Incubation vs. acceleration – investing in startups at the right time
The growth of both revenue and market potential is high on the agenda for most companies and innovation is one of the key routes to this objective. It has been proven that innovative firms grow twice as fast, both in employment and in profitability. The search for innovative new ideas leads many companies beyond their own R&D and into business incubators and accelerators.
The difference between a startup in the incubation phase versus one in the acceleration phase involves timing, maturity and the investment equity required to realize the potential for both the fledgling company and the investing company. UBI Global has the expertise that many companies are looking for to explore diverse methods of collaboration in startup incubators and accelerators.
What is business incubation?
Business incubation involves intense collaboration between a startup company in the early stages and an experienced company looking for growth. Incubation requires the investment of working capital, office space, hardware and tools, management support, networking and coaching in a one-on-one partnership between company and startup. Many times, the startup has already maturely developed the product or concept that the company finds attractive; they just need the extra expertise and investment to realize the full potential.
What is a business accelerator?
A business accelerator, in contrast, takes multiple startups and structures development curriculum for a fixed term, typically around 3 months, of a service, product or technology completely new to the corporation and sometimes even the startups. A fixed set of criteria is often provided by the company and the startup brings innovation and diversity to take on these criteria. The investment is typically the same capital, etc. as the incubator but on a smaller scale, and the interaction is limited to the goals and milestones set.
How do startups benefit the company?
The benefits that a company can realize from an investment in a startup include a broader option for growth through new products and services as well as new market opportunities. While this seems an intangible opportunity, at first sight, the company should strategize early access to hot new ideas and products that will become part of the company portfolio.
What kind of investment can we expect to make?
Equity investments as much as 25 percent are typical for startups in the incubation phase. Startup acceleration, however, typically takes a smaller equity investment of 5 percent, which accurately reflects the stage at which the investment occurs.
How long will it take to realize a return on investment (ROI)?
The time frame of the investment varies, from an accelerator investment to a startup ready to spread its wings within a relatively short 3 month period to more of an incubation relationship over 1 to 3 years if the company gets in on the ground floor.
What does the company return look like?
Return on investment in startups, either via incubation or acceleration varies by region, by industry, and by size. In general, however, the three-year premium ranges from 2.3 to 14 percent annualized while the 10-year premium ranges from 2.9 to 6.9 percent.
Over and above any financial benefit realized by the company are the fresh, new ideas that a startup offers as well as a renewed excitement in the company itself, both by employees and customers. The long-term potential of innovation cannot always be measured in terms of monetary growth. It takes a company that thinks outside the normal, everyday core business to invest in new startups and experiences true growth of the company.
Highly attractive to companies seeking high growth while minimizing risk and exposure, startup companies are perfect to expand the product portfolio and gain the edge in the market. Knowing which startups to invest in and how, either incubation or acceleration is something that UBI Global excels in worldwide. Let us be part of your engagement with a startup so that your success is at the maximum level for your company goals and investment.
Source: Boston Consulting Group, Incubators, Accelerators, Venturing and More
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