Business Incubators or Accelerators?
If you have yet to consider taking advantage of what business incubators or accelerators can offer your new startup, it might be that you just aren’t that familiar with the concept. With IACs (Incubators, Accelerators and Co-Work Spaces) continuing to gain mentions when extraordinary startup success is discussed, we decided to take a bit of a closer look at them ourselves.
From what we can tell, the collaboration has actually created a win-win relationship. Even Blue-chip companies like Microsoft and Barclays support early development of startups, to add value to those businesses and the ecosystem, while giving them a priceless edge over their competition. In turn, many programme graduates who may otherwise have had difficulty surviving are turning into future clients.
Let’s see if we can cut through some of the confusion as to exactly what these programmes offer, how they differ and why they might be worthwhile for the average startup or early-stage SME.
Do Startups have Much Competition?
Just a little over a week has passed since we mentioned the 362,930 new startups (co-workers) which had registered with the UK’s Companies House so far this year. A mere 9 days later, we’re up another 15,896. Over the past 40 days alone, an average of 1,714 new startups have registered PER DAY. If this stays on track, we should easily break 2014’s highest ever record of 581k, by 30,000 or more!
Some of the UK’s top tech business incubators or accelerators are inside and just outside of London. The city is home to 10 times more start-up programmes than the next largest cluster in Birmingham. London’s Silicon Roundabout, with more than 1500 tech businesses, is currently considered to be one of the most important startup clusters in the world (and it is slated to create £12bn worth of economic activity in the next 10 years).
What Does Business Incubators Provide?
Essentially, an incubator offers active startup ‘launch support’ for entrepreneurs or early-stage SMEs which are in pre-revenue or early-growth stages. They are considered to be a hub for entrepreneurship and innovation.
The incubator does have a competitive application process, does charge membership fees, and does not invest in the businesses. The workspace and support is initially offered at reduced rates, which increase along with your profitability.
Your space is dedicated and more personal (than a co-working space), giving you a place to create your own identity and maintain company confidentiality. You may want to have a corporate lawyer review your contract to make sure all the boxes are checked.
Some incubators do support co-working and networking arrangements for peer-to-peer advantages, though their primary areas of support include:
- Business management (record keeping, marketing)
- Access to funding channels
Businesses typically stay within the incubator environment from 18 months to 5 years. Many times the facility is housed within the larger properties of a managed office or institution, and there may be a clause in the contract stipulating that the startups graduate to their own spaces once they have achieved a defined level of success.
What Does an Accelerator Have to Offer?
For entrance into an accelerator programme, the focus is on startups (or existing SMEs) with high financial and growth potential within national and international markets. The instruction and guidance is more hands-on and dedicated, with tailored support offered by space managers, investors, mentors and advisors who work closely with each entrant.
An accelerator may sometimes include physical workspaces, though they are most often located within incubator and co-working hubs in larger cities. Think of them more as kick-start programmes rather than office spaces per se. Access might be based on monthly informal contracts (in the form of a licence) with an easy exit obligation, rather than a lease.
There may or may not be membership fees, though fundamentally there will almost always be an equity stake required. You might want to obtain legal business advice online through Linkilaw, before signing away shares. One exception we found was MassChallenge UK, which is open to any early-stage startup, with no equity taken, and “designed to catalyze a global renaissance by connecting high-impact startups with the resources they need to launch and succeed.”
Slots in the accelerator programmes are highly sought after, and the competition is fierce. Nick Summers interviews top-level executives from Oxygen Accelerator and Seedcamp, giving practical and informative advice on getting a space in an accelerator. Apparently, the application process is very subjective and can hinge largely upon whether you’ve applied at the right time for the right space.
Normally, the accelerator programmes last from 3-4 months, with the remaining time spent on pitching and acquiring financial investments. After approximately 12 months, the provider will expand their interest or exit the business (with the graduate moving on from accelerator space).
How is a Co-Work Space Different?
Primarily, the function of a co-work space is to facilitate an interactive and creative networking culture. It encourages exchanging of ideas; particularly in the like-minded user community, and is popular amongst fans of shared resources. The space design is much more open and creative; and offered at affordable rates with easy in-out conditions.
Spaces are open to any business (regardless of profitability and performance), without timelines or sharing of equity. They are especially attractive as short-term or stopgap access to workstations and meeting rooms. Generally located in large commercial offers, the users also are primed for easy access to grow-on space once they’ve outgrown the less formal setup.