Terms like startup, venture capital firms, accelerators and incubators often float around, one being confused for the other. Many are familiar with the term “startup,” which is a company that is just beginning its operations or in its very early stages. The term is often applied to tech organizations or young companies. While this term is known, there are different types of startups, including accelerators and incubators.
While all of these teams share some similarities, each is different from the next. How do these terms compare and contrast with one another? Are incubators venture capital firms? Learn the differences between each, below.
Learn more about business incubators at Alloy Development Company here.
Defining Each Term
Before we dig into the details, let’s start by defining each term.
- Startup Incubator – A startup incubator is a collaborative effort to help startup companies succeed. They take place in one central location with someone able to provide office space, seed funding, and guidance throughout the company’s development.
- Startup Accelerator – a startup accelerator is sometimes referred to as a seed accelerator. It is a program designed to support young companies that are on a growth trajectory. These programs provide support, mentorship, guidance, and financing to help them hit the ground running.
- Venture Capital Firm – Venture capital is a financing option that involves startups receiving capital in hopes that the investor gets a significant return on investment (ROI). A venture capital firm is one with an angel investor that invests private equity into portfolio companies with considerable growth potential.
Each of these definitions sounds similar, but several differences individualize them
What is the Difference Between Startup Incubators and Venture Capital?
Where a startup incubator provides materials, venture capital firms offer the entire experiences, knowledge, and scaffolding to build from the ground up. The intention behind incubators is to create collaboration and community between those who have great ideas for business and those who have gone before them and succeeded.
For example, if an entrepreneur has standout business ideas and some of the knowledge to get started, they might need help filling in some of gaps like an office space/co-working space or funding to hire new minds. The incubator is just what it sounds like, a place for similar-minded professionals to incubate around one another to grow and scale their company. Startup founders provide the building blocks for early-stage startups, helping them form business models so that they can learn from experts rather than stumble to figure out the details on their own.
Once the company has the library of knowledge they need to hit the ground running, they move on to a startup accelerator program to efficiently scale their growth. While startup accelerators and incubators are similar, they have different steps in the process.
On the other hand, venture capital firms approach the situation differently. Venture firms seek to support the companies they wish to see grow. The firms themselves develop the ideas, determine the best path to realize them, and seek the resources they need to succeed. Those resources might include knowledge, expertise, and founders.
How Do They Compare?
Are incubators venture capital firms? The answer is not a simpley yes or no. While they involve business ideas being grown by an entity that provides funding and resources, the route to growth and success is quite different.
Incubators welcome various ideas with a highlight on collaboration and community, while venture capitalists seek out specific ideas that they can scale to a sizable ROI. Incubators do not always take equity in the companies they work with. In contrast, venture investments seek out equity and, in return, offer top to bottom services to the companies they wish to grow.
In conclusion, if the goal is the growth of startup companies, yes, incubators and venture capitals are the same. The difference is the intention and financial roles that are filled along the way.
To learn more about business incubation with Alloy Development Company, click here.
What is a Startup?
A startup is a company just beginning its operations or in its very early stages. The term is often applied to tech organizations or young companies.
What are Startup Incubators?
A startup incubator is a collaborative effort to help startup companies succeed. They take place in one central location with someone able to provide office space, seed funding, and guidance throughout the company’s development.
What is the Difference Between a Startup Accelerator and an Incubator?
Incubators aim to help startups gain the knowledge, space, and funding they need to get started. Accelerators help after the incubation period to help them hit the ground running and scale their growth on a more significant level.