Here is an excerpt from another excellent article in Christina DesMarais‘ “Launch” series for Inc. magazine. To read the complete article, check out other online resources, and obtain subscription information, please click here.
* * *
The terms sometimes get used interchangeably, but they’re not the same thing. And that matters if you’re thinking of applying.
If you’re interested in getting your start-up into an accelerator or incubator there’s no shortage of options. But these terms sometimes get thrown around interchangeably. Do you know the difference between the two?
I asked Paul Bricault, cofounder of Amplify, a Los Angeles-based accelerator, to define them. “An accelerator takes single-digit chunks of equity in externally developed ideas in return for small amounts of capital and mentorship. They’re generally truncated into a three to four month program at the end of which the start-ups ‘graduate,’” he says.
TechStars would be an example of an accelerator, although good luck getting in—even though thousands of companies apply every year, it only selects 10 for each of its programs.
An incubator, on the other hand, brings in an external management team to manage an idea that was developed internally. “Those ideas can gestate for much longer periods of time and the incubator takes a much larger amount of equity [compared to accelerators],” he says.
One highly successful incubator is Pasadena, California-based Idealab, which was started by Bill Gross in 1996. Bricault says Idealab itself usually comes up with all the good ideas for new businesses then recruits outside people to bring them to fruition. Incubators like Idealab take a bigger cut of the company than an accelerator does—anywhere from 20 percent or more Bricault says.
Want to get your idea incubated? Idealab doesn’t accept business plan submissions but only considers ideas it hears about from people with whom it already has a business relationship, although Bricault says that’s not the case with all incubators.
Fortunately, now there are so many to choose from. Capital efficiencies in the market have brought down the cost of creating a start-up, Bricault says, thus fueling a boom in new accelerators and incubators. “What would have taken $5 million to get off the ground with a product developed and customers and traction several years ago now can take a few hundred thousand dollars,” he says.
[For those who want to see their company get into an accelerator, DesMarais offers “a few interesting ones tailored for unique niches. To read the complete article, please click here.]
* * *
Christina DesMarais is an Inc.com contributor who writes about the tech start-up community, covering innovative ideas, news, and trends. Follow her tweets @salubriousdish or add her to one of your circles on Google+. Have a tip? Email her at firstname.lastname@example.org.