To accelerate or to incubate—that’s a question many aspiring startup company founders ask themselves once they have the sprout of an idea. With Entrepreneur Magazine’s endorsement of Cincinnati as an “unexpected” yet up-and-coming startup hub last year, the two terms have picked up currency in the Queen City, but where each fits on the path of a new company’s growth is not always clear.
“The difference between an accelerator and incubator is like a crash course versus a rental property,” says Casey Barach, director of the Northern Kentucky ezone
and co-founder of UpTech
. The two organizations operate roughly along the startup incubator and accelerator lines, respectively.
In the vein of Barach’s description, a startup accelerator can perhaps best be thought of as a high-speed proving ground for business ideas. An accelerator generally takes a very early stage concept and tries to condense two or three years of business development into a few months. The founder or startup team gets temporary office space at the accelerator—often without charge—as well as training and access to administrative resources, business mentors, legal counsel and accountants. The accelerator provides seed money, typically in exchange for a small portion of equity, and works both to push and lift the startup to the point of attracting venture capital and angel investment in a short period of time. The term “accelerator” really says it all: The idea is to speed up the startup so that it either succeeds or crashes before too much time or money has been invested.
Knowing within four months, as opposed to three years, that an idea needs to be reworked or simply can’t get off the ground at all saves the startup founder a lot of head and heartache. Plus, with all the expertise and support from the accelerator, an innovative business idea has a much better chance of survival.
An incubator, on the other hand, is something a little cozier and longer term. An incubator offers office space, administrative services and mentorship resources for a monthly fee or membership charge, but without a time limit. Incubators often require applicants to have a more developed business plan, and they provide investment connections for the startup rather than making direct investment itself.
So, as an entrepreneur with an idea, where do you go? Although it’s not always the case, growth in the business ecosystem can often get kicked off with an accelerator, and then nurtured in an incubator. An entrepreneur with a seed stage idea and who is looking for rapid growth is better suited for an accelerator; someone with a well-defined, scalable business plan but who needs professional office space and a broad support network might be better off with an incubator. The two are not mutually exclusive, though, and many accelerators and incubators in Cincinnati position themselves to generate synergy within the business community.
In fact, UpTech and ezone are sister organizations. They share offices, and it’s not unusual for startups to graduate from UpTech but to keep the same offices and continue their growth using ezone’s services. “Ezone and UpTech companies exist along the same continuum. They’re just different entry points,” Barach says.
For an entrepreneur with a seed-stage business idea who’s looking for an accelerator in which to plant that seed, the next decision is which kind of accelerator to select. There are many to choose from, each with different strengths and areas of expertise. It’s not for nothing that Greater Cincinnati is earning a reputation as a tech hub—startups geared toward new technology can find fertile ground and a supportive business community here.
Propping Informatics at UpTech
Northern Kentucky’s UpTech
centers its expertise on informatics, the field of processing information to solve technical and social problems. It’s a nonprofit, built through community support and in partnership with the Northern Kentucky University College of Informatics
“We follow the general model of accelerator. But where we differentiate, first and foremost, is the wraparound business service that the business community has donated to help our startups,” Barach says. Between community volunteers and interns from NKU, UpTech has hundreds of support staff available to guide and advise its classes of startups.
Lasting six months, UpTech’s course is a little longer than that of a typical accelerator. It teaches The Lean Startup
method, in which companies pare their product down to its essence and use customer feedback to shape development. This helps ensure that the product hits the market in the best possible form. UpTech’s hope is that the longer acceleration period will enable companies to establish that crucial customer feedback loop and graduate with the strongest possible product and business model. In exchange for four percent equity in the company, UpTech invests $20,000, as well as its battery of legal, accounting, marketing and administrative mentorship resources. UpTech has a plan of investment milestones, so that most companies exit the program with $50,000 in funding.
, a 2013 UpTech graduate, has made headlines for large funding awards, and recently made Cincinnati Water Works the first customer for its Polaris water management and tracking software.
The Brandery Launches Tech Startups
Since its inception in 2010, The Brandery
has earned national recognition, with Tech Cocktail ranking it among the top 15 seed accelerators in the U.S. for 2011, 2012 and 2013. It focuses on technology startups, investing $20,000 in exchange for six percent equity in each company. It offers four months of intensive training and mentorship, culminating in a demo day where the fledgling companies pitch their ideas to potential investors.
“There’s a deadline our companies are up against, and we’re trying to push them really hard to get as far as possible in that time,” says Mike Bott, general manager at The Brandery.
Like other startup accelerators, The Brandery has a fairly selective application process. It receives applications from all over the world, but selects just 10 startups for each class. What they look for above all is a strong team, Bott says. The applicant team should include a business leader who can raise money, attract talent and who has strategic vision; a developer who builds solutions; and a designer who takes user needs and translates them into user experience.
In terms of the business concept, The Brandery looks for a startup that proposes a solution to a big problem, that’s addressable to a market of at least $250 million and that’s going to be competitive in the marketplace. Good examples are the mobile applications Roadtrippers
, two Brandery graduates now seeing growth in the marketplace and who have succeeded in attracting large outside investment.
“Fundamentally, we think that establishing a brand is important. A company understanding who they are and what their higher purpose is creates a way to drive resource efficiency and helps them make smart decisions,” Bott says.
