What role do business incubators and seed accelerators play?

Learn about the different ranges of incubators and seed accelerators in Australia.

A business incubator is a company that helps new and start-up companies grow by providing a range of business support services. The most common business support services provided by incubators include assistance with business basics, networking opportunities, marketing, accounting and financial management, the provision of office space with high speed internet access, links to strategic partners and higher education resources, access to finance and investors as well as mentoring and training.

Business incubators differ from technology parks, which typically only provide office and research facilities to a range of companies including start-up businesses and also large well-established firms.  Many technology parks do, however, house business incubator firms.  Unlike many government-sponsored business assistance programs, business incubators are not open to any company. Entrepreneurs that want to join a business incubation program must apply for admission, with acceptance into the program only available to those firms with workable business plans.

The amount of time a company spends in a business incubation program varies depending on the type of business and the entrepreneur's level of business expertise. Life science and other firms, with long research and development cycles, require more time in an incubation program compared with manufacturing or service companies that can immediately produce and bring a product or service to market.  Many incubation programs require companies to graduate once they hit certain development milestones, such as company revenues or staffing levels, rather than after a particular time period in the program.

Business incubators are often not-for-profit organisations, funded by governments, as part of an overall economic development strategy that may be focussed on job creation and entrepreneurialism.  Some business incubators are associated with universities with the aim of commercialising research and development produced within the university.  Traditional business incubators generally take no equity in the firms being incubated and tend to focus on biotechnology, medical technology, clean technology or product-centric companies.

Seed accelerators are similar to business incubators but, like a university course, they offer fixed term, cohort based programs that culminate in a public pitch event or product demo day aimed at attracting investors.  Accelerators differ from business incubators because the application process is open to anyone, but is highly competitive, the accelerator will invest in the start-up business, the accelerator will prefer small teams rather than individual founders and the training and mentoring is relatively intensive over the program with peer support and feedback provided by other start-ups in the same program.

Entrepreneurs in the accelerator program gain mentoring, business connections and the endorsement from being chosen to be a part of the accelerator program, given only a small number of firms are selected. Accelerators aim to generate attractive venture capital style returns on their modest investment, rather than deriving rental income or service fees charged by business incubators.

In Australia, there are a range of business incubator and accelerator programs. For example, accelerator firm Startmate offers a three-month program that includes mentoring from the founders of some successful Australian internet and venture capital businesses and a $75,000 investment in return for a 7.5% equity stake.  The program culminates in a product demo day in Sydney and another in Silicon Valley, California.

 

 

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