Was an article on the difference between Accelerators, Incubators and Studios really necessary? Definitely yes!
If you’re a Startup Studio’s founder you’ve heard this question a dozen times: “Are you an accelerator/incubator?”
In this article, we will explain the difference between Studios, Accelerators, and Incubators. Everything is written here. Next time, don’t answer, just share this article. Simple as that 😉
Did you miss our previous articles about Startup Studios? You can catch up here.
- The Startup Studios advent in Italy
- History of Startup Studios Model: a 30-years journey
- Types of Startup Studios
Before diving into the topic, it’s time to review some fundamentals of the Startup Studio model.
The Startup Studio model
In the last article, we have provided an overview of the Startup Studio model, if you missed it check this link.
Anyway, let’s get down to business.
A Studio works on multiple startups in parallel (parallel entrepreneurship), it has an experienced core team, carefully selected entrepreneurs-in-residence and provides co-working spaces and in-house funding.
A Studio works on internally generated ideas; everything starts from an in-depth analysis of real market needs. This approach results in a dramatic decrease in startups’ failure rates.
The Startup Studio is not an early-stage investor, it is the founder. We can see a Startup Studio as mom or, in other words, a startup factory that creates startups in a continuous production cycle.
The main goal is to get startups to independence and liquidate the investments through an Exit.
Here are some interesting data about Startup Studios:
- Startups created by a Studio are less likely to fail compared to traditional ones (9 out 10 startups fail)
- 4.3 years Zero-to-Exit compared to 8 years for traditional startups
- Startup Studios’ Exit rate is on average 16% (9%-30% range), 8% for VCs
- $74 million average valuations compared to $50 million for traditional startups
- 53% IRR for Studios, 21.3% for the other ones.
Startups created by a venture-builder are so well designed that accelerators or incubators programs are not necessary.
The Startup Studio is like a super mom who knows each of its babies by heart and feeds and grows them in the best possible way.
Studios are not all the same and work according to different methodologies; if you want to learn more have a look at this article.
Now that the principles are clear, we can explore the difference between Accelerators, Incubators and Startup Studios.
An accelerator is like a turbo in a racing car, it makes them faster and widens the distance from competitors.
But how is this applied to startups? The main goal is to accelerate growth by providing expertise and investment opportunities.
The accelerator offers an intensive growth program, it shrinks a long process into a few months. The result is providing a boost to the life-cycle of a startup.
Startups are not created by the accelerator itself but selected among the startups that have applied for the program.
Since the goal is to get it to the first fundraising, once the boost is over the startup leaves the acceleration program and continues alone on its path.
Accelerators can be divided into two groups: Seed and Second Stage. How do they differ from each other? Let’s have a look at it.
Seed accelerators work on startups before they have reached a seed round, the acceleration program lasts for about 4 months.
It targets worthy early-stage startups with great potential to get funded.
Seed accelerator programs usually provide:
- Co-working spaces
- Public Pitch Event
- Demo Day
On the other hand, Second Stage Accelerators are oriented towards already structured startups. They target ventures that have already achieved the first funding round and keep growing. The program duration ranges from 2 and 6 months.
The services provided are related to networking with investors to set up the following investment rounds. Logistical support, offices, co-working spaces are also provided.
How do startups pay back for these services?
Some accelerators bill their services, others take some equity. As we all know, everything comes with a price.
Do you think Accelerators and incubators are the same thing? Nope.
An incubator has a different goal than an accelerator. The incubator deals with germinating (or incubating, like newborns) startups in their embryonic phase, helping them to build their business model, before launching them into the market.
The program incubates external startups, helping them to validate their ideas. Incubation projects last for years, as opposed to accelerators, whose duration is only a few months. Much more time is required to incubate and make an idea flourish. A seed takes a while to hatch and sprout.
Many incubators are publicly owned and therefore ask for small or no equity in exchange for their services.
The main services provided by incubators are related to mentoring; the goal is bridging the knowledge gap as much as possible providing a structure for future growth. Logistical support such as offices and working tools (software, licenses, etc) are also included.
The difference between Accelerators, Incubators and Startup Studios
Let’s summarize the difference between Studios, Accelerators and Incubators.
The Startup Studio aims to liquidate its investment through an Exit. The interests of Studio, Startups and investors are therefore perfectly aligned because they all pursue the same goal, the Exit.
The final goal of the accelerator is to get the Startup to the first investment round: if we are dealing with a Seed Accelerator the goal is get them funded.
The aim of the incubator is to help the team get the startup ready to the market. The services provided are designed to give a solid structure to the company.
In terms of timing:
- The Studio works in a long-term perspective;
- The Accelerator works on a short time frame;
- The Incubator works on a medium time frame.
The Studio is the Startup’s Founder or Co-Founder. Startups are created from scratch by the Studio which is also the first investor; it’s then clear that the Studio has a big chunk of equity in each Startup (between 30% and 70%) depending on the effort.
The accelerator invests in startups providing resources to increase their growth speed; compared to a Studio, the accelerator gets lower equity.
Incubators, on the other hand, take few or no shares in the Startups. It helps develop an idea that is still in an embryonic state.
The studio approach is also defined as parallel entrepreneurship: startup creation is based on real market needs with the aim of getting them to Exit. The approach is hands-on, it provides services, teams, resources and funding. The interests of the Studio, Startup and Investors are therefore perfectly aligned.
The accelerator approach is hands-off; it provides services and growth opportunities to boost and get them to the next funding round. The services offered are mainly related to mentoring and consulting.
The incubator aims to fill the team knowledge gap and provide support to prepare startups for the market. To cut a long story short, it can be defined as a gymnasium for startups: the incubator trains as much as possible the incubated ventures. The approach is hands-off as well.
A final distinguo needs to be made: both accelerators and incubators work on external “non-validated” ideas, whereas a Studio usually works on internally generated ideas based on real market needs.
...in the next article you'll find
No more excuses. After this lecture, the differences between accelerators, incubators and Studios are no longer a mystery to you.
If you want to get deeper into the Venture-Builders (Startup Studio) topic, we have some good articles, you can find them in our blog.
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