) had developed the three vital characteristics of an incubation program: providing assistance to early-stage companies, creating a comprehensive program to business support services, and leading clients towards self-sufficiency. Informal estimates show that around 10,000 business incubators exist today.

In 2005, at a time when angel investing was a popular form of investing, Paul Graham was inspired by the “genius” of hackers and programmers and wanted to build upon the traditional means of angel investing to help these hackers start their own companies. He launched Y Combinator, which will become known as the first “seed” accelerator, that provides  funding for web-based companies. Unlike incubators, which took more than 20 years to kick off, seed accelerators quickly burgeoned in the US and became the new business refuge for “geek gamers” with a vision for software developers, mobile apps, cloud-based IT firms and other digital projects.

What do business incubators and accelerators offer?

Business incubators offer long-termed support programs with the mission of turning an idea into a successful business. Training can last from 3 to 5 years. They offer suitable office space for companies to set base in them with very affordable prices. Wet lab space is also provided for innovative biotech companies. These can be as spacious as 30,000 square feet, as proven by Janssen Labs, an incubator company in San Diago. However, “virtual incubators,” like Silicon Valley, need a virtual space to operate and connect to digital companies.

Accelerators provide similar services through fast-paced, highly intensive “bootcamps” that last from 3 to 9 months. They provide meeting spaces during their bootcamp training which do not have to be as large and comprehensive as those of incubators, although that concept is gradually evolving.

Do both incubators and accelerators seed-invest in their clients?

The main classical difference between both programs is that accelerators actually seed-invest in modest 5 to 6-digit numbers in exchange for a certain amount of equity. They then provide mentorship and a fast-paced product validation and market study which prepare startups for their big “demo day.” During a demo day, each team would have a precious few minutes to broaden their appeal to potential investors and secure follow-up funding. 

Incubators do not provide funding and instead link start-ups to angel investors, state governments, economic-development coalitions, universities and other investors. They are more geared towards business strategies and economic welfare.

Mentorship Model

The non-profit business model for incubators is dedicated to slow, gradual growth that develops the business strategy and financial backbone of a company. Incubators lead startups from the baby phase to the mid-growth phase. In many ways, an incubator resembles a holistic management consultancy adjusted to fit small and medium-sized organizations. 

The emphasis of the business accelerator is on rapid growth, and to sort out all organizational, operational, and strategic difficulties that might be facing the business. As soon as companies are accepted in an accelerator program, a “fast-test” validation of ideas and product test is done to find initial customers.  For this reason, many companies “graduate” from an incubator and later seek help from an accelerator to give their revenues the kick they need.

Clients

Accelerators were initially developed to help jumpstart digital companies. They mostly deal with the “younger crowd” of app developers, programmers, cloud-based systems, e-commerce companies and others that deal with social media. Yet a more inclusive approach has been growing recently.

Incubators have no “bias” when it comes to the nature of the business. Telecommunication, healthcare, media, environmental startups, retail, biotechnology and fashion are just some examples of the sectors that can be found under an incubator’s umbrella. Of course, no incubator can be house to all these domains, which is why startups should do their research to find a suitable incubator.

Overlap

The subtle differences between these business-support programs have become more blurry as incubators and accelerators seem to be swapping each others’ characteristic, with some incubators providing seed investments, bootcamps and demo days. In contrast, many accelerators have adopted a non-profit business model by helping social entrepreneurs and other communities. The fact that accelerators are accepting non-digital ventures is also a bit muddling.

Which is better?

Yet the question is not for startups to choose the “better” program of the two; rather the one that is most suitable to its nature. 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 the basic venture capital may opt for an incubator because they already have the mentorship and capital, but a startup that is still refining its 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!