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What do accelerators do? Broadly speaking, they help ventures
define and build their initial products, identify promising
customer segments, and secure resources, including capital and
employees. More specifically, accelerator programs are programs of
limited-duration—lasting about three months—that help cohorts of
startups with the new venture process. They usually provide a small
amount of seed capital, plus working space. They also offer a
plethora of networking opportunities, with both peer ventures and
mentors, who might be successful entrepreneurs, program graduates,
venture capitalists, angel investors, or even corporate executives.
Finally, most programs end with a grand event, a “demo day” where
ventures pitch to a large audience of qualified investors.
You may think this all sounds familiar. After all, don’t
incubators and angel investors help nascent ventures? Accelerators
certainly are similar to incubators and angel investors. Like them,
accelerators aim to help nascent ventures during the formation
stage. Thus we might expect that many of the activities provided by
accelerators would also be provided by angels and incubators. But
accelerators differ in several ways. Perhaps the most fundamental
difference is the limited duration of accelerator programs as
compared to the continuous nature of incubators and angel
investments. This one small difference leads to many other
differences, as I discuss in more detail below. (See table 1
for a summary of the differences between incubators, angel
investors, and accelerators.)
Incubators and Angel Investors
According to the National Business Incubation Association,
incubators shelter vulnerable nascent businesses, allowing them to
become stronger before becoming independent. According to the
association’s website, 93 percent of all incubators are nonprofit
organizations focused on economic development, and roughly a third
are affiliated with a university. While no two incubators are
exactly the same, in general, incubators receive rent and fees from
tenant firms in exchange for office space and administrative
support services. Several incubators also provide introductions to
financiers, and connections to legal, technology transfer, and
accounting consultants. When they are affiliated with a university,
they may also provide services related to intellectual property;
the university may also use them to transfer knowledge from faculty
members to firms that are commercializing the university’s
intellectual property.
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Table 1.
Key Differences between Incubators, Investors, and
Accelerators
Some of what incubators provide to entrepreneurs, however, might
not be consistent with what the nascent firms actually need. For
example, ventures might develop in a way that allows them to
survive inside of an incubator, but not outside of it, and thus in
a manner that is not optimal for the market. Some firms may survive
longer in an incubator than they would otherwise. Survival may seem
attractive, but if the firm will inevitably fail, then the
resources it is consuming might be better used by other, more
fruitful endeavors. Moreover, if ventures are being shielded from
market forces, they might be missing out on important feedback that
could enable them to adapt. Early adaptation is critical for
early-stage firms before they become more rigid with age, which
occurs naturally.
Angel investors also aim to help fledging ventures. Angels are
individual investors, or groups of individual investors, who
provide seed capital and varying amounts of advice to young firms.
According to the Center for Venture Research, 28,590
entrepreneurial ventures received $9.7 billion in investment during
the first quarter of 2013. Clearly, angel investors are an
important part of the entrepreneurial ecosystem. Often, but not
always, they are entrepreneurs who want to help the next generation
of entrepreneurs. They also may be friends or family members who
provide financial investment. Angel investors help their portfolio
firms in a unstructured manner, often providing advice and
introductions as needed. The lack of structure often translates
into limited involvement and mentorship.
Comparing Accelerators and Incubators
Accelerators also help fledging nascent ventures.
Philosophically, incubators tend to nurture nascent ventures by
buffering them from the environment to give them room to grow. In
contrast, whereas accelerators speed up market interactions in
order to help nascent ventures adapt quickly and learn.
Practically, accelerators and incubators differ in four key
ways.
Duration
The limited duration of accelerators, usually three months, is
the characteristic that most clearly defines accelerator
programs...