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ENTREPRENEURSHIP 2, 4.05 (V) 4.3 Incubators and Accelerators

4.05 (V) 4.3 Incubators and Accelerators

Welcome to a discussion on incubators and accelerators which are two other funding mechanisms and support mechanisms you can use in the early stages of your startup. So let's first talk about what incubators are. Incubators had been around for a long time since at least the 1950s, and they are a way of trying to get early-stage startups the support they need in order to succeed. Usually incubators are open to some subset of individuals. So commonly universities might have an incubator, various regions and cities might have incubators. But the idea would be to have some sort of space that individuals can come to and that can provide them with support and help. So that might be something like equivalent of a publicly available. We work kind of office setting. But it's often some set of real estate, resources, lectures, mentoring help. They will help startups get through the very early stage of a company, usually it's an individual level, sometimes small teams and usually it's a rolling and entry and exit kind of situation. So you apply or join for a little while and you leave once you're too big for the incubator or reached the next stage of your company. Accelerators though they share the same common focused on early stage startups as incubators, have a very different goal. They're actually money-making ventures and they grew out of something that you've heard about in other lectures of the class which is, the fact that as start-ups had dropped in cost and become cheaper and cheaper to launch. It's become harder and harder for large investors to deploy money into a startup before it's been successful and to get the kind of returns that they wanted to. So someone named Paul Graham, startup investor, had the idea that why don't we instead of investing companies after they've already achieved some success, why don't we invest in lots of companies very early on before they even got their idea fully worked out, and that way we can get many small investments for large pieces of these companies and that was Y Combinator the first accelerator. So the way an accelerator works is that in return for joining the accelerator, you give up a small stake of your company in return for some sort of investments. So that investments usually a mix of money and resources, can be some legal help, some marketing help at a discount also space at the accelerator program. Usually accelerators are competitive to enter so top accelerators like Y Combinator or Techstars have a one or two percent acceptance rate. So as opposed to incubators which are open to everybody within a narrow community with some sort of maybe filter, accelerators are highly competitive and usually open to everybody. There are also class-based. So you apply to a class of an accelerator. So the Summer Program in accelerator X and you join altogether with maybe 20 other companies at that same time, or five or 10 depending on the size of the accelerator, and usually it's a three or four-month program at the end of which you do some sort of public pitch often to investors. In some cases you'll get investment right during that presentation. So the idea of an accelerator is it's a very intense, short-term program, it's really designed to get you the next stage of funding and it moves you through this process with a bunch of other people in the same way and it's competitive to enter. So like almost all other forms of fundraising, there's a very strong status hierarchy in the world of accelerators. So the top accelerators and you can see this list of the best accelerators the market like AngelPad and Y Combinator have their pick of which startups they want to have joined them and the lesser high-status startups accelerators like say 500 Startups or the local regional accelerators end up getting the people that Y Combinator do not necessarily select. So this is a very high status ranking, I strongly recommend looking at the accelerator rankings to see accelerator rankings that come out of [inaudible] work at Rice University and as a way of figuring out which accelerators might be the right ones to join. So there is some research on the types of accelerators and how they work. Techstars and Y Combinator have been the most successful. So Air BnB, Reddit came out of Y Combinator. The Daily Burn, Foodzie came out of Techstars and we actually have some evidence that accelerators do exactly what their name would suggest. So Sheryl Winston-Smith has a really interesting set of research where she says that people who go through accelerators are actually accelerated. They are more likely to fail or they're more likely to succeed than people who don't go through them. So there will get an answer right away in terms of whether startups going to succeed or not. The founders that do succeed get funding faster than people who don't go through the accelerators. Even if you're a startup fails, once you've gone through an accelerator, you're highly connected to this sort of hi-tech environment and it's easier for you to get jobs afterwards. So the general lesson here is that if you get into Y Combinator, you really should go there and other accelerators though it's less clear. So the vast majority of accelerator seem to fail, a lot of regions and governments have setup accelerators and it's not always clear that those work. So the high-status one's work really well, the low status ones you should only consider joining if it has some value for you. So if they're giving you some money that's useful access to resources that are useful but you shouldn't expect a low-status accelerator to make the same kind of change in your business that a high-status accelerator would do. So both accelerators and incubators will help you get your business off the ground. Incubators are much more of a providing passive resources such as space. Sometimes some mentoring, additional help. Accelerators are about making an investment in your company in return for a piece of equity in your company and usually joining some high-powered class in a high-stress environment where you'll have to go to the accelerator and spend time there. If you can join a high-status accelerator, you should probably do so. A lower status accelerator you need to consider whether or not it meets your goals or not. Incubators you should use if the resources are helpful for you and your startup company.


