Archive for September, 2017

StartUp Incubators x Accelerators: What is the Difference?

Monday, September 11th, 2017

In my last Blog Post I wrote about “The Art of Learning by Doing” in Entrepreneurship. Of course, nobody does things alone. We need support. From people, connections, spaces, schools, mentoring, investors and so on. One thing that I’ve always hear when Mentoring or even Lecturing about Entrepreneurship is the question: should I apply for a StartUp Incubator or a StartUp Accelerator? What is the difference between both? Of course there are several different Models, but in my conception the truth is that nobody really knows their differences. But they are different. And the difference in Definition varies from Country to Country. An incubator in the United States is physically locating your business in one central workspace (generally a co-working space) with many other StartUp companies. In many cases, the StartUps in these incubators can all be Venture funded by the same investor group or early stage. You can stay in the space as long as you need to, or until your business has grown to the scale it needs to relocate to its own space. The mentorship is typically provided by proven serial entrepreneurial, investors, and by shared Knowledge of your StartUp CEO peers. For the Incubator Model, you or your Startup pays a Monthly or sometimes Yearly fee to use it. So, Incubators are a Real State Rental Business basically. A Startup Accelerator in the United States has some distinct differences. Your time in the space is typically limited to a 3-4 month period (when they have an Infrastructure that they run), basically intended to jump start your business and then kick you out of the nest. The cash investment into your business from the Accelerator itself is very minimal (e.g., U$20,000-50,000; with exceptions giving up to U$200K in exchange for a higher equity of the company), but your time in the Accelerator should largely improve your chances of raising Venture Capital from a third party entity on the back-end, after you graduate from their Program. Most Accelerators take Equity and become shareholders in your Startup with the percentage going from 4-12% depending on the Stage of the Company. Mentorship could be coming from Serial Entrepreneurs that are affiliated with the Accelerator (many of which are proven CEOs, or Investors looking for their next opportunity or simply helping the local StartUp community with a history of exits) – parts of this text were taken and adapted from “Is A Startup Incubator or Accelerator Right For You?” by George Deeb. There are also Accelerators that are Location Agnostic and you can be remotely linked to them. They will not have an Infrastructure for the Companies but they bring a strong network of Mentors and Investors. They also take Equity in the StartUp depending on the Stage of the company. These are more “Global” since StartUps from all over the World could participate. They generally do an Event (or even combine their Event with a Major one) every quarter or once every 2 months. They have a different Model. One interesting thing: both models deal with Quantity versus Quality. Of course there is a Selection but the more StartUps you have in the System or Accelerated the chances of getting an Unicorn (a StartUp that reaches a U$1 Billion Dollar Valuation) out of them are higher. Now, let’s talk about the Brazilian Model. Well, I think the “Copy-Cat” Model that Brazilians use for everything Americans do does not work for this. They have mixed up Incubators with Accelerators, offering terrible Infrastructure (with exceptions, of course) charging a Monthly fee and getting Equity at the same time of the StartUps. Most times they do not even offer a good Network of Entrepreneurs, Mentors and Investors. It is a horrible and confusing Model indeed. Another important thing: the Brazilian Model is “poor”, dealing with a few Ideas and StartUps and not quantity (No Unicorns on the Horizon…). So, what Model(s) and Country have more chances to succeed? I think the reader knows the answer already. And I did not even talk about the “Spin Offs” coming out from Universities in the US and in Brazil. Well, I think that is a subject for another Blog Post…