As of 2024, there are more than 160 startup incubators and accelerator programs around the world. These global startup incubators and accelerators act as lifelines, helping companies take their first steps, grow, and succeed.
Startups are like newborns—they need continuous nurturing to survive. Only after proving their capabilities are these startups trusted to exist without external support or a safety net.
Global incubators and accelerator programs are established as lifelines to help companies take their first steps, grow, and eventually thrive as sustainable businesses. Typically, incubators and accelerators provide resources such as office space, mentorship, and even seed capital. Incubators may assist with product development, recruiting co-founders, business formation, business development, and more.
Meanwhile, companies that are already established typically join accelerator programs with a business plan, a founding team, a prototype or a product already in the market, and some initial signs of revenue. Accelerators help these businesses expand their products or services to reach broader audiences.
What is a Startup Incubator?
A startup incubator is an entity that provides resources to turn ideas into early-stage startups. Incubator programs can be either for-profit or non-profit and are run by governments, universities, venture capital firms, philanthropists, etc.
Incubators are truly like “sandboxes” for entrepreneurs to build prototypes of their ideas, test those prototypes, and determine whether an initial product-market fit can be found.
The resources required for this product development stage are different from those needed by growth-stage startups that have already achieved product-market fit.
For example, a startup incubator may offer 3D printers and CNC machines to hardware startups, infrastructure workflow credits, and senior-level mentorship to software startups.
Once a functional prototype is built, the product has reached paying customers, and the company is ready to scale to reach more customers, that startup may transition to an accelerator program model.
What is a Startup Accelerator?
A startup accelerator is an entity that provides resources to help early-stage startups develop into self-sustaining companies or become capable of raising further investment.
Accelerator programs are typically designed for startups that have achieved some key milestones and are ready to grow their businesses rapidly. Some accelerators provide funding in exchange for equity in the company.
This is the point where the pros and cons of enrolling in an incubator or accelerator program must be carefully weighed.
Benefits of Incubation and Acceleration Programs
Although there are some differences between the two models, there are shared benefits of both startup accelerators and incubators—though these can vary significantly depending on the specific program.
1. Funding Opportunities
Some incubators and accelerator programs offer funding opportunities when investors seek returns from equity appreciation, or when local governments aim to benefit from economic development.
Accelerator programs have been widely used by venture capitalists, and in some cases, they provide training facilities for companies in their portfolios. Universities and governments are also encouraged to invest in their affiliated entities and support innovation to reap the benefits of job creation and economic expansion.
The funding amount from accelerator programs can range from tens of thousands of dollars to up to half a million. For example, StartMate—a leading Australian accelerator—offers USD 75,000 under the terms of its most recent funding round.
Even if an accelerator does not offer upfront funding, that doesn’t mean funding opportunities are unavailable. Many accelerators maintain networks of angel investors, venture capitalists, and other stakeholders who can support fundraising efforts.
2. Free Office Space
Most accelerator programs provide shared workspaces and a limited number of meeting rooms. Office space is a major benefit for startups for various reasons, including reduced overhead costs and increased collaboration.
Leasing office space for an unproven business model is extremely risky. Signing a lease for six months or more can be a significant expense and may impact the startup’s survival time before generating revenue.
Shared workspaces in accelerators are also beneficial for teams due to exposure to and learning from like-minded groups who face similar challenges and are discovering breakthrough solutions. Having office space also provides a professional setting to meet with investors, customers, and mentors.
3. Mentorship
Warren Buffett once summarized the value of mentorship with the quote: “It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes.”
As an entrepreneur, you’re going to make many mistakes throughout your journey, and the best way to minimize them is through a combination of mentorship and openness. Every successful business or entrepreneur is built on a foundation of past failures.
Accelerator programs bring in the brightest and best from various industries to help the next generation achieve similar success. Learning from those who have been in similar situations before can help you navigate a struggling industry more effectively.
4. Resources
Accelerators may also provide additional resources and strategic partnerships that are crucial for startups in the growth stage.
For example, some accelerators offer legal consulting to help protect intellectual property, prevent costly litigation, and provide other forms of legal advice.
Accelerators also often establish partnerships with companies that provide products and services for free or at discounted rates to participating startups.
Cloud computing credits, discounted SaaS subscriptions, and various other resources are commonly made available to startups in accelerator programs. These resources can vary widely depending on the specific accelerator a startup joins.
Demo Day is also a widely recognized perk of participating in an accelerator. This is when startups pitch their ideas, showcase their products, and connect with investors to raise additional capital and build strategic relationships.
Drawbacks of Accelerator Programs
1. Equity Stake
Many accelerator programs come at a steep price—that is, equity in your company. Equity in a successful business is finite and therefore a highly valuable resource. Whenever investors, mentors, employees, or anyone else joins the cap table (equity ownership breakdown of a company), it’s important to consider how they will continue contributing throughout the company’s lifecycle.
In startup funding, this is often referred to as smart money vs. dumb money. Smart money is when an investor brings more than just capital—such as business passion and resources that go beyond finances—and continues to support the company after investing. Dumb money is when an investor offers only money and is solely focused on their return.
If an accelerator program lasts only six weeks but takes six percent equity, it’s important to evaluate how that affects the founding team’s stake, future fundraising ability, and whether the accelerator will continue to provide support after the program ends.
Some accelerators offer follow-on funding, but again, it’s essential to understand equity dilution and its effect on motivation. If the founding team is diluted too much, too early, they may lose the incentive to put their full energy into the company.
2. Insufficient Time or Funding
Another consideration when weighing the pros and cons of any accelerator program is the duration and amount of funding. Startups cannot be built overnight, and if a program is too short and underfunded, the startup may leave the program with little progress and even a budget shortfall.
For example, if a startup has a sales cycle of six months or longer but joins a three-month program with just enough funding to survive for six months, it may exit the program with no revenue and insufficient funds to sustain itself until cash flow arrives.
These types of scenarios force companies to raise funds in urgent situations—often without a proven business model—leading to down rounds, meaning they raise money at a lower valuation than in the previous round.
Is an Incubator or Accelerator the Right Choice?
There are many success stories of companies that went through incubators or accelerators and thrived. Airbnb, Stripe, Dropbox, and many others are prime examples.
However, decisions that will impact your business for the rest of its life must be carefully considered—from choosing whether to structure your business as a C-corp, S-corp, LLC, or another format, to determining the company’s insurance coverage.
If your business needs support to launch and stabilize on the path to success, incubators and accelerators can be viable options. Just make sure you thoroughly research the reputation and specific terms of the incubator or accelerator program you’re applying to.
