Start-ups need powerful partners to scale their operations from promising ideas and proven minimum viable products (MVPs) to high growth and market success in little time. In this, start-ups need all the help they can find — and they receive it from various institutions like incubators, accelerators and venture builders.
However, only the right partner at the right time will help a start-up succeed. Unfortunately, there is a lot of confusion concerning what these institutions do and the type of support they offer to start-ups in various stages.
As venture builders, we are keen to provide clarity. In this article, we define what these institutions do, what their goals and tasks are, in what stage and how long they support.
How We Distinguish
This article follows a clear structure to offer readers a distinction between these three types of institutions.
We introduce all of them separately, detailing them along the dimensions of
- organizational form,
- their goal,
- types of support they offer,
- the duration of their support, and
- a detailed look at their main functions from the point of view from the start-up.
Drawing its roots from the Latin word “incubatio”, an incubator originally described an apparatus used to help to artificially hatch eggs so the living organism could come to live safely and in an appropriate setting. Applying the analogy to business formation and growth, incubators are the first go-to-points for very early projects and ventures whose promising ideas have not yet progressed beyond the concept phase.
The type of process and services offered by incubators to start-ups differ and depend on the nature of the venture and product or service offering intended. The flexible combination of development processes can extend to the provision of office space, legal or accounting advice and other support services to ideally support the project development in the vulnerable (very) early phase of its growth.
The organizational form of incubators usually is its own unique legal institution that focuses solely on incubating start-ups and applies all of its staff and resources to this specific business activity.
An incubator’s goal is to structure and support a venture’s business development in a very early stage so that promising business idea and product concepts can be developed and manifested in a minimum viable product (MVP) to test the viability and market demand for the intended offering. Incubators seek to get participating ventures ready to be effective organizations with established structures and processes that can scale and grow.
The support services offered by incubators mainly extend to access to infrastructure and support services as well as network resources while capital and funds are usually not included.
Incubator programs typically have a medium time horizon, with a duration lasting anywhere between 6 months to 3 years. The process typically is detailed upfront in terms of milestones rather than a clearly specified time duration.
The accelerator addresses young start-ups that have already established the viability of their offering by developing an MVP and testing it in the real-world market with actual demand backed by client purchases. Getting engaged at a later stage than incubators, the accelerator hence seeks to speed up the development and market establishment of a proven venture.
In the ambitious words of the scene, the goal is to help start-ups “reach the next level” in their development. To that end, a clearly defined program with a fixed time frame is arranged during which the accelerator offers methods, tools and oftentimes also funding to the rapidly growing venture.
Compared to an incubator, the accelerator takes a more active role in helping the venture build processes, structures and financial base of funds to stabilize the vulnerable venture in these critical early phases of its existence.
Accelerators usually are only designated programs within an institution such as venture capital funds. The goals of accelerators are very KPI-driven growth of revenue, productivity, user number, subscriptions, partnerships, profit margins and/or other growth-related metrics that underline the success of the program.
The support services offered by accelerators pertain to the acceleration of the operations through relevant infrastructure and resources similar to those provided by incubators. The time frame of accelerator programs is to short-term focus with a duration of usually 3–6 months.
Also known as company builders or venture studios, these separate dedicated institutions support their ventures along the entire value chain. Distinguishing them from incubators and accelerators is a radically proactive approach to building, establishing and growing their ventures while consistently applying a clear roadmap during the entire development and growth process.
Venture builders are separate legal institutions fully dedicated to the development and growth of the ventures they partake in and become co-founders of. The designated goal of company builders is to rapidly grow and scale ventures to established market positions and relevant size to then sell these successful ventures at maximum profit and ROI.
The support offered by company builders extends much further than incubators and accelerators and should be seen as a co-founding and co-development of the business through infrastructure and resources. This also necessitates the long-term horizon of development and growth efforts that usually range between 2–5 years.
As company builders are involved more deeply in the development process of their ventures, they also have additional and more qualitative ways to measure their progress. Given their role as active co-founders, venture builders know the relevant success factors towards which efforts must be directed. Yes, company builders could be regarded a full-support-service-provider and co-founder, accompanying start-ups more intensely and for a longer distance than either incubators or accelerators do.
The main function of a venture builder is to accompany start-ups all the way “from the seed phase towards the last stage” and transition from start-up to established corporation. The profit the venture builder has made from the scaling process is increased further by redeploying it to ensure the break-even and final profitability of the venture.
Two essential measures and fields of activity are essential to this end:
- Ensuring durability and sustainability of operations and revenue growth through employing innovations and reinvent the venture as much as deemed necessary.
- Expanding the operational processes and production (capacities) to create the conditions for sustained long-term growth.
Cryptix AG is the central venture-building platform and umbrella for a European cluster of businesses. The company founds, develops and maintains start-ups and scale-ups. True to their vision of “The People’s Financial Marketplace”, Cryptix specialises in fintech ventures building a network of modern financial services, moulded into the needs and wants of Micro, Small and Medium Enterprises (MSMEs).
We could summarize the differences between these institutions in their focus best expressed by their attitudes:
- Accelerator: “This start-up is established and has proven its offering. Let’s take them into our program and support them with all the resources they need to scale.”
- Incubator: “Let’s further explore and detail those promising ideas and see which of them can be proven in the market to justify investment of further resources, time and money.”
- Venture builder: “Let’s take our idea and tools to co-found this venture and bring it to fruition. We hire the people and invest the sweat and blood required to make it happen — while looking for a substantial ROI down the road.”