Incubators and Accelerators An Unofficial, Internal Building Block Report

Jennifer Grosso

Business Incubators Objective: According to the SBDC, the biggest obstacles new small businesses come across pertain to management problems and under-capitalization. Incubators aim to nurture the development of primarily non-profit entrepreneurial start-up companies by providing financial incentives and operational resources to help overcome these obstacles. Using shared overhead costs and workspaces, internal linkages among members, and business support services incubators give tenants a greater chance of establishing themselves independently in the marketplace. Goals: Allow for slow and controlled growth of start-up companies. Incubators also create jobs, enhance the entrepreneurial climate, accelerate growth in a given industry, commercialize new technologies, revitalize neighborhoods, and diversify and thus strengthen local and national economies. Facts: The Batavia Industrial Center was the first company considered to be a business incubator, and was created in 1959 by Joseph Mancuso. By 1980 there were 12 reported incubators, climbing to 70 by 1987 and soaring to over 7,000 worldwide in 2006. Of those 7,000 incubators, 94% were in North America. 39% of business incubator programs are technology based. About one-third are supported by economic development programs; and one-fifth are supported by academic institutions. Studies show that two-thirds of new small businesses intend to remain in the incubator for at least two years, and 44% plan to stay at least four (http://www.NBIA.org). Successful Example: The Idea Village, which is New Orleans-based (http://www.ideavillage.org).

Business Accelerators Objective: Accelerators aim to accelerate the development of primarily for-profit entrepreneurial start-up companies by providing capital and operational resources. Business accelerators provide shared workspaces and management resources like incubators; however, an accelerator is more likely to focus strategies on communication technology and web-based services. The term has regained popularity in recent years to describe companies that, in addition to the services of a traditional incubator, will provide small-scale funding as opposed to lowered costs. Accelerators will provide grants, or seed funding in exchange for a small share of equity in the company. Accelerators generally bring in new batches of clients at least once or twice a year, and consequentially there is a time limit and graduation process associated with these kind of programs. Lastly, instead of government and institutional-based funding, accelerators are primarily funded by venture capitalists and angel investors. Goals: To quickly and efficiently create companies that will become successful investments. Accelerators also create jobs, enhance the entrepreneurial climate, accelerate growth in a given industry and commercialize new technologies. Facts: Because of their relatively new arrival to the incubator market, there is a no central association comparative to the NBIA for business accelerators. The term business accelerator developed in the 1990s by in response to venture capital dot-com companies that wished to distinguish themselves from general incubators. Approximately 100 established programs have been identified globally matching this description. The two most successful U.S accelerators to date give each of their start-up companies up to $18,000. Successful examples: TechStars (http://www.techstars.org) and YCombinaton.