During recent years, incubators and accelerators became buzzwords with entrepreneurs who are looking for ways to start a business from scratch. The numbers of these startup support facilities in China alone exceed seven thousand and are continuously expanding.
While the list of startup facilitators is added almost daily, it becomes hard to navigate in this plethora of entities, offering diverse sets of services. The below description and included classification are aimed to assist with understanding the differences among various types of startup support structures and pick those who may fit the specific needs of your project.
1. Incubators vs. Accelerators
Incubators. Incubators are organizations that help startups form their businesses, starting from the earliest phase (see more on this in our article on startup lifecycles) and ending with companies’ first serious round of financing with larger external investors, more commonly known as series A stage.
While some incubators provide startups with initial financing before series A round, another primary focus of their activities is coaching, which includes, among others:
- advisory on legal issues,
- product ideation,
- business model development,
- business planning,
- startup pitch deck development,
- drafting and reviewing other documents for investors.
Among examples of business incubators in China are TusStar (Beijing), Jade Value Incubator (Shanghai), and HAX (Shenzhen). Here are the non-exhaustive lists of incubators related to Beijing, Shanghai, and Shenzhen.
Accelerators. These fulfill a similar function to that of incubators but only after startups transform into companies. Sometimes, accelerators can reach out to startups on the pre-company stage or wait until the series A round. Accelerators offer the same type of coaching and advisory services as incubators but focus on later-stage business development, and usually deal with more considerable amounts of financing.
Examples of Chinese accelerators include Day Day Up (Beijing), Chinaccelerator (Shanghai), Shenzhen Valley Venture (Shenzhen). Here are the non-exhaustive lists of accelerators related to Beijing, Shanghai, and Shenzhen.
Both incubators and accelerators can offer office space as well as a wide range of networking opportunities, including meetups with mentors and prospects. They also run events to connect startups with investors, including venture capitalists, private equity firms, and others.
Depending on their business model, these structures can charge fees to join an incubation or acceleration program. At the same time, other incubators or accelerators can offer their services and funding in exchange for equity in startups to get the highest return possible from owning shares in the most promising projects.
Startup Studios. Recently, the list of startup facilitators was added with yet another type of service. While these can look similar to incubators in many aspects, startup studios’ approach is much more extensive as it includes developing startups’ core ideas from the ground up and taking significant shares in formed companies. As such, startup studios usually cofound startups, wrap them into a legal structure, and help with resources. Given their extensive participation in startup businesses and thorough approach, it’s no wonder that startup studios as experiencing huge popularity and are often viewed as a most comprehensive and viable solution.
2. Public and Private Incubator and Accelerator Programs
a. Public Innovation Support Structures
Universities and schools in China, offering mentorship to their student-entrepreneurs, are classic examples of public structures for innovation support. They run an enormous number of incubation programs, exceeding that of private and corporate startup facilitators.
As schools are much more flexible in establishing partnerships than private startup support entities, the educational institutions offer much broader opportunities to participate in cross-organizational incubation programs.
Among examples of public support structures for startups in China are Zhongguancun Science Park (Beijing), Zhangjiang Hi-tech Park (Pudong), Tongji University (Shanghai), Suzhou University NANO-CIC, and Xi’An-Jiaotong SKEMA Incubator (Suzhou).
b. Private Structures
Independent multi-family offices. These organizations help connect different entities, corporations, and conglomerates with innovative companies at various stages of development. They are distinct by being:
- completely self-reliant and separate from potential investors,
- based on different business models, considering both multinationals and startups as their targets,
- not limited to a specific industry due to a larger network of multinationals, focusing on early- or late-stage funding depending on individual investment strategy.
Corporate structures. Corporate accelerators and incubators are one of the most common types of organizations for promoting innovation you can find worldwide. They can be affiliated with big corporations (for instance, Microsoft or Google) as a separate organization or be a part of a family office conglomerate (for example, LVMH or Mulliez Family). Most often, they are:
- used to enhance a corporation’s access to new technologies providing the affiliated company (or consolidated group) with potential acquisition targets,
- utilized in Information Technology and services industries, although corporations also use them in retail, sports, finance, health or fashion sectors,
- managed by an Innovation Department of a multinational corporation.
These entities can also function as platforms for acquisition and mergers, designed to consolidate startups’ market positions. In China, you can find such examples of corporate startup support structures as Creadev (Mulliez family), Alibaba Entrepreneurs Fund (Alibaba Group), Microsoft Startup Accelerator, and WeStart (Tencent).
3. Business Models
Coaching or Funding in Return for Equity
Some incubators and accelerators operate by providing coaching or funding in return for equity. Sometimes, they may also charge fees for participation in their programs, offered as a separate service.
