Do incubators or accelerators have a higher ROI?
Contrasting Colorado startup resources and which models really work
Colorado’s business incubators and accelerators are two reasons the state ranks so high on startup growth and entrepreneurship. And while both are types of startup assistance organizations (SAO), they’re basically apples and oranges.
“Our job is to serve entrepreneurs, and our belief is that if we create great entrepreneurs, they’ll create great companies — and those companies will be investable,” says Toby Krout, managing director of Boomtown, a Boulder-based accelerator.
Accelerators apply a cohort model in which about 10 startups go through what amounts to a three-month boot camp, culminating in a demo day for investors. By providing funding, mentoring and introductions to capital and technical assistance in exchange for equity, they hope to propel young companies into their next stage of growth.
Accelerators are sometimes criticized for serving investors over entrepreneurs, but Krout maintains that’s not the case. Since January 2014, Boomtown has helped more than 70 companies achieve such milestones as seed funding and new product launches. More than 80 percent of Boomtown’s alumni companies are in operation, with 71 percent generating revenue.
With a much longer time frame, often exceeding two years, incubators provide low-rent office space and other support, and place more emphasis on entrepreneurial skills training. Typically nonprofits, they generally aim to promote regional economic development and job growth by producing self-sustaining companies.
In contrast to accelerators, incubators rarely provide funding or take equity in their client companies. Both models provide certain common services such as mentoring, and both help idea-stage startups execute go-to-market strategies.
Opened in 1989, the Innosphere is the state’s longest-running business incubator by far. Based in Fort Collins with satellite offices in Denver and Boulder, the nonprofit has helped client companies raise $220 million, generate $63 million in revenues and create more than 1,400 Colorado jobs since 2009.
Centennial-based TechrIoT recently completed its first cohort of nine startups. The young accelerator has a focus on internet of things (IoT – thus the name) technologies.
Managing Director Suzy Gutierrez was happy to see participants openly discussing their intellectual property and go-to-market strategies.
“There is a lot of trust that goes on between our group of companies,” she says. “They are willing to spend time together in close proximity in terms of sharing ideas and really leveraging each other.”