Why Incubators and Accelerators Are the Need of the Hour
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Start-ups looking for investors to fund their projects have a number of options besides Venture Capitalists or Angel Investors, who are sometimes hard to come by. However, there are a couple of smaller investors in the form of incubators and accelerators who could bridge the gap, at least temporarily.
According to NASSCOM, India has about 140 startup incubators and accelerators in the country, the third largest in the world after the United States and China. Although they are not concentrated in all industries, start- ups have quite a few options to choose from the ones that rightly fit the profile of the promoters in addition to the services that are expected for the business to expand.
Before we get into the details of the role played by incubators and accelerators, let's' understand the definition of both and the part they play in assisting start- ups.
Building an Early Stage Start-up
Incubators are usually firms that assist start- ups in the initial stages of growth. The assistance provided can be vary depending on the role the incubator looks to play. While some of them limit themselves to providing only mentorship and directing the path to be taken by promoters, there are others who play a more definite role that includes right from assisting promoters in building business plans, offering office space, taking care of networking requirements, marketing, accounting and legal issues. In addition, there are incubators who also assist start- ups in finding investors when they look to scale up their business.
The best part of incubators is they offer all the services at little or no cost and usually do not own a stake in the start- up. They can afford all these services at little or no cost since they are well funded by grants provided by large institutions and through a number of other sources. All in all, incubators support startups in the initial stages and help them expand their operations without actually pouring money in the company physically.
Planting the Seed of Growth With Capital
Accelerators are a little different from incubators. They can comprise of family, friends, co- workers or private investors who typically provide financial and other resources to the promoter in return for convertible debt or equity stake in the business.
Accelerators are not funded by grants and usually invest a small amount of their own capital during the seed- stage of a start-up and unlike incubators who do not set a time frame for the start-up to cross over to next stage of expansion, accelerators work with the start- up for a brief period of 3-4 months, providing them with the guidance and expertise required and assisting the business to get to a stage where they can look forward to a series A round of funding from larger investors, such as private equity funds.
Although incubators and accelerators are often compared on the same page, accelerators have more similarities to angel investors, who provide start-ups that have the potential to scale- up and develop into large growth companies, with seed capital.
In addition to the small seed capital provided either in form of financials or services, the mentoring and guidance provided by Incubators and Accelerators could be extremely valuable and help avoid slipups that were either overlooked or not thought of, that could eventually have been devastating for the start- up.
Choose Wisely to Grow Organically
Depending on the ideas brought forward by the start-up, industry of operations, expected seed capital and the proposed time to scale-up business, incubators and accelerators are a couple of alternatives that start-ups should look at.
One must bear in mind that the incubator/accelerators are running a business of renting out infrastructure and expertise for short periods of time, the time constraint this brings with it could cause undue to stress on a fledgling business. To avoid this race to make it or break it, one could remain disciplined and organically grow a lean start-up. Also, collaborating with the right kind of incubators which are taking you on for the longer term outlook will prove prudent.