Incubators vs Accelerators: Choosing the right start-up path

Start-ups are innovative by nature, but so too are the incubators and accelerators that work to fund, support and mentor these fledgling companies. It’s a model that has helped tech companies scale and grow at rates not seen before in the industrial age.

We spoke to a couple of the key players in the Australian startup ecosystem to try and get a handle on this very modern terminology. What makes an incubator different from an accelerator? And is one a better fit than the other for aspiring start-ups?

Outsourced innovation

Pollenizer is a stalwart incubator, renowned for its low-volume and shrewd choice of investments. In contrast, Startmate sells itself as an accelerator with some healthy runs on the board.

Incubators and accelerators both have the same mission but they go about their business in different ways.

Both aim to help young companies get over the early hump of understanding their customer base and designing a product that has a good market fit. But that’s where it ends.

‘Incubators get things started from scratch”, says Phil Morle, CEO and founder of Pollenizer.

“We build a business as a solution to a problem.”

“Incubators act as co-founders, they generate ideas and find problems internally and through their networks. In Pollenizer’s case they also partner with a range of large corporates and through their platform custom design lean and agile businesses that solve the problem in ways a traditional company never could.“

It’s outsourced innovation and Morle says an incubator sees the business through “to the bitter end.”

For Pollenizer, ownership of ideas is not a problem,

“In the Philippines, for example, we put a public call out to the market and said we’re really interested in five particular themes, which seemed ripe with opportunity, so we brought entrepreneurs in and had 120 people workshopping the idea and out of that came the business,” Morle says.

Pollenizer has launched True Property which is an online real estate website aimed at the Philippines market. They're also making moves into the rapidly developing mobile markets of Myanmar in partnership with global telco, Ooredoo.

For startups the key is not to bring their product to market, but more to build an understanding of the market and its customers, and to then augment the product to suit.

There is a romantic notion that success for a start-up entails a light bulb moment fuelled by single-minded obsession. It’s a narrative fed by the success enjoyed by the likes of Sean Parker with Napster.

But these days it’s the team that matters. Equally important is the access to the right information and the right funding at the right time.

“I think most of the startup culture understands now that ideas are cheap, and that it’s the execution that’s really difficult. In the case of all of our businesses, they have manifestly changed their direction,” Morle says.

He adds that start-up founders shouldn’t be too precious about their original idea because that’s subject to constant change.

This point holds true for most startups in the tech space, but for those unwilling to compromise on their vision accelerators provide a different path towards growth.

Geared for competition

StartMate founder Niki Scevak says the core idea is investment, investing capital in a good idea in return for a small amount of equity.

“At Startmate we invest in small technical teams who are creating global internet start-ups where the majority of the founding team is technical in nature, generally two or three people with an idea. We invest $50,000 for 7.5 per cent slice,” Scevak says.

A three month program in Sydney is followed by two months in San Francisco and while there’s a clear transactional model in play, Startmate is as much about mentoring as it is about investments.

The aim is still to drive superhuman growth in innovative tech companies, but the key is that founders drive their concept, they build it and it’s up to them to iterate and to make the decisions. The accelerator is a platform that offers the teams the resources and assistance to best achieve this.

A mere three months to build, test and present a company seems a torturous deadline, but as Scevak explains, it’s an important discipline and a key tenet of the accelerator process.

“Yes three months is short but that’s intentional, they have to get something out in the hands of customers very quickly so they can learn and use that as the guiding light, rather than locking themselves in a room thinking they know what to build.”

“If you can’t do it in that time frame then you’re not good enough. That’s the brutal harsh reality,” Scevak says.

It’s a tense and competitive environment and the final deadline represents an opportunity to pitch their freshly hatched company to a handpicked group of investors.

“Startmate is set up for a very specific type of person and personality. And it’s to those who we feel we can add the most value.”

“Usually it’s global software companies, we sometimes have hardware companies. The fact is that for some businesses three months is not enough time to reach one unit of development.”

Accelerators by their very nature are geared for competition. Teams compete to get into the program then they sink their blood, sweat and tears into their project for the length of the program, the end game is being recognized and to be rewarded with the funds to take their company to the next level.

“Four out of the eight teams raise on average a million dollars each; that million dollars come half from US investors and half from Australian investors so it’s a very useful process in terms of introductions to investors both here and in Silicon Valley,” says Scevak.

Startmate is in the middle of their 2014 program, they have 8 teams currently beavering away in the Redfern HQ.

Flirtey - parcel delivery by flying robots;

Drawboard - pdf collaboration for engineers;

Inductly - mobile based staff induction;

HayStackHQ – data management for online legal services;

SportHold – sports gaming;

Composure – automated email;

Lumific - photo enhancement;

Foogi – effortless meeting scheduling.

For aspiring start-ups it’s important to understand that no single firm is going to tick all the boxes and there are other choices out there.

Digital agencies like Blue Chili are out in the market sharing some elements of an incubator, while The York Butter Factory in Melbourne not only provides a collaborative hub but is also home to the Adventure Capital investment group. The telcos – Telstra with Muru D and Singtel with Optus Innov8 Seed - are also getting into the act and this trend is only set to gain more momentum.

They’re a disparate group and they all have unique business plans, but at the heart of it they all want to be a part of the next Aussie tech-startup that hits the big time.

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