Incubators, accelerators and the difference between them

First, let’s get familiar with the terminology, so we can avoid misunderstandings of why we write about some programs and organisations but don’t mention others. Business-incubator is an organisation that helps new companies and startup companies to get services, for instance, in the field of personnel management or office space. With all this said, there are 5 types of “incubators” distinguished: at universities and other educational facilities, non-profit public organisations, venture companies and different combinations of aforementioned. Besides, incubators often use government financial support and focus on a few different development paths at the same time (e.g. biotech, fintech, medtech, etc.) and don’t have shares in other companies.

In most cases accelerators are private companies that don’t depend on governmental financing and support companies of quite a wide range, even within the framework of one acceleration program. Moreover, there are corporate accelerators that stand aside from traditional accelerators and focus on supporting the innovations within a corporation and in accordance with the internal clients’ request. Another significant feature of accelerators is an open acceptance of applications that is accompanied by a very high competition. For instance, Y Combinator or TechStars accepts only about 1–3% of all the applicants.

Business incubators have existed in the USA since the early 1960s and since the 1980s they have become widespread in Europe. The very first accelerator became Paul Graham’s Y Combinator in Cambridge, MA in 2005. After that the accelerator moved to the Valley, to which our today’s article is dedicated.

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As for today, Crunchbase includes 61 companies under the “Accelerators in Silicon Valley” category. What’s more, 36 of them have at least 1 investment in their portfolio with Y Combinator being on top of the list with 2 835 deals and 282 exits. Among Paul Graham’s successful brainchild is Twitch that has already taken its place on the streaming market, gaming in particular; Cruise — the developer of autonomous automobiles as well as Reddit, Dropbox, Product Hunt that don’t require any introductions. Oldies might recall Pebble — one of the first successful attempts to create smart-watch that got a mind blowing amount of money on Kickstarter (first Pebble generation in 2012 raised a record $10 million with the goal being set for $100 000 and it is the third most successful project on the platform of all times; the second Pebble Time generation raised more than $20 million with $500 000 goal). If to talk about companies which are closer to us, GitLab is one of the worth mentioning as Y Combinator is one of the investors of the company’s E series (yeah, Y Combinator is currently not only an acceleration program at the Seed stage but an investor for fairly mature companies as well).

The second place in terms of deals' number takes Plug and Play accelerator, founded in 2006, with 1007 investments and 74 successful exits, among which you won’t find any celebrities (unlike Y Combinator). For instance, Notion project from the accelerator’s portfolio (that is a namesake of a fast-growing note-taker) that was offering its services on the IoT and SmartHome markets and was bought by Comcast for $16 million. Even though in Crunchbase description it is mentioned that Plug and Play helped to grow such market leaders as PayPal, Danger, Google, DropBox, LendingClub, Zoosk, SoundHound, CreditSesame and Skytree, which more likely means the financial support of those companies on one of the stages. With all that, an accelerator invests the money on three different stages: Angel, Seed and Round A. For Seed investments a special 10-week Startup Camp is taking place in the Valley, during which entrepreneurs have an opportunity to intensively work on a business model for their startup. Besides, like any other accelerator, Plug and Play operates in more than two dozen of various fields: from the Internet to fashion as well as from travelling to mobile apps.

StartX from Stanford, which was founded in 2010, closes the top three as it has supported over 450 companies in their early development stages over 10 years. With this, Crunchbase indicates 237 investments and 30 successful exits. Among the company’s investments, is, for example, Patreon — a service to support independent authors and performers. Although the company has a very wide portfolio of investments: IoT, medical startups and e-commerce.

There are two more accelerators that made it to Bi Five and deserve special recognition — Boost VC and Founder Friendly Labs (FFL). The first one has 172 deals and 17 exit points that make 10% of successful exits; the second one even with fewer deals (only 122) can show off with 24 exit points that make 20%. Behind Boost, VC is Adam Draper (not to be confused with his father Tim Draper from DFJ) that invests $500 000 in startups in the early stage. The company doesn’t possess any celebrities in its portfolio, however, Visabot — a program that simplifies the process of filling out documents for obtaining American visa, can be marked as a useful one (was bought in 2018 by DoNotPay and shut down).

FFL was founded by Mendel Chuang and Samantha Quist, who both had jobs at Google as their background (Mendel joined the company even before the IPO in 2004 and worked there until 2009, while Samantha worked there from 2004 to 2008). Their “loudest” exit point can be considered Earnest — fintech startup on retail lending that was bought in 2017 by Navien Corporation for $155 million. We would also like to mention that FFL doesn’t take equity from a startup but offer up $200 000 in loans for Google, Amazon and Hubspot goods. The trick of this accelerator is software development, followed by A.I., analytics, mobile apps and other spheres.

We should mention another accelerator — Google Launchpad. From its name, you might have already guessed that it is connected with Google. The program was launched 10 years after Y Combinator appeared — in 2015, but in 5 years, they have already invested in hundreds of companies (113, if to be precise), and even managed to exit from 9 of them, what helped them to become #6 in the Crunchbase list. The distinctive feature of Google Launchpad is the exit globality. If the majority of exits by previous accelerators are mostly located in the Valley, then Launchpad “launches” his projects from Poland to Brazil (and we are talking about successful exits). As of today, the accelerator is focused on three regions — India, Indonesia and Brazil. What is really special about this 6-month program is that the participation is free and apart from other accelerators, Launchpad doesn’t ask for a share in the business, and on the opposite, they offer “loans’’, so startups could use Google products. it is worth mentioning, that in the last few years, the accelerator hasn’t actively invested: in 2016–2017, they invested in more than 20 projects quarterly, and since 2018, they have invested only in 6 companies.

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What to expect from the Valley and its accelerators

Indisputably, Silicon Valley will always be the birthplace of technical entrepreneurship as well as first acceleration programs. However, it is important to consider a few factors: it is quite hard to get into top-accelerators as mostly local companies are in favour. In the Valley, you can find accelerators that meet your every need, but usually there could be teams that develop widely different products, which, on the other hand, enhances them due to the possibility of the experience exchange. So to say, in our next article, we’ll talk about how things are on the opposite side of the USA.