Starting a new business is never easy—most of us know that it takes much more than a great idea and a little bit of drive to achieve our entrepreneurial goals. In order to make it, new entrepreneurs need access to capital, mentoring, and structural resources, but sometimes these can be hard to find. That’s why nine out of every 10 startups fail within three years.
Accelerators are designed to prevent those premature deaths, and the number of options to choose from has increased dramatically in the last decade. According to AngelList—a digital platform that helps match up promising startups with investors—there was only one American accelerator in 2005. Now there are 578 of them.
What is a Small Business Accelerator?
Essentially, an accelerator is an organization that offers a range of support services, and funding opportunities for startups of all kinds. They enroll startups in months-long programs that offer office space, supply chain resources, and mentorship. More importantly, these programs offer access to capital in return for some startup equity.
The small business eventually “graduates” from their accelerator program, after three to four months. In this short period of time, development projects are time-sensitive, and very intensive.
What Makes Accelerators So Appealing?
Accelerators provide the best of both worlds for startups and investors alike. They thoroughly vet participating businesses, so that investors don’t have to waste time sifting through a bunch of duds to get to the promising startups. Instead, they can simply invest in an accelerator that takes on shares in startups themselves. The structural nature of accelerators also allows for more investment in the future, although it’s not an obligation, so there’s flexibility for investors.
The benefit as a startup owner? Accelerators will offer you a wide variety of resources. These organizations are run by business professionals who make a living helping young startups overcome basic hurdles. Not to mention startup owners get to network with business peers and learn from them as well.
The only potential drawback to working with an accelerator is that startup owners are generally handing over equity in their companies in exchange for these services and resources.
What is a Small Business Incubator?
On the surface, accelerators and incubators are very similar, but there are a few key differences to be aware of.
An incubator is an organization that provides startups with an operation space to share with other startups. They provide young businesses with mentoring resources, access to shared equipment, and networking opportunities. This concept has been around for a while, but gained popularity in the 1980s after several universities began launching school-affiliated incubators to bolster entrepreneurship and employability.
Because of their academic-affiliated roots, a lot of incubators are run as nonprofits, and generally won’t ask for equity in a company in return for their services like an accelerator would. As a result, startups generally receive less access to capital.
Incubators are the better choice for fostering slow growth, because they typically don’t put a time stamp on their support programs, whereas accelerators have strict timelines. The latter sponsor intensive, boot-camp-like programs that only last a few months, while startups can spend years working within an incubator to establish growth.
How to Choose
Every single business is different. Different startups need different kinds of support in order to prosper, so there’s really no right or wrong answer to the question “accelerator or incubator?” It simply depends on your specific business.
Start by sitting down and crafting a wish list of everything you think your company needs to succeed. After that, just start researching! You’ll figure out what will help your business the most—and after you figure that out, don’t be afraid to shop around for the best option.
Are you a small business owner? Become a member of Birmingham’s Entrepreneurs’ Organization today.