Accelerator vs Startup Studio
What Startup Model is Right for You?
When it comes to starting and launching a business, founders have several models from which to choose. Each model is unique and presents its own pros and cons, and determining which is the best solution, ultimately comes down to the specific needs of the founder and their startup. Two of the most well-known models for establishing and launching successful startups are accelerators and startup studios. Entrepreneurs often confuse these two startup models; however, while they share a few similarities, they are fundamentally different in key ways. To determine what model is right for you, let’s take a deep dive into the nuances, pros, and cons of the accelerator and startup studio models.
7 Key Differences Between Startup Accelerators and Startup Studios
Are you a little confused about the differences between a startup accelerator and a startup studio? Check out these seven key differences in the following comparison chart!
How Does a Startup Accelerator Work?
Startup accelerators support early-stage companies through education, mentorship, and temporary financing. Startups initiate their relationship with the accelerator early on through an application, along with a “batch” of other hopeful early-stage startups, seeking guidance in the competitive world of startups.
If accepted into an accelerator — and the selection process can be competitive — the accelerator provides a fast-tracked crash course to all companies within the cohort. This typically takes around 3–6 months from initiation to graduation. While the experience isn’t highly-customized (think a university class professor to student ratio), the accelerator provides hands-on education to promote and expedite scalable growth. Consider it a startup boot camp, designed to help prepare you for life beyond the accelerator program. The knowledge that would typically take years to accumulate is taught by accelerators in a mere matter of months.
While some funding is provided, it is relatively minimal, as it is only intended to get the startup to ‘demo day’. The culminating event at the end of an accelerator program is called a ‘demo day’, in which the participating companies are able to showcase everything they have accomplished throughout the program. This is an opportunity for the startups to highlight achievements and for their founders to share their innovations and pitch to potential investors. This event is considered a “graduation” from the accelerator, at which point the startup is responsible for itself and flies solo.
The Aftermath
Like throwing spaghetti at a wall, startups are tossed from the safety of the accelerator into the world, in hopes that a few perfectly prepared pieces stick. While 50 startups may graduate from an accelerator program, only a handful survive the first year on their own. That is not to say that the accelerator model does not work — it means that an accelerator diversifies its portfolio of companies to mitigate risk by investing a small amount in more players, understanding that not all will succeed. But the few that do succeed generate enough return to make the investment worthwhile.
There are a few key elements of startup accelerators that differentiate them from startup studios and make them unique to other startup investment models:
- Short and fixed-term
- Accepted within a group of other startups
- Focused on teaching startups to operate independently of the accelerator after “graduating”
- Startup accelerators invest more broadly than other models
Pros and Cons of Accelerators
Pros
- Startups are given the opportunity to learn by participating in hands-on business-intensive courses developed by professionals with launch and growth expertise
- Startups have access to a wealth of knowledge to help them accelerate the growth of their company
- At the end of the program, the business remains an autonomous entity
Cons
- The short-term nature of accelerators means that once you graduate, you are on your own
- Since you are accepted into an accelerator program as a part of a group or cohort, you don’t necessarily get hyper-personalized attention
- As accelerators are less selective than their competitor models, they may work with 50+ companies at once, with only one or two achieving success.
- Accelerators often require a significant amount of equity for very short-term support and minimal funding
There are a couple of startup accelerators that have risen to the top over the years, aiding in the launch of successful companies of which you have liked heard of, or used. Top startup accelerators include…
Y Combinator: Popular startup accelerator, Y Combinator, launched its first seed accelerator in Cambridge, Massachusetts in 2005. Since then, the accelerator has been responsible for the successful launches of well-known companies like Airbnb, Dropbox, and Stripe.
TechStars: Techstars launched in 2006 in Boulder, Colorado. Over the past 15 years, the company has aided the launches of startup unicorns, such as Chainalysis, Classpass, and SendGrid.
Plug and Play: Plug and Play were founded in February of 2006 and has invested in many startups across various industries. Its top portfolio companies include SoLo Funds, Token, and Mellizyme Biotechnology.
How Does a Startup Studio Work?
Similar to accelerators, startup studios help to expedite growth through education and shared resources. However, there are some pretty significant differences between the two models and how they support new startups. For example, studios invest much earlier than accelerators. Rather than admitting early-stage startups, many studios invest pre-idea to ensure that they are equipped with a team of proven builders and operators. From here, many startup studio teams generate ideas internally, while some accept external pitches. These ideas are then matched, in their infancy, to entrepreneurs and an expert staff to get the business off the ground.
