Incubators, Accelerators, Studios. What’s the Difference? And where should a Startup Go?
Tags: Startup, Information Technology, Entrepreneurship, Business, Venture Capital

Hi, I’m Igor Sokolov, Partner at Pragmatech Ventures and Head of Pragmatech Studio. I’d like to help clarify the features of different ecosystems for startups, such as incubators, accelerators, and studios. What are their peculiarities and what does each of them do?

Are you thinking about creating a startup? Then you’ll need to have at least a few of the elements from the following list ready:

● a team,

● an idea,

● startup capital,

● an experienced mentor,

● a business model,

● market expertise.

Don’t worry ahead of time; you’re not alone! You can find much of these in the special ecosystems for startups: incubators, startup studios, and accelerators.

In a Nutshell

● Incubators help entrepreneurs at an early stage, from initial idea to proof of concept.

● Accelerators usually focus on teams with a working product (a prototype) and help them scale up.

● Startup studios create businesses from scratch, mostly using internal resources and expertise, and provide maximum support to an entrepreneur.

Now, let’s dig a little deeper into the details.

Incubators: ‘Business Greenhouses’

What do they do?

The focus of startup incubators is essentially to make a project from scratch. These organizations help funders assemble a team and find their first clients. Typically, incubators have a specific niche, such as marketplaces, hardware, B2B Enterprise solutions, and so on.

Simply put, it’s like a greenhouse, a supportive environment for aspiring entrepreneurs. Incubators do a lot to ensure that the team doesn’t give up at an early stage, and helps to create a solution to show to clients. For that, they:

● explain how to manage the administrative side of a business;

● mentor in marketing, sales, and product development;

● provide office space if needed, and so on.

What’s the timeframe?

An incubator’s job is to help a startup go from an idea to an MVP or even to be ready to go to market, so it’s hard to predict an exact timeline. An incubator works on a somewhat flexible schedule often for three to six months, and even longer in exceptional cases.

Therefore, incubators anticipate several iterations in project development as well as possible sharp deviations, in advance.

What about financing?

Incubators don’t always provide capital to start-ups. And when they do, funds are often transferred ‘in portions’. Many such organizations ask the team to show meaningful accomplishments at various stages, and progress is ‘rewarded’ with funding. An incubator provides support in exchange for a share of the project.

However, some incubators do not take a share of the project for their services. Most often, these are governments or universities.

The logic behind financing is to help startups to avoid beginners’ mistakes, thereby increasing the chances of business success from the beginning.

Who should go to an incubator? Start-ups with an idea, but no experience.

Accelerators: ‘Start-up Universities’

What do they do?

The goal of an accelerator is to speed up the development of start-ups. In this case, they don’t have the ‘greenhouse’ approach of an incubator:

● They prefer to take projects with prototypes or already finished products;

● The selection process is often relatively rigid: you still have to ‘enter’ an accelerator, just like a university;

● Accelerators prepare startups for institutional capital, helping them to form a valid and scalable business model;

● It’s no longer about the first steps, but about preparing to scale up.

The best accelerators also become a platform for building connections between investors and founders. Such networking boosts synergies for further growth.

What is the timeframe?

In accelerators, the goal is achieved through programs with clear timelines: they support start-ups with mentors and experts to reach the level of a full-fledged, market-ready product. It goes about handling marketing and sales, as well as legal issues. As a rule, such programs last from several months to six months.

An acceleration program ends with a demo day. There, start-up ‘graduates’ present their projects to investors. In essence, this is the start of the fundraising campaign.

What about financing?

There are two main models of accelerators on the market: equity and non-equity. While the former select companies to participate and also invest in them (a regular cheque is $50,000-$100,000) in exchange for a share of the business (usually up to 10%), the latter do not give money and do not require a stake in the project. Moreover, participation in a non-equity accelerator is usually for a fee, unless they are non-for-profit organizations (e.g., educational institutions) or if the government sponsor them.

Corporate accelerators are also worth mentioning. They select projects that have synergies with a large company who then pay for the process.

Who should go to an accelerator? Someone who already has a team, a prototype ready, and is preparing to make a breakthrough.

Start-up Studio: a ‘Business Factory’

What do they do?

If incubators and accelerators are relatively common in the Eastern European market, they are different from start-up studios. This option is still little known to local entrepreneurs — and we at Pragmatech Studio are going to change that.

The goal of a startup studio is to gather a team of entrepreneurs and create a business with them from scratch:

● a studio is continuously generating and validating business ideas;

● people from the outside can come in without an idea; they will be offered one from the studio to implement. Candidates are expected to have an entrepreneurial spirit, a desire to build and develop businesses;

● the studio’s expertise helps to minimize the risks for a startup and increase its chances of success;

● the studio team works with entrepreneurs to develop the idea into a viable business: from providing office space to mentoring and operational support.

Studios combine several advantages of incubators and accelerators while being willing to invest more in project development. It’s worth mentioning that the studios get a larger stake in the business than an incubator or an accelerator.

Simply put, if you came up with a new Netflix or TikTok, you should go to an incubator. If you are the next Elon Musk and you lack an outlet for your potential, a startup studio is waiting for you. The latter provides entrepreneurs with a partner who will support them through all the stages of company development.

Besides, start-up studios often have connections to venture capital (including Pragmatech Studio), which simplifies a founders’ task at the initial stages. All the effort and time that doesn’t go on fundraising can help to create a better product.

What’s the timeframe?

There are no strict accelerator-type limitations here: studios focus on creating and growing a business. Different studios have different approaches; some support the project up to the seed stage, while others support it up to the exit stage.

Pragmatech Studio doesn’t aim to exit projects in the future: we support a new business at all stages.

What about financing?

Incubators and accelerators ‘grow’ ready-made projects. Start-up studios focus on a different kind of capital: human capital. They generate ideas and create start-ups based on them, finding external professionals who become co-founders of the projects. The entrepreneurs are engaged in product development with the support (including financial) of the studio’s team. Pragmatech Studio works on the same principle.

Who should go to a studio? Start uppers with an entrepreneurial spirit and a desire to grow and develop their business, both with and without a ready-made idea.

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Initially published in AIN.UA, Ukrainian media about IT and business.