Learn about the difference between incubator and accelerator and which one fits you.
A first-time entrepreneur in any industry has many challenges to overcome, but in biotech and medtech those challenges are multiplied by the high cost of research and development. Therefore, services and facilities that allow biotech and medtech startups to save money are especially important, and luckily the number and variety of these are continuing to grow. Incubators and accelerators present the opportunity to save a lot of money on office and laboratory space. But for an early startup, which is the better option, an incubator or an accelerator? Moreover, what exactly is the difference between them?
Read on to learn about the differences and relative benefits of incubators and accelerators for biotech and medtech startups.
This question is not as straightforward as it seems, so some background may be helpful: The first business incubator was founded in 1959 in Batavia, New York. The Batavia Industrial Center offered short-term leases, shared office supplies, business advice, and secretarial services to various types of companies, including one that was incubating chicks. The parallel between sheltering young chickens and helping young businesses sparked the use of the term “incubator” to describe the business model. However, the concept of sharing resources between young companies didn’t gain popularity until the 1980’s. The term business incubator since then has expanded to mean organizations that provide a range of resources, which can make the search for an appropriate incubator more difficult for a startup. Adding to the confusion, Entrepreneur.com defines a business incubator as, “An organization designed to accelerate the growth and success of entrepreneurial companies through an array of business support resources and services that could include physical space, capital, coaching, common services, and networking connections.” So if incubators are designed to accelerate businesses, what do accelerators do?
Before jumping to accelerators, it is important to discuss incubators that specifically cater to biotech and medtech companies. As these startups have very specific and different requirements than a tech startup or clothing brand, for example, the incubators that serve them must have different amenities and services.
Incubators that specifically serve startup biotechnology companies have one thing in common: wet lab facilities. Because the barrier to entry for many startup biotechs is access to lab space that is not on a university campus, biotech incubators came into being to fill that need. Therefore, pretty much all biotech incubators provide lab space and some level of shared equipment to their members. A subset of these provide other business services, capital, and/or mentorship. One of the oldest biotechnology incubators is Harlem Biospace in New York City. This space is a great example of the classic biotech incubator model. They offer shared laboratory space, office space, and shared equipment to early stage life sciences companies in order to turn innovative ideas into reality.
Medtech incubators are harder to define than biotech incubators. Since medtech includes digital health, medical devices, care management, and care delivery, which may all need very different types of physical space, they can range from simple offices with access to WIFI, printers, and coffee, to large fabrication facilities containing state-of-the-art 3D printers, laser cutters, CNC machines, etc. However, it is still true that a medtech incubator tends to be based around a physical facility where companies in the target industry can become members or rent space. Some medtech incubators that only offer office space may be open to many different types of medtech startups, though obviously they can’t provide on-site prototyping capabilities. Instead, they focus on providing business services and creating connections.
Of course there are exceptions to every rule. Virtual medtech incubators do exist—EvoNexus is one such example. While they do have physical facilities where startups can use space, they also have a virtual option. Startups pay for both the virtual and in-person programs with 1% equity as opposed to cash.
The general goal of any incubator is to help startups succeed by reducing the financial barrier to entry. In expensive, regulated industries like biotech and medtech, this is especially useful.
Although the very first business incubator may not be well-known today, the first accelerator certainly is. Y Combinator (or “YC” as it is frequently called) was founded in 2005 in Boston, and shortly thereafter moved to Silicon Valley. YC selects a group of startups known as a “cohort,” invests $125,000 in each, and takes them through an intensive 3-month program culminating in “demo day,” when hopefully they will impress other investors who will fund them. YC has served as a model for many other accelerators, such that the general model is the same across many industries: Competitive application process, investment in exchange for equity, intensive program involving mentorship and networking, and a demo day or similar final event. One facet of the accelerator program that has been widely touted by graduates as the most valuable part of YC is the network. YC hosts dinners where the cohort gets to meet successful entrepreneurs, leaders in various industries, and YC graduates.
Many other accelerators follow the model that YC pioneered. They select a predetermined number of startups for each cohort and provide them with cash in exchange for equity. The details of each accelerator’s program will differ, but the goal is to “accelerate” the speed at which the company progresses. Accelerators provide funding, expertise, resources, and accountability to their startups, which based on the success of this model, seems to be just what many young companies need to achieve their goals.
