Seed Accelerators & Incubators | Guide for Startups Meta Description: Is your startup ready for a seed accelerator? Are there differences between accelerators and incubators? Learn everything you need with our handy guide! If you’re a startup, seed accelerators and incubators are bound to be on your mind. After all, there are now hundreds of qualified accelerators found worldwide with hundreds of millions of dollars invested. If you’re an early-stage company, there’s plenty of reason to be excited. However, if you’re new to the game you’re bound to have plenty of questions, too. What’s the story behind all these seed accelerators? Is there a difference between an incubator and an accelerator? What does your company need to do to find acceptance with an accelerator? We’ve designed this document to serve as a beginner’s guide to seed accelerators and incubators. If you have a startup, you’ll want to read on!
The Difference Between Seed Accelerators and Incubators Seed accelerators (also known as “startup accelerators”) and incubators are monikers that are often used interchangeably. But is there a difference between the two? As it turns out, there is. The “incubator” was a hot buzzword of 1999 in the United States, with companies such as TechSpace, HotBank and others offering space and other services to tech startups as a way to garner equity in their business. But few things in life ever truly last—the dot-com bubble famously burst, and this rupture upended the existing model and brought changes. While incubators continued to exist following the tech collapse of the late 90s/early 00s, “accelerators” eventually came onto the scene with a new model more tailored to the changing times. One of the earliest and still the most influential is Y Combinator, which launched in Cambridge, Massachusetts in March 2005 and has since funded more than 1,464 startups. Despite the interchangeable nature of the two designations, there are a number of notable differences between seed accelerators and incubators. A basic breakdown is as follows: Incubators generally target and work with companies in their earliest stages. These companies are startups that usually still need help developing the idea behind their company and any prospective product and/or service they might offer. Usually, incubators no longer demand equity in exchange for their services, which include mentorship and a pipeline to potential investors. Additionally, there’s typically not a expiry date/fixed-term duration for the incubator-startup relationship. By contrast, accelerators work with already-operating companies that have an established vision and are seeking mentorship and funding. Accelerators are true to their name in that they aim to accelerate the development of a company, typically over a three to six month period. However, it is not necessary for an accelerator-seeking startup to have a product or service already generating revenue. Unlike incubators, equity is typically required in exchange for pre-seed funding. Additionally, accelerators tend to feature more “A-list” mentors in comparison with incubators.
How to Ensure Your Startup is Ready for a Seed Accelerator It’s not easy getting accepted into a seed accelerator program. There’s a lot of competition. With so many applicants, you and your startup are going to need to differentiate yourself from the crowd as much as possible.
Here’s a few of our top tips for ensuring your startup is ready for the accelerator/incubator grind: Engage in Market Research It’s easy to hatch a product/service idea that you know you’d like to use. But you have to think outside of yourself. Is your prospective product/service something that others would like to use? You’ll need to be able to “prove” this to any seed accelerator program you’re looking to join.
A critical way to validate your product/service idea is to conduct market research. If you have figures and testing to back up your idea (as opposed to just vague suppositions) you’re more likely to impress those judging your seed accelerator application. Build a Strong Team You’re only as strong as your weakest link. Cliche? Sure. But it’s true. Sometimes, the strength of your team can be even more important than the strength of the product/service you’re pushing, so make sure your team is comprised of hard-working, dialed-in individuals that are all on-board with what you’re selling. If they aren’t devoted to your product and haven’t “bought in” to the business plan, you’re going to have issues. Ask Yourself: “Am I Ready?” This step can be easily overlooked. After all, it’s easy to get caught up with team-building, market research, and just the general day-to-day grind of running a company. Still, before diving head-first into an accelerator program you must ask yourself: “Am I ready?” You may think off-hand that it’s a complete no-brainer that you’re ready to take the next step with your startup, but bear in mind that an accelerator program is going to require at least the next three months of your life. That’s a ton of intensive effort. You’ll be required to relocate, too—do you have family, loved ones, or other obligations that might tie you down? Likewise, is every critical member of your team immediately available for such a commitment? Failure to ask these paramount questions will leave you in a tough spot. Have a Minimum Viable Product While not absolutely necessary out-of-the-gate, having a minimum viable product (MVP) is a huge differentiator for your startup during the application period. If you’re already generating revenue, you’ve already proved the viability of your product/service within the marketplace. You’ll have something concrete to show the application committee, as opposed to simply hypotheticals and hopes. Do Your Research This is something that cannot be stressed enough. If you want to impress a seed accelerator, you’ll need to know everything you can about it. Do your research.
All accelerators are going to be a bit different. Each is looking for different things in a startup, and some accelerators may not be the best fit for your endeavor. Here’s a list of several of the most important questions to ask yourself while conducting your research: 1. What are the credentials of the accelerator? What’s the track record of the accelerator or incubator program? What companies have they produced over the past decade? Are the mentors within the program successful entrepreneurs themselves? If you don’t know the answers to these questions, find out immediately! Don’t waste your time with a program that is ill-equipped to provide instruction and mentorship. 2. Does the accelerator provide investment? Some seed accelerators offer investment opportunities.This is a fantastic perk and something to consider, although don’t allow it to entirely guide your decision-making. After all, mentorship remains a key consideration, and most accelerators offer access to investors immediately upon graduating the program, anyway. 3. What are the costs? You don’t get something for nothing. There are costs associated with applying to and joining an accelerator, and they vary from program to program. Most accelerators are going to ask for equity in return for funding and support, so know going in how much you’re going to be giving up. Also, be aware that many of the top accelerators require a participation fee to be paid upfront. 4. How much equity is required? This overlaps slightly with the above, but it’s such an important consideration that it deserves its own section. You must know how much equity you’ll be handing over and you need to be wary of moving forward if the accelerator is asking for too much. Many programs take between five to ten-percent equity (Y Combinator requires seven-percent, for example), but others may ask for many times that. Giving away too much equity at the start is a recipe for trouble. Failure to retain equity early means you’ll have less to offer as a bargaining chip to future venture capitalists when additional funding rounds are required. Bear this in mind and tread carefully.
Best Seed Accelerators It’s hard to distinctly define what the “best” seed/startup accelerators available today are, but a few very smart folks from MIT, the University of Richmond, and Rice University give it a go each year at South by Southwest.
The Seed Accelerator Rankings Project considers approximately 150 accelerator programs through surveying more than 1,000 program graduates. In order to qualify, programs must contain mentorship and educational components, be fixed-term, feature a demo day, and have more than 10 startup graduates. A tiered system is used to rank all seed accelerators. Here are the primary results: Platinum tier: 500 Startups, Alchemist, Amplify LA, Angelpad, Chicago New Venture Challenge, MuckerLab, StartX, Techstars, Y Combinator.
Gold tier: Brandery, Capital Innovators, Dreamit, gener8tor, Healthbox, Mass Challenge, Surge.
Silver tier: Alphalab, Betaspring, Health Wildcatters, Iron Yard, Lighthouse Labs, Plug and Play, Zero to 510. Learn more about the methodology behind the Seed Accelerator Rankings Project. Are you a startup in need of web hosting? Cloudwith.me offers robust, cloud-based Amazon Web Services (AWS) hosting solutions for businesses of all sizes.
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