4.05 (V) 4.3 Incubators and Accelerators

Welcome to a discussion on incubators and accelerators which are two other funding mechanisms and support mechanisms you can use in the early stages of your startup. So let's first talk about what incubators are. Incubators had been around for a long time since at least the 1950s, and they are a way of trying to get early-stage startups the support they need in order to succeed. Usually incubators are open to some subset of individuals. So commonly universities might have an incubator, various regions and cities might have incubators. But the idea would be to have some sort of space that individuals can come to and that can provide them with support and help. So that might be something like equivalent of a publicly available. We work kind of office setting. But it's often some set of real estate, resources, lectures, mentoring help. They will help startups get through the very early stage of a company, usually it's an individual level, sometimes small teams and usually it's a rolling and entry and exit kind of situation. So you apply or join for a little while and you leave once you're too big for the incubator or reached the next stage of your company. Accelerators though they share the same common focused on early stage startups as incubators, have a very different goal. They're actually money-making ventures and they grew out of something that you've heard about in other lectures of the class which is, the fact that as start-ups had dropped in cost and become cheaper and cheaper to launch. It's become harder and harder for large investors to deploy money into a startup before it's been successful and to get the kind of returns that they wanted to. So someone named Paul Graham, startup investor, had the idea that why don't we instead of investing companies after they've already achieved some success, why don't we invest in lots of companies very early on before they even got their idea fully worked out, and that way we can get many small investments for large pieces of these companies and that was Y Combinator the first accelerator. So the way an accelerator works is that in return for joining the accelerator, you give up a small stake of your company in return for some sort of investments. So that investments usually a mix of money and resources, can be some legal help, some marketing help at a discount also space at the accelerator program. Usually accelerators are competitive to enter so top accelerators like Y Combinator or Techstars have a one or two percent acceptance rate. So as opposed to incubators which are open to everybody within a narrow community with some sort of maybe filter, accelerators are highly competitive and usually open to everybody. There are also class-based. So you apply to a class of an accelerator. So the Summer Program in accelerator X and you join altogether with maybe 20 other companies at that same time, or five or 10 depending on the size of the accelerator, and usually it's a three or four-month program at the end of which you do some sort of public pitch often to investors. In some cases you'll get investment right during that presentation. So the idea of an accelerator is it's a very intense, short-term program, it's really designed to get you the next stage of funding and it moves you through this process with a bunch of other people in the same way and it's competitive to enter. So like almost all other forms of fundraising, there's a very strong status hierarchy in the world of accelerators. So the top accelerators and you can see this list of the best accelerators the market like AngelPad and Y Combinator have their pick of which startups they want to have joined them and the lesser high-status startups accelerators like say 500 Startups or the local regional accelerators end up getting the people that Y Combinator do not necessarily select. So this is a very high status ranking, I strongly recommend looking at the accelerator rankings to see accelerator rankings that come out of [inaudible] work at Rice University and as a way of figuring out which accelerators might be the right ones to join. So there is some research on the types of accelerators and how they work. Techstars and Y Combinator have been the most successful. So Air BnB, Reddit came out of Y Combinator. The Daily Burn, Foodzie came out of Techstars and we actually have some evidence that accelerators do exactly what their name would suggest. So Sheryl Winston-Smith has a really interesting set of research where she says that people who go through accelerators are actually accelerated. They are more likely to fail or they're more likely to succeed than people who don't go through them. So there will get an answer right away in terms of whether startups going to succeed or not. The founders that do succeed get funding faster than people who don't go through the accelerators. Even if you're a startup fails, once you've gone through an accelerator, you're highly connected to this sort of hi-tech environment and it's easier for you to get jobs afterwards. So the general lesson here is that if you get into Y Combinator, you really should go there and other accelerators though it's less clear. So the vast majority of accelerator seem to fail, a lot of regions and governments have setup accelerators and it's not always clear that those work. So the high-status one's work really well, the low status ones you should only consider joining if it has some value for you. So if they're giving you some money that's useful access to resources that are useful but you shouldn't expect a low-status accelerator to make the same kind of change in your business that a high-status accelerator would do. So both accelerators and incubators will help you get your business off the ground. Incubators are much more of a providing passive resources such as space. Sometimes some mentoring, additional help. Accelerators are about making an investment in your company in return for a piece of equity in your company and usually joining some high-powered class in a high-stress environment where you'll have to go to the accelerator and spend time there. If you can join a high-status accelerator, you should probably do so. A lower status accelerator you need to consider whether or not it meets your goals or not. Incubators you should use if the resources are helpful for you and your startup company.