As biotech progress frequently requires wet lab space, biotech accelerators often provide this to their cohorts. IndieBio in San Francisco is an example of one such accelerator. They run a four-month program where biotech companies work on-site, progressing in the understanding of their market and learning business development skills. Because IndieBio also provides laboratory space, research and development can continue at the same time. Moreover, IndieBio has scientific staff and local partnerships that help startups do science faster as well. They put a focus on training former academic researchers to work at the pace of industry, thereby accelerating all facets of the company.
Other biotech accelerators work in a similar fashion, such as Illumina Accelerator near San Francisco. As a corporate accelerator Illumina has some unique benefits, such as providing access to their own products and help from their staff scientists.
Perhaps surprisingly, Y Combinator started accepting biotech and medtech companies in 2014 and now is one of the largest life science accelerators as measured by the number of companies in their portfolio. However, they don’t provide lab space—at least not directly. Rather than trying to build all the types of lab space all the companies they might ever want to fund will need, they have developed relationships with local labs in the Bay Area so YC participants get preferential terms.
As with medtech incubators, medtech accelerators may offer a range of different physical spaces for their cohorts. Some are office-only while others offer fabrication and prototyping facilities. MedTech Innovator uses a different model and is completely virtual. Rather than following the traditional accelerator model, MedTech Innovator accepts applications to both their annual showcase and to their accelerator program. Companies in the accelerator program are eligible to win up to $350,000 in non-dilutive funding at the culminating showcase. This is counter to the model most accelerators follow, in which startups exchange equity for funding at the outset of the program rather than at the end.
The Global Center for Medical Innovation (GCMI), is a medical device innovation facility in Atlanta, Georgia with yet a different design. They have a medical device accelerator that does not conform to the usual definition; instead, it is completely fee-based, doesn’t have a program, and doesn’t take equity. Rather, the accelerator provides resources that startups can pay to access.
Regardless of the methods, the overarching goal of an accelerator is to help startups progress faster than they could on their own.
One of the early choices that a startup may make is whether to participate in an accelerator program or to move into an incubator. This choice depends on many factors, some of which are described here.
In general, an incubator serves as an early home for a startup where the young company can become part of a community, develop a network, hire local talent, and establish their operations. In contrast, an accelerator is like a bootcamp where a startup will have access to more resources than usual and be pushed to go full speed for a defined number of months. An accelerator may also help their startups develop their network and form a community, but these are short term connections without upkeep after the program. As accelerators with on-site programs may require that companies relocate in order to participate, there can be a higher cost to participation, though with a potentially higher reward as well.
For a young company whose founders are relatively free to live where they choose, an accelerator program might be a great opportunity to access early funding, build an investor network outside of their local area, and develop skills they may be lacking. The founders must also be willing to give up a portion of equity, which for some may be acceptable but others prefer to wait until their company has acquired significant non-dilutive funding before accepting investment.
As evidenced above, for all of the potential cons of an accelerator program, there may be one out there that does things a little differently. If the founders can’t move across the country for 4 months, there may be a virtual accelerator that fits. For founders who want to retain as much equity as possible, there are accelerators that don’t invest at all.
A startup may find an incubator to be a better fit if they already have a source of capital and prefer to stay local (assuming they reside in a locality where there are incubators). Or a startup whose founders have some experience starting biotech/medtech companies may not need the guidance that an accelerator provides, but would rather set up shop and be left relatively alone to progress as they see fit. Additionally, some people react adversely to perceived outside pressure, and become entrepreneurs for that very reason; these folks might be a better fit for an incubator than an accelerator, as they don’t tend to have mandatory programs.
For founders who still can’t decide, incubators and accelerators are not mutually exclusive. Some companies participate in an accelerator program and subsequently join an incubator. Other companies join an incubator and later decide to go into an accelerator. There is no “correct” order for all startups. However, it is true that accelerators don’t provide long-term homes for startups, so it stands to reason that a company attending an on-site accelerator program may need incubator space afterward.
Not all incubators and accelerators refer to themselves as such. Some biotech incubators call themselves coworking labs, and accelerators may not use a specific term at all. Therefore, when looking for programs and facilities, it is important to look at each holistically, and not base the decision on whether or not it is self-categorized in a particular way.
After all analyzing all the options and determining which type of space/program is the best fit, it is then up to the startup to take advantage of all the services, resources, and networks that their chosen organization has to offer. Even the best incubators and accelerators cannot work magic—it is ultimately the efforts and talents of entrepreneurs that drive success. But choosing the right incubator or accelerator can’t hurt.
For Southern California startups who choose the incubator route, check out this blog post listing the best local wet lab incubators.