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Let’s talk about start-up accelerators and incubators

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Accelerators and incubators are perhaps the most valuable resources a start-up has to achieve its growth goals. Today, the Spanish and international market has a large number of start-up incubators and accelerators that can help companies in full growth and development to reach their full potential and reach a majority audience.

For this reason, it is essential to know exactly what they are and how they differ. In this article we will explore what a business accelerator and a start-up accelerator are, how each one works, and we will find out the benefits of having their support when starting a business or taking it to the next level.

What are start-up accelerators and incubators?

The terms “incubator” and “accelerator” are often used interchangeably to refer to the same type of organisation. However, there are very clear differences between one and the other. The main distinguishing feature between a start-up incubator and an accelerator is the kind of business projects they take on: while an incubator supports companies that are still in an early stage, accelerators help start-ups that may have been active for years but want to expand or improve their position in the market.

Thus, an incubator can be defined as a company or organisation looking for future start-ups in the “seed” phase. A group of consultants and experts collaborate with the executive directors of the companies to develop the projects to make them viable.

Incubators are generally classified based on the market niche they focus on. While some of them cover a specific sector, such as technology or finance, other larger ones take on all kinds of business projects. The key to understanding the function of an incubator is the concept of “mentoring”: the incubator or accelerator is in charge of working hand in hand with the company’s directors so that they learn to develop their project until they are ready to carry out their core business activity.

Unlike the incubator, what a business accelerator does is improve the economic benefits of a company that already has a trained team and satisfies a real demand in the market. To achieve this, business accelerators also serve as mentors, providing new ideas for faster progress.

There are three different types of start-up accelerator, depending on the initiative behind it:

  • Public accelerator: This type of accelerator depends on a public institution or body, and therefore has public financial support for business development.
  • Private accelerator: Unlike the public ones, this type of accelerator is born from an individual or collective initiative of private capital.
  • Corporate accelerator: This last class of accelerators is distinguished by the size of the company that founded it. Typically, large companies start an accelerator to diversify their investments and acquire entrepreneurial talent by collaborating with developing start-ups, which may sometimes use the brand and facilities of the company behind the accelerator. This is the case of the Seat, Bankia or BStartup accelerators, established by Banco Sabadell.

How start-up incubators and accelerators work

Although each incubator establishes different periods and procedures for business development, they all tend to have the following phases in common:

  • Opening of the call: a need is established in the market and start-ups that can meet that need are called.
  • Selection process: start-ups meet with the incubator’s board of directors to devise business projects. After a few meetings, the board chooses the projects whose development it wants to support.
  • Incubation period: A tutor from the incubator works as a mentor for the start-up and develops the project together with it. This period is usually divided into two distinct phases:
    • Proof of concept: The start-up defines the business project and creates the business plan together with a tutor. An exclusivity and confidentiality agreement is normally signed as a guarantee for the incubator.
    • Minimum Viable Product: The start-up creates the company’s prototype by applying the real data that it has included in the business plan.
  • Investment Day: Also known as “Partner Day”, in this last phase the incubator decides whether to buy the start-up’s product. They can also reach an investment or marketing agreement.

The previous cases respond to a B2B or business to business incubation process, in which the objective of the incubator is to incorporate a new project into its own company. Of course, there is also the B2C or business to customer incubation, in which the incubator supports a start-up that then launches its product on the market.

In the case of accelerators, start-ups are usually located in a shared location, owned by the accelerator. Here, the mentor advises them to obtain faster growth, providing feedback on development decisions. What tends to happen is that the accelerator makes an initial capital contribution, known as seed funding.

Similar to incubation, at the end of the acceleration process the start-up presents itself to venture capital investors in what is known as an “investment round” or demo day. The objective of this last phase is to conclude a first round of investment and obtain more financial support to meet the objectives. Unlike incubators, the benefit that accelerators usually obtain is between 5 and 10% of the value of the company they have supported.

Benefits of using an accelerator or incubator for start-ups

The above summary already points to the large number of advantages of having the support of a start-up accelerator or incubator. The main benefit is, of course, the exponential growth that mentoring by experts allows: the company can develop and obtain economic benefits much more quickly and, in many cases, almost immediately from its launch on the market.

Second, another advantage of having external support is reinforcing the strengths of the start-up: thanks to the advice and feedback from the incubator or accelerator, it is easier to focus on the elements of the company that offer a competitive advantage. It is not surprising, in fact, that many companies pivot to another business domain after going through an accelerator or incubator.Last but not least, working in partnership with an incubator or accelerator allows for a greater network of contacts. Participating in business programs puts a start-up in contact with other innovators and entrepreneurs, and it is very common to see fraternal relationships are established and business collaboration deals are initiated.

The support a developing company needs

There are more and more incubators, accelerators and entrepreneurship support organisations in Spain. From Grupo Intercom, currently the main incubator in Spain, to younger projects such as Mola or incubator-accelerator hybrids such as SeedRocket, there is a wide variety of companies that offer help to business projects at any stage of development.

These organisations, which promote and contribute to the viability of growing companies, have become an essential reinforcement for the health of the Spanish and international scene. Every entrepreneur with a good idea will find in them the necessary financial support and, above all, a support network through which to carry out innovative ideas that contribute to the business fabric of the country.