Startup Accelerators Explained: How Startup Accelerators Work

A startup accelerator, or seed accelerator, is a funding program for early-stage startup businesses. The goal of a startup accelerator program is to expedite the growth of existing companies. Startup accelerators provide companies with valuable resources such as mentoring, free office space or coworking spaces, legal services to help secure intellectual property, a collaborative work ecosystem, and access to industry influencers and potential investors.

Startup accelerators take on businesses that are already successful startups or have a solid foundation to build upon. This allows accelerators to focus their guidance and resources on scaling up business ventures as quickly as possible. In addition, accelerators commonly give their ventures a seed investment and take equity stakes in the companies. While funding for startup accelerators may come from both private and public sources, accelerators are more likely to be private organizations.

Some startup accelerator programs are as brief as three months, while others last around six months. Startup accelerators usually specialize in specific niches, like tech startups, for example, and create cohorts out of similar businesses. For startup accelerators, this is an efficient way to reach more innovators within a specific niche.

Startup accelerators and business incubators both invest in early-stage businesses, but the business models and the perks they offer differ.

1. 1. Stage of the venture: The biggest difference between accelerators and business incubators is the stage of the venture they focus on. Incubators focus on early-phase startups that are in the product-development phase and do not have a developed business model. Accelerators focus on speeding up the growth of existing companies that already have a minimum viable product (MVP) in the hands of early adopters with an established product-market fit.
2. 2. Timeframe: Startup accelerators typically engage with early-stage businesses for three to six months. Business incubators typically develop their ventures on a slower timeline. Their goal is to incubate a business idea as long as needed to build a successful company—and that incubation period may take one to two years.
3. 3. Seed funding: Incubators do not typically invest capital into ventures, but they may ask for an equity stake in exchange for the valuable resources they're providing. It's standard practice for accelerators to provide ventures with a seed investment in exchange for an equity stake in the company.
4. 4. Perks: Incubators provide startups with valuable resources such as free office space, equipment, mentorship, a collaborative community, and networking opportunities with potential funding sources like venture capitalists or venture capital firms. Accelerators offer all of the same perks with the added benefit of cohorts, seed-stage funding, and seminars.

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