The main problem of most startups is money. The startup needs money for investment in MVP’s and often the founders needs an income. Personally I see it a little more nuanced. The startup did not reach product/market fit and most of the time also not problem/solution fit so it is an idea from a team of founders, sometimes even without a prototype (MVP). The focus of the startup should not be money itself but how to reach product/market fit without waste, or how to be cash positive as a startup so you have time to find your product/market fit in the meantime.
If you think your the next Steve Jobs, Mark Zuckerberg or Larry Page who will “change” the world, I would advice you just to do your thing, in the way you think it is best. For sure you don’t need my advice. But of you are one of the “other” 99,999% of the startups, this blogpsot me be helpful.
Business incubators and Seed accelerators
For startups Incubator programs were very popular.
Business incubators are programs designed to support the successful development of entrepreneurial companies through an array of business support resources and services, developed and orchestrated by incubator management and offered both in the incubator and through its network of contacts. Incubators vary in the way they deliver their services, in their organizational structure, and in the types of clients they serve. Successful completion of a business incubation program increases the likelihood that a startup company will stay in business for the long term: older studies found 87% of incubator graduates stayed in business, in contrast to 44% of all firms. (source: Wiki)
Incubators like to step in when there is at least a problem/solution fit with a prototype (MVP). In general an Incubator provides up to EUR 500k investment.
An accelerator or seed accelerator on the other hand.
Seed accelerators are a modern, for-profit type of startup incubator. Through an open application process, they take classes of startups consisting of small teams. Seed accelerators support the startups with funding, mentoring, training and events for a definite period (usually three months), in exchange for equity. While traditional business incubators are often government-funded, generally take no equity, and focus on biotech, medical technology, clean tech or product-centric companies, accelerators are privately funded and focused on mobile/Internet startups.
The main differences from business incubators are:
- The application process is open to anyone, but highly competitive. Y Combinator and TechStars have application acceptance rates between 1% and 3%.
- A seed investment in the startups is usually made, in exchange for equity. Typically, the investment is between US$35,000 and US$50,000 (or GB£10000 and GB£50000 in Europe) but often under US$20,000, as with Y Combinator and TechStars.
- The focus is on small teams, not on individual founders. Accelerators consider that one person is insufficient to handle all the work associated with a startup.
- The startups must “graduate” by a given deadline, typically after 3 months. During this time, they receive intensive mentoring and training, and they are expected to iterate rapidly. Virtually all accelerators end their programs with a “Demo Day”, where the startups present to investors.
- Startups are accepted and supported in cohort batches or classes (the accelerator isn’t an on-demand resource). The peer support and feedback that the classes provide is an important advantage. If the accelerator doesn’t offer a common workspace, the teams will meet periodically.
The primary value to the entrepreneur is derived from the mentoring, connections, and the recognition of being chosen to be a part of the accelerator. The business model is based on generating venture style returns, not rent, or fees for services.
Seed accelerators do not necessarily need to include a physical space, but many do. The process that startups go through in the accelerator can be separated into five distinct phases: awareness, application, program, demo day, post demo day. (source: Wiki)
If you are very motivated to start a company but you are not interested in business incubators or seed accelerators or for a reason they don’t want you. For example because you are alone and not very interested in a co-founder at this stage, you may accelerate yourself.