Incubators, Accelerators, and Your Startup…Oh My!

Recently our company, Rippld, has gone through a wave of incubators and accelerators in Michigan and seen friends’ companies do the same. We thought we could share some of the insights we’ve learned along the journey that are applicable across the board. We’re also sharing a conversation with Jeff Epstein, one of the founders of Ambassador, about his take on startup accelerators. Jeff is one of the latest graduates of TechStars (New York), a 13-week program considered to be one of the best startup accelerators in the country. Epstein’s startup, Ambassador, aims to become THE software for referral marketing.

Difference between an Incubator and Accelerator

There are many opinions about the exact differences between an incubator and an accelerator. The terms are usually used somewhat interchangeably in conversation. By most accounts however, the main difference is that incubators allow a company to have office space within their location for an extended period of time, whereas accelerators have set periods of time for a company to ‘accelerate’ itself to the next level.

Also, in many cases, incubators tend to support themselves by charging rent for the office space and services provided whereas accelerators tend to request an equity stake in the company. An article in Pittsburgh Ventures further defines the differences.

Things to Know when Deciding if an Incubator/Accelerator if Right for Your Company?

First, ask yourself what you’re looking to get out of it.

“I knew of other accelerators, including Y-combinator, but think TechStars was a better fit given that Y-combinator is slightly more tilted toward technical co-founders,” says Jeff.  It’s very important to research the program you’re looking to join thoroughly to make sure it fits your needs.

We’ve found that keeping these five things in mind when deciding can help tremendously:

1. The Network. This includes the mentors, trainers, and your peer group in the program itself.

Jeff explains that TechStars was a great experience for their team and that they learned a ton: “It was one of the best things I’ve ever done, and the support from companies and mentors was great. The network of TechStars alumnus is fantastic.”  From our own experiences, the network probably ranks at the top of the list of items to evaluate when joining an incubator/accelerator.

2. Access to funding. Whatever type of program you decide to join, evaluate what the chance of raising funding is. This was a very tough thing for our company to evaluate. We are lucky to have a finance guru on our executive team, but even after slicing and dicing the numbers a thousand ways, we had to figure out what we needed to ask for to get us to the next level.

Technically, an incubator or accelerator can help a team figure this out, but it can only help to know this ahead of time. Every program varies on what it can offer a company in regard to funding resources. Some specialize in helping companies get loans for the business, others introduce founders to angels and venture capitalists for Series A rounds. But do the research and ask those questions ahead of time.

TechStars is an example of the later. According to their site, the average funding raised per company is $1,000,000. But remember, accelerators like TechStars focus on bringing in high growth companies and only accept one percent of applicants.

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Getting into TechStars wasn’t an easy road for Jeff and the Ambassador team, and it wasn’t until their second try that they got accepted into the program: “I really made up my mind that if we were going to do one of the accelerators, I wanted TechStars to be it.” Ambassador is in the process of closing its seed funding round this month.

3. The training. Training is the third major component in the incubator/accelerator world. Depending on what stage your company is in, you will have different training needs. Types of training range from sales to marketing strategy, to financing and pitching and more.

A couple things the Ambassador team learned in the first week at TechStars:

  1. Proper etiquette when dealing with other entrepreneurs and investors is crucial. For example, one of the things they learned early on was not to ask an investor for an NDA (if something’s that proprietary and important to the secret sauce, don’t show specifics). Also, proper ways to send and answer e-mails are important, along with other tactical basics.
  2. Leverage your network to the best of your ability. It’s important to leverage everyone that’s willing to help in a way they CAN help.  This means align their skill set and network to a specific need or goal, and make it easy for them to say ‘yes.’ Don’t make them do a lot of work to help you (e.g., draft an entire e-mail that you should have pre-written for them).

4. The culture. Every incubator has its own culture. It’s always good to pick an incubator or accelerator that best matches with your company.  There are many incubators across the country, and likely more than a few in your state [see Michigan list here], so choose the one that best matches your company’s brand and internal/external culture.  This is one of the main reasons our company is a part of a creative incubator here in Detroit.

Besides checking out the websites and going to some of the incubators/accelerator open houses, make sure to talk to others who have been through the program themselves.

Jeff explains, “An accelerator like TechStars gives opportunities you don’t get even if you start a successful startup…because you have the opportunity to talk with all of these startup superstars on a regular basis and get very candid feedback.”

And candid it was. While at TechStars, every company had a mentor tell them the four words that are daggers in a founder’s heart: ‘I don’t get it.’

“I don’t know anybody that at one point wasn’t told that what they were doing sucked…However, I don’t know many that also weren’t told by a mentor that it was great. You have to be able to sift through the mentorship knowing that they are there to tear you down to make you better. Getting back up and learning from the advice is what’s going to make you successful.”

5. The terms. Ah yes, the nitty gritty. Most of the incubators and accelerators have terms that come with them. And if they’re taking an equity stake, they definitely have terms. It is best for you and your team to go through the terms prior to joining any incubator or accelerator and make sure you’re comfortable with them. You can find the terms and philosophy for TechStars and Y-combinator here.

A friend of ours who’s currently out in the Valley and just went through a million-plus series round said this to me in regard to accelerators: “An accelerator’s job is to do anything and everything it can to help a company get to the next level. If there’s anything that would possibly prohibit you from doing that, they’re not a good fit.”

Rippld is currently in the Detroit Creative Corridor Center’s (DC3) Ventures program as well as TechTown’s Thrive program. They are also applying to TechStars later this year.