Hubs, incubators or accelerators, which is the best avenue for your fledgling business to take?
Around the world, hubs, incubators and accelerators have become popular ways of fast tracking startups through to commercialisation. While there is some overlap and debate on definitions, there are a few generally accepted descriptions of hubs, incubators and accelerators.
Co-working spaces or hubs
These tend to be locations where people interested in starting small businesses hire workspace (often just a desk) to work on ideas they want to turn into commercial success. Co-working spaces have grown rapidly because they provide a centre of activity, access to resources and are a place where link-minded people can work together.
Based in the Perth CBD, Spacecubed has been successfully operating for more than three years. Sync Labs, run in partnership with Spacecubed, is in Leederville, has been running for two years, has about 30 people and focuses mainly on tech projects. Tech Hub is another co-working space in Northbridge.
In between co-working spaces and accelerators. While co-working spaces provide space, incubators provide workspace plus limited support to startups. Incubators tend to attract small startup companies that need business mentoring and financial and technical support. These companies have limited funding, systems and markets and are primarily focused on surviving and getting a foothold in their market over the next few years. Their budgets are usually too low to get professional input. They may have mentors but this is usually done on an informal basis. They differ from accelerators in that they generally do not provide investment capital or a structured program.
Accelerators are structured programs for startups (particularly technology companies) to help them rapidly develop their business and raise external capital. Accelerators usually have a rigorous selection process, a structured program usually running over three to six months, and mentoring from a network of experienced entrepreneurs.
Generally, accelerators invest in the startups that are accepted into the program; often this is between 2 per cent and 25 per cent of equity for a $50,000 to $150,000 investment. At the program’s completion, there is generally a demo day where teams pitch to external investors and attempt to raise further funding (this could be anything from another $500,000 to $5 million). Accelerators have attracted major interest because they the model has proved to be reasonably effective in developing valuable (by market cap or exit price) high-growth tech companies such as Dropbox or Airbnb.
There has been rapid growth in accelerators in Australia. There are 10 in NSW, four in Victoria, five in Queensland, two in South Australia, one in Tasmania and four in Western Australia.
Social enterprise accelerators
A social enterprise accelerator is a sub-set of the for-profit accelerator. Focused on social enterprises, these accelerators help small businesses that provide a social benefit (social services, ecological products, health services etc) to market and scale rapidly. In Australia, the School for Social Enterprise runs regular programs for social entrepreneurs and our own company, Integral Development, recently ran a social accelerator for Role Models Australia, a not for profit that runs academies to help Aboriginal girls to complete their schooling and reach their potential in life.
In-house corporate accelerators
Accelerators were initially designed to foster tech startups. More recently, companies such as Telstra, General Electric, Ford and Google have implemented in-house corporate accelerators to initiate new projects often based around solving problems. Sometimes the projects result in starting a new business and can involve investment from outside the organisation and partnerships with other companies.