Incubator vs. Accelerator vs. Venture Builder
February 18, 2020
We’ve heard a lot about Incubators and Accelerators but how these startup eco-system players are different from Venture Builders? And what are the options to enable innovation for entrepreneurs throughout their startup journey?
When entrepreneurs step into the world of startups, they are similar to what newborn babies are, who need nourishment to bring about the material manifestation of their ideas to fructify in the real practical world. Incubators are like mothers providing the initial support for their entrepreneurial babies when they step into the start-up world.
Whereas, Accelerators are like fathers who teach their entrepreneurial kids how to ride a bicycle (run a startup), so that they get on to the fast-paced plane and gear towards growth within limited time-frame. There are also Venture Builders who adopt startups or ventures as their own and become a big daddy to them in industry. Now, these three are the most significant boosters that any startup vouch for to grow further.
In this article, we do a glimpse analysis and discuss the inherent similarities and differences along with the major functions of these tripartite. So, let’s start with incubators.
Incubators are institutions that support entrepreneurs in developing their startups or ventures, especially in the initial stages. These are a highly flexible combination of business development processes designed to nurture and grow new and small startups by supporting them through the early stages of development. As early-stage hand-holders, incubators act as an integral part of the overall start-up ecosystem.
Good Examples of Incubators — DTEC (Dubai Technology Entrepreneur Centre), In5, Astrolabs, Fintech Hive, Turn8 etc.
Different types of Incubators
Non-profit development corporations
For-profit development ventures
Venture capital firms
Major Functions of Incubator
Idea screening, mentoring, coaching and providing access to seed capital.
Establishment of the company and technical support towards concept development of prototype along with pilot testing.
Business capacity building and development support for business planning, company management like accounts, taxation, legal, etc.
Development of revenue model and financial projections. It provides linkages to potential strategic markets along with visibility, credibility in the marketplace.
Networking events, training, exhibitions, and workshops.
Incubation support includes providing technological facilities and advice, co-working spaces, lab facilities.
Progressive evaluation for a transition to the next stage.
Development Phases In Start-ups
Ideating Phase –It’s a phase when entrepreneurial ambition and potential scalable product or service idea is created for a big enough target market. It’s just an initial idea of how it will create value. Here a potential idea can be created by one person or a team with no confirmed commitment or exact balance of right skills in the team structure yet.
Concepting Phase – It’s a phase when the mission is defined and the vision is created with an initial strategy along with key milestones for the next few years on how to get there. Here, two or more entrepreneurial core co-founders with complementary skills and ownership plan along with additional members with specific roles.
Committing Phase –Its a phase where the co-founding team is committed with balanced skills and shares a similar vision, values and attitude. Here, they develop the initial product or service version, with committed resources or already have an initial product or service in place. In this stage, all legal works like shareholder agreements are signed including milestones with shareholders’ time and money commitments for scheduled years with proper terms.
Validating Phase –Its a phase where iterating and testing assumptions are done for validating solutions to demonstrate initial user growth and revenue. Initial key performance indicators like KPIs are identified. Also, additional resources like money and work equity are attracted through investments or loans for equity, interest or revenue share from future revenues.
Scaling Phase –Its a phase where the focus is on KPI based measurable growth in users, customers, and revenues or market share in a big or fast-growing target market.Its where the startup or venture can and wants to grow fast by attracting significant funding, hiring, improving quality and implementation processes.
Establishing Phase –It’s a phase where great growth is achieved and momentum is expected to continue further. The venture is easily able to attract financial and human resources. Depending upon the vision, mission and commitments the growth further expands and may continue to grow “like a startup”.Founders or venture builders may exit or continue with the venture.
An accelerator is those which help startups do long years of business building through incubation process in just a few months to accelerate a startup success through holistic business tools box along with advisory service, resembling the traditional management consulting or guidance.
To get into an accelerator, startups go through a selective screening process as they are more growth-driven, typically aiming to produce startups that will scale rapidly, thus minimizing wasted resources.
Good Examples of Accelerators are Dubai SME, 500startups, Techstars, Area71, Faster Capital, Interplay Ventures, Cloud10, etc.
Major Functions Of Accelerator
Accelerators provide a fast-paced fixed duration program which puts already well-developed startup to go through further process in a limited period.
It provides seed funding and services over physical space.
It provides opportunities to present your learning to high profiled industry mentors, investors, advisors and guests.
Accelerators also focus on rapid growth and to sort out all organizational, operational, financial and strategic difficulties through a highly systematic approach.
It provides tight deadlines to drive increased performance, focus and also shared learnings from well-established ventures who are going through similar challenges at the same time.
It provides services like an incubator, which includes assistance in developing a business plan, investor pitch deck, prototypes, and initial market testing too. They predominantly focus on helping teams in the validation stage.
Venture Builders create potential startups professionally from the ground-up level. With a highly efficient team, they achieve greater efficiencies compared to traditional startups without a venture builder. A venture builder enables startups to leverage its internal team of business developers, designers, developers, marketers in the ideation, development, and launching of a company. Venture Builder can be identified as a Producer of Tech startups.
Good Examples of Venture Builders in the global arena are Rocket Internet, Science inc, Atomic, and hatch & boost in the MENA.
Venture builders are different from accelerators and incubators in several ways.
They identify problems and create solutions internally, rather than bringing in pre-formed teams with problem and solution already defined.
They build the team around the problem-solution
They work with the team longer than just a few months, resulting in longer-term stability.
They focus not on building an app or a web site, but to actually create a business.
In simple words, a venture builder is needed when a particular startup is looking for more money to extend the runway while the plane is in motion. During this exercise most of the time the original entrepreneurs either prefer to leave or stay in a smaller role. The venture builder accompanies its young ventures all the way, until they exit the venture, whereas accelerators and incubators only accompany ventures for a shorter time of its development journey.