According to this article from Fortune, 90% of startups will never make it to the big leagues, with the following given as some of the major reasons:
- Ran out of Cash
- Poor Product
- Lack of a business model
- Disharmony on team/Investors
- Lack of Financing (Investor Interest)
Just to name a few…
It is, therefore, crucial that a startup aiming for the world stage seek the support of an incubator or accelerator to help mitigate some of these issues that may pop up in the new future. Eliciting the support of either an incubator or accelerator will also depend on what stage of growth they are in as at that time.
That being said, business incubators are private companies that are primarily focused on early stage startups. They provide support to these startups by linking them to potential sources of funding; they provide coaching and mentoring, office space for them to work out of as well as access to legal counsel and networking opportunities.
Depending on what type of incubation program they run, they put together programs for small businesses that help turn their ideas into minimum viable products. This they do, in exchange for some amount of equity from the business.
Business Accelerators on the other hand help scale these minimum viable products into full-fledged companies. The accelerator program is more like a rapid months-long, immersive program targeted at accelerating these startups by providing them with mentorship, supply chain resources, and investment, also in return for equity.
They make the work of potential investors easier, via their strict vetting process that ensure that only the startups with the most potential make it through to the program. Often times, investors would prefer to go the less time-consuming route of investing in the accelerator programs as opposed to investing directly in the startups themselves.
Here’s a great infographic that makes it all easier to understand.
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Timescale: Typically limited to a 3-4 month period.
Goal: Grow the size and value of a company as fast as possible in preparation for initial funding.
Funding: Provides capital to startups in exchange for a small amount of equity.
Support: Guidance and advice are provided through a mentor network typically composed of startup executives and outside investors.
Timescale: Last for varying durations, from 12 to 24 months.
Goal: Nurture the business in its startup phase, allowing it to develop at its own pace.
Funding: Incubators take little to no equity in the startups because they do not provide upfront capital.
Support: Typically provided by proven entrepreneurial investors and consultants.