Can Business Accelerators Help Your Business Grow?





Are business accelerators poised for explosive growth? The founder of one network of accelerators thinks so. Reuters recently talked to David Cohen, co-founder with David Brown of accelerator TechStars, about emerging trends in this space.

What’s the difference between a business incubator and a business accelerator? Incubators typically provide a shared location for several fledgling businesses to operate, along with services that can include equipment, reception, networking and mentoring by experts. Initially most incubators were tied to colleges, universities or economic development programs to encourage entrepreneurship.

Can Business Accelerators Help Your Business Grow?

But in the late 1990s as the dotcom boom took hold, venture capital firms got hold of the idea and began starting in-house incubator programs so they could grow their own companies to invest in. When the bubble burst, most of these incubators disappeared along with it.

Another key difference between incubators and accelerators is that incubators allow for slower growth, although they typically have some requirements as to how long companies can remain in the incubators before they graduate. Accelerators, as their name implies, focus on an intense, boot-camp-like experience to get new businesses up and running in a matter of months. (Perhaps the best-known business accelerator is Y Combinator, launched by angel investor Paul Graham.)

Cohen believes in the next five years a few hundred accelerators will open. However, he says, today’s accelerators are less likely to be funded by VCs and more likely to be backed by groups of angel investors. Cohen sees this as a positive change, because angels are more likely to be experienced entrepreneurs who can provide more meaningful mentoring.

Started in Boulder, TechStars has expanded to Boston and Seattle and has so far funded over 70 startups. Each TechStars accelerator chooses 10 startups a year to get intensive mentoring for three months from successful entrepreneurs. The companies also receive an investment of $6,000 per founder up to $18,000; TechStars gets 6 percent equity in the business.

Will accelerators accelerate as Cohen predicts? Clearly, he’s a bit prejudiced in their favor—but any trend that encourages investment and the growth of new businesses is one I think we can all support.

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Rieva Lesonsky


Rieva Lesonsky Rieva Lesonsky is a Columnist for Small Business Trends covering employment, retail trends and women in business. She is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Follow her on Google+ and visit her blog, SmallBizDaily, to get the scoop on business trends and free TrendCast reports.

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  1. So an accelerator is pretty much just an incubator that pushes you harder? I’m not seeing much of a difference.

  2. Robert, I am with you, given the explanation herein (what’s the difference?)… my take is different: incubators are for startups and accelerators are for existing businesses; too over simply. Me? I offer both. And yes, as Rieva points out, funding is changing. I started Main Street Stark with very little money… and a bias towards NOT accepting any government money that might have strings attached. We are a for profit model that lends our biz model to our applicants (mostly in the incubator role) for 90 days. Then we cut ’em loose.

    A nearby startup incubator is expecting about $3 million in government funding and three years to build and staff, then in the fourth year, they hope to create about 50 jobs.

    As a for profit entity, I don’t have deep pockets or time to waste. I will create 100 jobs in two years for about $30K in funding. How? Among my secrets, we have a virtual component and with only a 68% commercial occupancy rate in Stark county, I have little need to build a new facility.

    That is the difference between government thinking and someone who has had to make payroll week in and week out (out of their own pocket).

    -ski

  3. Sorry but the descriptions above comparing incubators and accelerators don’t do much for me. Here are some significant differences between incubators and accelerators:

    –Incubators provide services to their clients over a larger time horizon — generally from one to five years (depending on the industry sector; biotech start-ups, for example, take far longer than other types to grow into viable businesses. Accelerators often work in a much shorter time span; SKI notes that he “cuts loose” companies after 30 days.
    –Incubators most often also provide space throughout the incubation period; this space is flexible, allowing the firm to grow in the building; many accelerators provide bootcamps and no space. (Incubators also often work with affiliate clients that are off-site.)
    –The majority of incubators do not take equity in the companies they assist. Only 22 percent of nonprofit incubators (sponsored primarily by universities and economic development or tech sector support groups) take equity; incubators and accelerators that take equity are primarily for-profit.
    –Best practices incubators provide in-depth services including mentoring, EIRs, access to business service providers, networking events, etc. These services are ongoing, rather than episodic, such as in the case of bootcamps.
    –Incubators collectively span the range of entrepreneurial startups, though they generally exclude retail and restaurants. They work with nano, bio, clean energy, software, Web, medical devices, and many non-tech firms. Some incubators specialize in one or more specific clusters; others do not. Many accelerators focus on Web-based and app-based businesses and do not work with firms that can’t get to market at warp speed.
    –Incubators provide specialized facilities including loading docks, clean rooms, water filtration, telecommunications, training rooms, laboratory benches and equipment, etc., in addition to offices and reception services.
    –Many accelerators focus on young, male, tech-savvy entrepreneurs who are bringing ICT-based businesses to market; incubators provide opportunities for these entreprneurs plus more women and older, experienced entrepreneurs, Ph.D. scientists and individuals with deep industry experience.
    –Because of the need to “cash out” quickly, accelerators reduce time spent on clients and will not support the growth of firms that cannot quickly result in acquisitions and other liquidity events. While many incubators work with fast-growth companies, they also support those that take longer to grow (examples, include MapInfo, MindSpring, Centocor, etc.)
    –Accelerators generally invest small amounts in their clients — maybe as little as $5,000. Many incubators do not provide cash investments of their own but they often have access to angel networks, VC, university foundations, public seed funds and other resources.
    –Accelerators are not eligible for public funding. Not-for-profit business incubators are eligible for such funding, which permits them to acquire and renovate or build facilities and keep client costs low. A recent report by Grant Thornton commissioned by the U.S. Department of Commerce found that business incubators created with support from DOC assisted their clients in creating 46 to 69 jobs per $10,000 in federal investment, for $144 to $216 per job –far better than other DOC public works investments.
    –Incubators require client graduation when firms are sustainable, have met certain benchmarks or no longer have need for the program; they move unsuccessful clients out. (If a program that calls itself an “incubator” doesn’t do this, they are really real estate and do not fit the industry definition.) Acclerators stop working with clients when it becomes obvious that they won’t offer the accelerator an opportunity to cash out in the short term.
    –Incubators have been around, proliferated and gained sophistication since the 1980s; most accelerators have developed in the last decade.

    That covers major points, I think. I hope this contributes to your understanding.

    Those interested in business incubators would do well to assess all the available programs as services, resources and sector focus vary.

    Dinah Adkins
    President Emerita (President & CEO for 21 years)
    National Business Incubation Association

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