Startup Studios Highly Selective Approach Leads to Success
In a startup studio environment, the concept selection process is particularly rigorous. While they may see hundreds of ideas pitched, a startup studio will typically select only one or two of the pitches to move forward with, based on the market need and viability of the business. What happens next is similar in some ways to an accelerator, in that the business is developed in a fraction of the time that it would take a business to launch independently. Many studios can produce a successful company in under a year, while others tout their ability to churn out a high-quality, profitable business in mere months. Their agility and resilience in the startup space are attributed to a team of proven builders — meaning industry and tactical experts who put their minds together to develop a bullet-proof strategy backed by intelligent thinking and expertise.
While accelerators work with several startups in a 3–6-month period, a startup studio may launch only a handful of businesses over the course of years. This ensures that the businesses they work with are provided with an abundance of resources and the necessary help to ensure that they thrive beyond launch and throughout their aggressive growth phase. While this model can produce self-sustaining companies, their relationship with and support for the startup is ongoing. This provides substantial benefit to the designated startup company team, as they are never without aid from the experts with whom the business concept originated.
To wrap it up, the startup studio model has been very successful over the past decade because:
- Studios are highly selective, and as a result, will not launch a startup without substantial research and data to prove that there is a market and potential for success
- As they maintain a relationship and provide shared resources for the startup beyond launch to facilitate long-term success, studios must invest their time, money, and resources into fewer startups
- They invest earlier than any other investment model, often investing in teams of proven builders before a concept is even developed
- Studios provide a multitude of resources, which both minimizes risks and expedites growth
- For a more in-depth look at how startup studios work, check out our piece on How the Startup Studio Business Model is Changing the Startup Economy as We Know It.
If you are interested in collaborating with or even joining a startup studio, make sure to review these pros and cons to help you determine whether their environment is your best bet.
Pros and Cons of Startup Studios
Pros
- While startup studios have a long-term commitment to the startups they launch, the period from ideation to launch is quite short — many others can build and launch a business within a 6-month to a one-year period
- Companies launched in a startup studio have access to a network of business and industry experts, plus a variety of resources to help them succeed
- Their selectivity allows startup studios to fully commit and invest their time in the businesses they back, mitigating risk and better cultivating their success
- For someone with a great idea but no means to execute a business launch, a startup studio provides all the resources needed to substantiate and realize your idea
- Startup studios help mitigate risk and expedite growth with battle-tested playbooks and teams of proven builders
Cons
- For entrepreneurs who prefer a more independent approach, the startup studio model may rely too heavily on collaboration
- Studios are more selective than accelerators, making it more difficult for a startup or new idea to be accepted
- Some studios can retain a big percentage of the company beyond the launch
There are a few key players in the startup studio space who are really demonstrating the benefits and efficiencies of the startup studio model. As of 2020, there were approximately 415 startups launched with the support of a studio. Some of the best startup studios, major players like Atomic, Wilbur Labs, and Rocket Internet, are making waves in developing successful, thriving businesses across various industries that solve real problems for consumers. Startups like Dollar Shave Club from Science, VacationRenter from Wilbur Labs, and Hims from Atomic, have gained significant traction in their respective industries with the help of their studio relationship, and the outlook for the future of these companies is promising, to say the least.
Curious about some top businesses launched with a few of the best startup studios? Check out our most recent article ranking studios by their companies’ website traffic.
Which model is better for launching a startup?
The answer is: it depends!
While both accelerators and startup studios are viable options for entrepreneurs, their approach and end results are vastly different. If you have already established the foundation of your company and are simply seeking a program that will give you a competitive edge, an accelerator is likely your best bet. Understand that, while this will give you access to expert tips and insights, your success as a company has no guarantee beyond graduation.
However, if you seek continued support and resources to expedite your startup growth and better develop it for success long-term, a startup studio may be the best fit for your needs and expectations. While success is not guaranteed, the nature of a startup studio better protects founders from risk, while simultaneously providing efficiencies and capabilities through shared resources and synergies. We are excited to watch key players in both spaces help redefine the way companies chart their paths to success.
