The Difference Between Incubators and Accelerators

Before 2008, the word of the moment was “sustainability”, as in worrying about the natural world and our place in it. Today the word is “innovation”, as in worrying about our own local economies, companies and careers. And amidst all this chatter, a number of communities and companies have been opening business “incubators and “accelerators”. What is the difference between the two, and which works better?

In a nutshell, “incubators” are generally publicly-funded co-working spaces where tenants pay below-market rents for shared space and limited administrative services, while “accelerators” are investor-funded programs where portfolio companies give up some equity in return for free space and intense mentoring. Incubator companies enter on their own and generally lease for one to three years. Accelerator companies enter through a selection process with a set of peer companies and leave after three months, usually after a demo day.

The Brookings Institute, Richard Florida, and some solid academic research says that almost all public incubators fail to better the odds of success, that most accelerators achieve no better than S&P returns, and that a few accelerators work. What makes for success? Connections and learning, catalytic events, streamlined regulations, and choosing the right people. But there’s something else: keeping it real when it comest so the product itself. Peter Relan, a programmer, serial entrepreneur, and angel investor, says that people and companies should be screened for solving compelling problems, avoiding those that simply add features to what already exists. There is wisdom in his advice, which implies that success comes not from the razzle dazzle but meeting real needs.