If you are an early-stage startup, joining an accelerator or incubator can be a great way to grow and scale the startup. In addition to co-sharing a space with other startups, you have access to mentors and investors. Startup accelerators and incubators are great programs to help fine tune your business model and receive support from proven entrepreneurs and venture capitalists.
Startup incubators and accelerators are not a new concept in Australia; however, the format of incubators and accelerators has changed in the past five years. The goal remains the same – to help companies grow and profit quickly (and reach unicorn status!).
Difference Between Accelerators and Incubators
In short, accelerators are focused on a startup scaling quickly, while startup incubators are more focused on innovation. Think of a startup accelerator as a greenhouse for startup “plants” to obtain the best conditions to grow, while a startup incubator matches startup plants with the best soil conditions for long-term growth. Both accelerators and startups have a competitive selection process.
A startup incubator is often funded by the same investor group, where all startups share one central work space. Your startup may be required to pay fees, and you can stay in your space as long as you need to. Startup incubators often focus on a particular market. This allows it to attract similar mentors with industry specific experience.
On the other hand, startup accelerators often limit the period a startup can operate in the space. With this set timeframe, startup accelerators focus on raising capital as quickly as possible and providing mentors to scale the business. Startups in accelerators often receive initial seed investment in exchange for a small amount of equity (single-digit chunk).
Startup Accelerators and Incubators in Australia
There are only a small number of incubators focused on startups. However, this number is growing. In 2015, there were over 70 startup incubators and business accelerators in Australia. Many accelerators are focused on the digital and online space, providing a good network for education, mentoring and support. Australia is also seeing a rise in non-profit accelerators. The objective of such startups focuses on social enterprise goals, including research and economic development.
While Australia has a thriving incubator and accelerator ecosystem, many startups rely too heavily on these programs to boost their startups. Australia’s legislation still lags behind countries such as the United States, particularly in the capital raising space. Moreover, incubator and accelerator programs are not regulated, leaving the risk of unethical exploitation as a result of giving away chunks of equity. As a startup founder, you should carefully research before joining a program, and speak to as many startup graduates as possible from that program (particularly those who failed).
It’s never been a better time to be a startup. With accelerators and incubators, coupled with angel investors, pitch events and private investors, the ecosystem is booming. We see more startups succeed in the Australian startup space as a result of accelerators and incubators. With changes to legislation in the pipeline and support from the federal government to boost data-driven innovation, the future is bright. Questions? Get in touch with one of LegalVision’s experienced startup lawyers – we would be delighted to assist.