Accelerator vs Incubator vs VC
What is an accelerator and how does it work?
What is the meaning of an accelerator and how can it help early-stage startup founders? An accelerator is a programme aimed at establishing a business, taking place for a set period. For example, companies could spend anywhere from a few weeks to few months working with a group of mentors to help develop their business. An accelerator is a short-term, fast-paced operation with a highly selective application process. They are often funded by venture capital investors, public bodies or large corporations, depending on the structure and objective. Some of the best-known accelerators include Y Combinator, Techstars and The Brandery.
Early-stage startups will often receive a small seed investment while they are granted access to an extensive mentorship network in exchange for a small amount of equity. The mentorship network includes startup executives, venture capitalists, industry experts and other investors. Following the conclusion of the accelerator programme, all of the startups involved will pitch at a demo day attended by investors.
How do accelerators make money?
There are two main ways that accelerators can make money. The first involves obtaining equity in a startup in exchange for funding or services provided, while the second is providing services in exchange for cash.
It's important to remember that receiving money or equity does not necessarily mean an accelerator will make a profit.
Where can I find an accelerator based in the UK?
Most UK-based accelerator programmes for a startup are based in London, but there are a few in other cities, including Birmingham, Newcastle and Edinburgh. Below are the top three rated accelerator programmes in London:
This accelerator has helped over 900 early-stage startups. The programme runs for three months, where mentors and advisors help businesses specific to their industry. You can find out more by visiting their website
They run a "highly-selective" three-month programme, providing mentorship to startup founders while finding entrepreneurs in the cohort to help them find co-founders. They offer a £2,00 a month stipend to founders while they get to know potential co-founders. Once co-founders have been acquired, founders will be guided for three months while they start their business. You can find out more by visiting their website
They run a "highly-selective" three-month programme, providing mentorship to startup founders while finding entrepreneurs in the cohort to help them find co-founders. They offer a £2,00 a month stipend to founders while they get to know potential co-founders. Once co-founders have been acquired, founders will be guided for three months while they start their business. You can find out more by visiting their website
What is a business incubator and how does it work?
In contrast, the meaning of an incubator is slightly different compared to an accelerator, with both offering somewhat different services for a business. Business incubation involves a workspace that provides newly-formed startups access to the necessary resources they need. An incubator often offers a small business office space, training, support, and access to expert advisors and mentors. Incubators are seen as temporary services to help new businesses, with a company typically staying between 1-2 years.
Where can I find an incubator based in the UK?
Like an accelerator, most UK-based incubator programmes are based in London, although there are a few in other major cities. Below are the top three rated incubators for a startup based in London:
A well-known hub for tech entrepreneurs, hosting educational workshops and events. The campus also features many benefits, including a cafe as a meeting point. You can find out more by visiting their website
One of the best incubation spaces for any startup specialising in fintech, retail, cybersecurity and smart-city technology. Based in Canary Wharf, they host networking events and offer access to valuable amenities. You can find out more by visiting their website
This is home to some of London sLondon s most significant startups and early to mid-stage investors. They offer a wide range of facilities, benefits, and events. You can find out more by visiting their website
What is venture capital (VC) and how does it work?
Venture capital is a type of private equity financing that is provided to startup companies and small businesses that have high growth potential. Venture capital firms are typically managed by professional investors who pool money from various sources, such as wealthy individuals, pension funds, and institutional investors, and use that money to invest in promising businesses.
VC firms typically invest in early-stage companies that have a disruptive technology, innovative product or service, or a new business model that has the potential to grow rapidly and generate significant returns. In exchange for the investment, VC firms typically receive equity in the company, which can be used to fund further growth and expansion.
While venture capital can be a great source of funding for startups and small businesses with high growth potential, it can also be difficult to obtain. VC firms typically have strict investment criteria, and the process of raising VC funding can be time-consuming and competitive.
What are the stages of venture capital (VC)?
There are a few stages to VC investment:
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Pre-seed
The earliest stage of business development when founders try to turn an idea into a business plan. They invest their own resources into starting a business, using funds from friends, family, and so-called "fools" (those who have little or no investment experience)
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Seed funding
Where a business has hopes to launch its first product. They usually have a team in place and one or more sales channels. The company may need VCs to fund operations and for scaling. Angel investors are a significant source of seed fundraising
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Early-stage funding
A business has developed its product but needs additional capital to ramp up production and sales. The company will need one or more funding rounds following this
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Series A funding
Startups that have made it to this phase are at a rapid growth stage. They have a team and product and are seeing high amounts of money coming through while being able to choose their investors
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Series B funding
At this point, a startup should be raising significantly more money than in series A
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Series C funding
A startup has plans to take on an even larger market share. It has hopes to purchase or develop more products or services and potentially buy a competitor. The company will be making substantial profits
Let’s compare accelerator, incubator and VC
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Types of accelerators/incubators
Depending on the size of your business and the industry you are trying to enter, there are wide varieties of accelerators and incubators.
The types of accelerators include:
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Non-corporate accelerator: offers businesses access to seed money and possible follow-up investment, connections and networking opportunities. These programmes usually last between three-four months
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Corporate accelerator: programmes run by large corporations. They can be run independently or partnered with other corporations and private-run accelerators
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Government-sponsored accelerator: additional accelerators that are non-profit and funded by governments or for-profit organisations
The types of incubators include:
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Virtual business incubators: these are the most common types of an incubator. They help provide capital and professional advice to startup owners. You will not be required to set up a physical shop at the incubator's location
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Corporate incubators: they offer financial resources and sometimes prototype and market testing. Businesses are also entitled to access commercial markets
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Social incubators: they help change people's lives by offering solutions to social change. You will need to have a business idea that involves positively changing the environment or social impact
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Academic and scientific incubators: they offer support to university students, so if you are currently studying in higher education, you will benefit from scientific and technical assistance to test different concepts of startup ideas
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Medical incubators: they help startups who are specialised in healthcare grow and develop their company and provide them with resources and assistance
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Seed accelerators: another standard model of an incubator, offering both a high-quality filter and a broad portfolio approach. The high-quality filter is aimed at attracting new talent, while the broad portfolio concept accepts many companies to help support them
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Kitchen incubators: these incubators are aimed at small food-based businesses, offering assistance related to financing and insurance while providing techniques while entering the local market
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Local economic development incubators: they work for large businesses, providing services such as hosting administrative tasks. They are also on hand to offer coaching and consulting services for startups while helping them gain financial help
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