Get Integrated at Differential
Within the tech startup acceleration scene there is also Differential
, which identifies itself as a venture studio—something between a traditional accelerator and an investment agency. Their model differs from shops like The Brandery and UpTech in that they integrate with early stage startups, providing investment, office resources, mentorship and business connections in exchange for a fee and occasionally company equity.
For some startups, Differential simply coaches and assists in growth, choosing to help with coding and media development and then replace themselves with outside investment while still providing "backstop" support for the company at a discounted rate. But three to five companies per year make it into Differential's venture portfolio. The course is a bit slower and less rigid than an ordinary accelerator.
"We call it a date before we get married," says R. Brad Kirn, a partner at Differential. "If an idea and team are just right and mesh well with us, we think about making an equity play. They have to want a partner like Differential to have some skin in the game with them in order to really supercharge their efforts to get the startup off the ground and rolling as quickly and efficiently as possible."
In this case, Differential discounts its usual rate, providing services and resources as an investment and using the hourly rate to cover its costs. During this time they work with the company to make a business plan and build the product using the Lean Startup Method. Then, with the business established and the product ready, they'll work hand-in-hand with the company to find additional investment and get the product on the market. Menswear consultancy Cladwell
was Differential's first client and launched in 2012. They are currently part of Differential's venture portfolio, which means that the two continue working together to draw investment and build the brand.
School Is In For Startups
In another corner of the startup landscape are pre-accelerators. In recent years, NKU, the University of Cincinnati
and Xavier University
have all established variations of the concept. These act as feeders to outside accelerators and avenues for commercialization of technology developed within the university.
Despite its name, The INKUBATOR
is a pre-accelerator program. It’s a three-month program each summer operated through NKU (hence the name; you can’t fit NKU in the word “accelerator”), and open only to students. A board comprised mostly of founders and managers of existing accelerators choose a dozen or so applicant ideas and form teams around them, validating the concepts and taking students through the process of building a business model and, in some cases, a working prototype.
Unlike standard accelerators, The INKUBATOR doesn’t take equity in exchange for its services. Program participants are given access to workspace, equipment, mentorship and $5,000 in seed money thanks to contributions from the Carol Ann and Ralph V. Hail/U.S. Bank Foundation
. Complete Set
came out of The INKUBATOR in 2012 and earned investment from CincyTech to grow its online collectibles showcase and exchange platform.
The focus of UC's Technology Commercialization Accelerator
is to help commercialize all kinds of industry sector technology, not just sciences or advanced materials. The program started a year ago as a move away from the accumulation of patents and toward getting technologies on the market where they can benefit the community.
UC’s accelerator provides early stage gap funding to student and faculty entrepreneurs in order to develop research and prototypes. Entrepreneurial mentors are available to help startups hone their ideas, build commercialization strategies and determine what development milestones need to be achieved in order to earn further funding. An advisory board made up of industry and regulatory experts, as well as members of other accelerator and business organizations, determines which applicants get acceptance and grants. The three startups to come out of the Technology Commercialization Accelerator so far center on technology for influenza diagnostics, a system for monitoring brain changes in real time, and a sweat sensor used for patient monitoring and diagnosing.
The Xavier Launch-a-Business Competition, known also as X-LAB
, has been inviting entrepreneurs to submit ideas since 2010. The competition is open to entrepreneurs both internal and external to the university who are looking to start new businesses, nonprofits or social enterprises. Each year, X-LAB chooses those applicants with the most promising ideas to support with access to the expertise and guidance of executive mentors, professors and MBA students from the university. Participants also go through a series of 20 workshops, which prepare them to compete for further MBA resources and mentorship opportunities.
Last year, X-LAB chose six winners from a group of 15 finalists. Those selected cover a broad range of businesses, from the urban community marketplace Greens Neighborhood Market
, to brewery and brew-kit maker BrewKraft Collective
, and 3DLT
, one of the nation’s first stores for 3D printable objects.
Bringing Up Business in Cincinnati
Even with so many accelerators and related organizations in Greater Cincinnati, the goal is not so much for them to compete against one another but rather to establish and nurture growth for the region’s startup ecosystem. Each tries to occupy a unique niche, and it’s not uncommon for entrepreneurs to move from one to the other as they develop their business.
“Cincinnati has lots of smart people with good ideas and who are driven to get down and dirty and move forward with their work. There’s a community here backing them, and throughout this whole area innovation is happening left and right,” Kirn says.
With its low cost of living and large number of Fortune 500 and Fortune 1000 companies
, Cincinnati is just the fertile ground in which a strong business ecosystem can flourish. Add to that the community support both in Cincinnati and Northern Kentucky, and it creates an attractive region for entrepreneurs to launch their business ideas.
“Entrepreneurship and startups are hot, both in Cincinnati and across the country,” Barach says. “Cincinnati is on the way from an up-and-coming to a super region. You’ve got to have entrepreneurs, investors and a good business ecosystem. We hit on all three of those.”
This story is the first in a three-part series on Cincinnati's startup ecosystem:
Part two takes a look at Cincinnati’s startup incubators and where they fit into the region’s growing business landscape.
Part three explores the next step in business development, and how Cincinnati’s seed-stage funding sources make it possible for entrepreneurs like Michael Wohlschlaeger of Ahalogy to thrive.