Are accelerators for businesses set to explode in the expansion? The founder of one accelerator network believes that way. Reuters recently spoke with David Cohen, co-founder of David Brown of accelerator TechStars, on the latest trends in this area.
What’s the difference between a business incubator and an accelerator? Incubators generally provide a shared space for various fledgling companies to run and facilities that include reception, equipment, and mentorship by experts. In the beginning, most incubators were linked to universities, colleges, and economic development programs to promote the idea of entrepreneurship.
In the latter part of 1990, venture capital companies took notice of the idea as the dot-com boom began to take over. They began to establish internal incubator programs to ensure they could build their own companies that they could invest in. As the bubble peaked, most of these incubators went out of business.
A key distinction between business accelerators and incubators is that incubators can allow more growth but typically have some restrictions on the length of time that companies are allowed to remain in the incubators before they leave. As the name suggests, Accelerators provide an intensive, boot camp-like experience to get businesses functioning within months. (Perhaps the most well-known accelerator for business is Y Combinator, founded by an angel investor Paul Graham.)
Cohen believes that over five years, a few hundred accelerators will start. But, he adds, accelerators today will less likely get funding from VCs and more likely be supported by angel investors in groups. Cohen considers this an improvement, as angel investors tend to be successful entrepreneurs and offer more effective coaching.
The program was launched with the city of Boulder; TechStars has expanded to Boston and Seattle and has provided funding to more than 70 startups. Each TechStars accelerator picks ten startups per year to receive intense mentoring for three months by successful entrepreneurs. TechStars accelerators also get an initial investment amounting to $6,000 for each founder, up to $18,000; TechStars receives 6 percent ownership of the business.
Do accelerators increase their speed as Cohen predicts? He’s biased towards them, but any pattern that promotes growth and investment in new ventures is something that I think we all favor.
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