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,1 93 percent of all incubators.
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. Research on incubators suggests that firms graduate from incubators anywhere from one to five years after they begin.
Established timelines and strict graduation dates reduce the amount of codependence between ventures and accelerators and force ventures to face the selection mechanisms that operate in the market.
A pioneer in the industry, one of 70 people I interviewed for my dissertation, explained it like this: 7 The fundamental difference between an incubator and an accelerator is [that] . . . having a finite duration . . . really forces these companies to get a lot done get in a very short period of time . . . If you have something that has a 6-12 month duration you end up in a codependent relationship that is not particularly healthy.
We are trying to help very aggressively at the front and then help continually through the life of the companies in the next one to ten years. But if you stretch out that intense period you start to build more dependencies between each other, and that’s not good. Since accelerators graduate firms in a short, pre-set time period, they reduce the amount of codependency; firms have to address market selection mechanisms quickly.
Participating in an accelerator program may not necessarily keep the venture (or the venture idea) alive; instead, it may speed up the cycle of the venture— leading to quicker growth or quicker failure.
Quicker failure does have a benefit if those entrepreneurs move on to higher-value opportunities: they can help grow different ventures and the overall economy. The limited duration also focuses founders’ attention. Founders work at an unsustainable pace during the three-month programs, often working seven days a week, doing little else but work and sleep. Of course, they could not sustain this pace if the programs were longer or ongoing.