The Real Difference Between Incubators and Startup Studios

Within the startup ecosystem, there are those who build and those who help others build. The criteria for helping others build is very simple.

An organization must have the following resources:

• Mentors (people who have been there/ done that and can shed light on specific obstacles a founding team may face) and Advisors (people who can help a founding team execute by working hand-in-hand with them develop business plans, pitch decks, and strategies)
• Networks (of talent, investors, and partners)
• Education (blueprints on how to accomplish objectives like fundraising, hiring, setting up legal entities, etc.)

Beyond the above resources, most organizations helping entrepreneurs build offer seed funding and exposure opportunities (i.e demo days).

There are 3 entities that fall under the “helping others build” umbrella: accelerators, incubators, and Startup Studios (also known as Venture Builders).

Each of these structures has a unique value proposition.

Accelerators

Wikipedia describes accelerators as “fixed-term, cohort-based programs, that include mentorship and educational components and culminate in a public pitch event or demo day.” Accelerators help founding teams move their venture from the “initial traction stage” to the “series-A stage”. Accelerators typically only accept ventures into their program if said ventures have market traction and some form of the product built. They run cohorts at specific points during the year (typically winter and spring) and only accept applications for those cohorts within a specific time frame. These entities are not for entrepreneurs who just have an idea.

Examples: Y-Combinator, TechStars, 500 Startups

Incubators

Incubators function much like accelerators but they’re more open to working with early-stage ventures without traction. Unlike accelerators, incubators don’t have cohorts and they don’t have a structured educational programming process for entrepreneurs to follow. Incubators work with founders to build their venture from “MVP stage” to “first round of funding stage”. While accelerators are likely to offer seed-stage funding, incubators typically don’t. Incubators are for early-stage founders/ founding teams with a great idea and some proof of demand, but traction is not a requirement.

Accelerators “accelerate” growth of an existing company, while incubators “incubate” disruptive ideas with the hope of building out a business model and company. So, accelerators focus on scaling a business while incubators are often more focused on innovation. — Tech Republic

Examples: Halcyon, eFactory, DreamIt Ventures

Startup Studios

Startup Studios are entities that create startup ventures. Their goal is to develop startups within their studio and spin-out these ventures when they’re ready for their first round of fundraising. Some Studios work with outside founders (meaning an entrepreneur can pitch them a great idea and, if they like the idea, they’ll bring the entrepreneur into the studio to develop the startup with them as a co-founder) and other Studios develop all of their ideas internally (meaning their innovation team comes up with the ideas, they work on building the startup in-house, and hire a new founding team to take over and run the venture once the product is built and it has market traction).

Examples: High Alpha Inno, Atomic, Madrona Venture Labs

Incubators vs. Startup Studios

It may sound like Incubators and Startup Studios are the same, but there is one very distinct difference. While both entities do work with early-stage founders/ founding teams to launch and grow startups, the difference lies in their unique approaches.

Incubators don’t co-found ventures, Startup Studios do.

Once an idea has been chosen by the Studio, the Studio will enter into an equity agreement with a founding team.

From there, the Studio will assign 2–4 people from their own internal innovation team to work side-by-side with the original founding team to bring the product to the market. Once the product has achieved market traction (typically after 6 months) the Studio members will begin to replace themselves on the team with outside hires. The original founding team remains with the startup through the scale-up and spin-out process.

Incubators do not place their internal team within any of the ventures they’re incubating. This is the difference between Startup Studios and incubators.

With an incubator, a founding team will have access to mentors, advisors, partners, office space, connections, digital tools, etc. but incubator internal team members do not jump into the process to work alongside the founding team in building the venture.

When to use which?

Both incubators and Startup Studios help founding teams launch and grow their businesses. They both provide mentorship, connections, strategy, physical resources, and help with fundraising. But the similarities stop there.

If you’re a founder who needs hands-on help (tech, marketing, design, growth hacking, product development…) you should consider working with a Startup Studio rather than an incubator. On the upside, you get experienced entrepreneurs on your team, in your meetings, evangelizing on your behalf, etc. The downside is you’ll have to give up at least 30% (and likely closer to 50%) equity and you’ll have a new team that you didn’t necessarily choose.

If you’re a founder who needs resources (office space, connections, advisory, help with GTM strategy, business planning, product testing…) you should consider working with an incubator rather than a Startup Studio. On the upside, you’ll only be giving away a small portion of equity and you’ll have access to a network that far exceeds your own. On the downside, your team is your own responsibility and ultimately it’s up to you to shape the future of the product, get it out the door, and fundraise for it.

To learn more about Startup Studios head to www.studioupstart.com