Pittsburgh Ventures

There was a good article in today’s New York Times about business incubators.

Can anybody guess the number of incubators?  I was stunned (maybe I shouldn’t have been) that there are over 1200, and they have their own association group.

Incubators often house a large collection of different types of business – small and medium sized businesses of all stripes.  The incubated companies are usually allowed to stay for an extended period of time (years), until they reach success and get too big, or until  they fail.  They usually “pay rent”, although it is highly subsidized to be more affordable for the startup balance sheet.  Businesses benefit from the financial arrangements and the camaraderie of working close to other new, growing businesses which share the same struggles they do.

What are the big differences between incubators and accelerators?

Accelerators are one of the newest breeds of incubators, really coming to the fore in the last 3-5 years with a new business model, and there something like 100 of them around the globe. The most notable early innovators here are YCombinator and TechStars.

Accelerators are different in that most have a time component to them – the clock on occupancy is ticking from the moment new companies enter the door, and companies are expected to make enough progress to be out on their own in 3-6 months.  Typically, there  isn’t any rent to pay; simple shared office space is made available, and most accelerators offer a stipend (~$15-25K is typical for 3-6 months) in exchange for equity in the startup (3-6% is common).  Often the accelerator will offer rich interaction with people who can help startups grow – investors, lawyers, accountants, media, and other entrepreneurs who have successfully grown businesses.

Accelerators typically have an application process and entrepreneurs are willing to move from their hometown to the location of the accelerator so they can get the experience that particular accelerator has to offer.  And they have a final exam with investors, a “demo day”, in which they show off their progress and their ideas and see if they matriculate to an outside investment that will keep their company alive for the next period of growth.

For all these reasons, accelerators look more like a university experience – from the application, to the move, to the interactions with learned experts, to the time limit, and finally, to graduation.  Accelerators really stress the importance of quick traction and success, or consequently a “fail fast” mentality in the event of no or little business traction.

The accelerator movement, having grown significantly in the last several years, is leading to the creation of industry-specific niche accelerators: a few examples are the GoodCompany Ventures for social entrepreneurs, FinTech Innovation Lab for financial services startups, and Women 2.0 for female-founded startups.

I believe we will see the accelerator growth trend continue, and we will see more and more industry-specific and niche accelerators fill in some of the existing gaps in the broader accelerator scene.  I think this is a good thing for the startup economy.

Related articles

• BrandU Ups its Game with a Hands-On Incubator for New Businesses (prweb.com)
• Teens In Tech Launches Startup Incubator for Young Entrepreneurs (mashable.com)
• Singapore’s Super Incubator for Startups (e27.sg)
• Start-up biotech incubator will collaborate with InCube – San Antonio Business Journal (news.google.com)