Those structures, which provide funding in return for equity, usually offer global coaching programs that startups can use to expand their funding options and discover new opportunities to network with sponsors or prospects. In most cases, such incubators and accelerators ask for up to 10% of equity. Funding can be fixed or flexible depending on the type of contract between the funding organization and startups.
The incubators and accelerators, which use this type of business model, are fueled by venture capital funds or run on membership fees, paid by affiliated companies (for example, independent multi-family offices). They aim to invest in as many startups as possible to maximize the overall return on their investment portfolio.
Coaching as a Service
Startup facilitators, offering this type of support, can target various players in the innovation ecosystem:
- corporations allowing intrapreneurship without an internal acceleration or incubation system,
- corporations, having an Innovation Department, working in collaboration with startups,
- stage-agnostic and industry-agnostic startups,
- schools, looking for opportunities to provide training for their student-entrepreneurs, etc.
This type of business model can be applied for any innovation training but requires an extensive network of experts or mentors to provide the content for multiple industries and stage-specific needs.
This service can be offered by any startup support structure if its office size is large enough to rent out desks. Most often, incubators and accelerators consider space rental as a side income. Still, some organizations, such as WeWork, focus on space rentals only and do not offer coaching or funding. This allows providing for cheaper rental fees and better networking opportunities due to lower threshold for membership.
4. Startup Selection Process
Incubators and accelerators decide if a startup is worth adding to their investment portfolio based on the general criteria, described in our article on startup selection, as well as according to the specific requirements for the targeted industry.
In some cases, industry needs are better covered by integrating several startups from different sectors. For example, the retail industry may benefit from startup innovation in the sphere of HR management, data privacy, and cybersecurity, or last mile delivery.
In their turn, accelerators may choose startups at various stages of their lifecycle (startup stages are described in another article), depending on their investment and portfolio strategy.
5. Key Success Factors for Startup Support Structures
Incubators and accelerators are evaluated based on several criteria. The two most important ones are their ability to provide financing and networking opportunities with investors and partners as well as the quality of advisory services, including coaching, mentorship, talent acquisition, and others.
The capacity of startup support facilities can also depend on their size. While a large organization can meet virtually all criteria for any startup regardless the stage of its lifecycle or industry, a smaller structure may need support from other incubators or accelerators to provide adequate support and ensure further project development.
6. Combination of Business Models
In reality, incubators and accelerators rarely base their operations on a single business model. Most often, they structure their activities according to the needs of the markets where they choose to operate. Below are some of the examples of how the startup support facilities can combine several models in their offering:
|Description||Y Combinator||Chinaccelerator||WeStart||Tongji University|
|Structure type||Independent office||Independent office||Corporate structure||Public university|
|Startup coaching, training, and support||Yes||Yes||Yes||Yes|
|Funding in return for equity||$150K for 7%||$150K for 6%||negotiable||negotiable|
|Startup membership fee||No||No||No||No|
|Space rental||Yes||Discount program||Yes||No|
|Period of incubation or acceleration||3 months||3 months growth phase + 3 months fundraising phase||Unlimited||3-6 months|
|Stage-agnostic||Early-stage: business model in place, MVP, POC||Early-stage: business model in place, clear business plan, MVP, POC||Yes||Early-stage: clear business plan, maybe POC|
|Industry-agnostic||Yes||Yes||IT and AI||Yes|
|Social and solidarity integration criteria||Yes||No||No||No|
Incubators and accelerators are no longer a novelty but powerhouses of innovation. They help entrepreneurs with product ideation, business structuring, legal advisory, coaching, and much more as well as facilitate connecting with investors, partners, and talents, offering space rental and networking opportunities. Many of them also offer financing, provided by venture capital funds or member-companies.
These support structures help at various stages of startup development with incubators assisting from the first phases, starting as early as from business model and pitch deck development, and accelerators, which assist after startups transform into companies and need more massive support. Recently, yet another type of support facility has evolved in the form of startup studios which follow the most comprehensive approach for entrepreneurs, going through working out core ideas up to company formation and participating in the created businesses on a larger scale.
Today, these startup support structures are created by many types of institutions, including public organizations, such as leading schools and universities as well as by private companies, for example, multi-family offices, and corporations. Their business models, type of services provided, and startup selection processes may differ depending on the type of industry they operate, but all of them have one feature in common which is providing startups with so much needed support to bring new ideas into reality.
We frequently help start-ups and angels to work with accelerators and incubators.
If you want to know more about accelerators and incubators, feel free to contact us (email@example.com).
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