Incubators, Accelerators, VCs and VBs - Which way should a Founder go?
Ideas are easy to think of, difficult to execute and extremely hard to maintain and grow into a successful company.
Founders need all the help they can get when they are just starting out and fortunately now there are many institutions serving that purpose. So in between an Incubator, Accelerator, Venture Capital and Venture Builder, how do you as a founder decide which one will be the best fit for your startup?
To help you make an informed decision, let’s better understand how each is different from the other.
Before we begin, if you aren’t already familiar with a Venture Builder, check out our last month’s blog “What is Venture Building? Do you need it?” here, to get a better understanding of how a VB functions.
Now, let’s understand the difference by first putting into perspective the kind of support each offers.
Human Capital vs Financial Capital
Early-stage investors offer two different types of capital to the companies in their portfolio: financial capital and human capital, and the degree of this help offered differs for different investors.
While the main asset offered by Venture Capitalists is financial capital, they do offer varying amounts of hands-on support, depending upon their expertise and experience. On the other hand, the core value proposition of VBs and accelerators is that they offer non-financial capital or human capital in addition to funding. This fact makes a big difference when founders are looking out for support. An early-stage amateur entrepreneur would benefit more from an investor who can guide and support them through the complex journey of building a startup.
Now what sets VBs apart from Accelerators is that VBs have dedicated teams who specialize in various domains to give startups well-rounded hands-on support. They help with idea validation, business models, strategic support, product development, technology, go-to-market strategies, legal and financial assistance, and fundraising.
Now, let’s elaborate on what each of them have to offer:
Incubators are perfect for startups in the ideation stage as they help aspiring entrepreneurs from the very beginning of their startup journey. A startup incubator's main function is to offer founders access to a workspace, community, mentorship and seed funding.
Since many incubator programmes have flexible deadlines, there is less pressure to launch businesses immediately and more emphasis is placed on refining concepts and creating pitches that can attract funding.
Incubators are typically non-profit organisations that are sponsored by public and/or private institutions. Universities and educational institutes frequently collaborate with incubators to offer their students and alumni access to these programmes.
Incubators are the best fit for you if your startup is still in the nascent ideation stage, and you need access to a workspace, community, mentorship and seed funding.
Accelerators support early-stage startups that already have an MVP, and help them scale and bring their product/service to market. These are usually dedicated programs under renowned institutions hence the application process is tough and the acceptance rate is low.
The purpose of an accelerator is to speed up the life cycle of young, innovative businesses by condensing years' worth of practical experience into a matter of months. It is a quick, demanding, and immersive process. They usually keep a share of the startup (less than the incubators) in exchange for financial capital, relevant infrastructure and investor support.
Accelerators are the best fit for you if you have zeroed down on a successful business model, have an MVP and have validated your product in the market but aren’t necessarily generating profits yet.
Venture Capitalists (VCs)
Startups with validated ideas and successful business models that need financial capital to expand their business often turn to venture capitalists. They offer funding in exchange for equity in the company. They rarely provide any other support apart from financial capital and expect a good return on their investment in a definite period of time.
VCs usually invest in companies that have already started generating revenue and hence it’s difficult to get a VC on board if your startup is still struggling to find its ground and find the right market for itself.
VCs are the right investors for you if you have an MVP, maybe some early traction and revenues and don’t require any other help, other than direct funds in exchange for equity in the company.
Venture Builders (VBs)
Venture Builders are companies dedicated to systematically creating new businesses, along with supporting their expansion and ensuring success. Regardless of where you are in the ideation phase or testing and evaluating the MVP, VBs are looking for a good idea rather than a spectacular, stunning pitch deck. Unlike most Incubators, Accelerators, and VCs which allocate resources to a variety of startups, and bet on a small percentage of those investments to go big, VBs concentrate all of their efforts on growing a small number of startups and exponentially increase the chances of success for each startup.
When it comes to creating businesses with a chance of survival and being profitable, venture building appears to be one of the most systemic approaches. Augmenting your ideas and available skill sets with experienced and specialized venture builders cuts down on the number of years that you require to lift your startup up the ground.
A VB is for you if you are at an idea stage and aren't sure of how to build a startup. They offer a power-packed support system and literally take you from 0 to 1 in exchange for equity in your company.
Now you know a little more about each of these institutions that are available to you as a founder. We hope this helped you in understanding the startup ecosystem a little better. You now have an important decision to make!