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Accelerators vs Incubators vs Coworking vs Venture Capital

Note: I already have all the solutions and plans figured out, so this isn’t like a brainstorming session article.  This also isn’t a professional article, it’s my personal blog.  Trying to communicate some of the beginner stuff, but I’m a horrible teacher due to a subpar Broca that regulates the transition from ideas to the formation of comprehensible verbal words expressing those ideas. At least you can trust that my understanding of these ideas are actually a millions times higher then what I’m capable of telling you about.  

This area is the focus of my discovery.  So I don’t talk about it often, but wanted to highlight some differences and existing models in the market:

While both may raise money and invest, startup accelerators and incubators are run more like businesses themselves (often under the guise of “preparing companies for venture capital”). A venture capitalist is supposed to be a specialist- an investor that invests in something very special, like the next Google. Technically, these two shouldn’t even be investing in the same companies.

Most founders I’ve seen don’t understand this difference. One founder recently, for example, tweeted about their shock when they saw an incubator using their company as a PR strategy to raise money for the incubator, instead of for the company. This happens all the time, especially when the accelerator or incubator is new. Because it’s a business, and most founders don’t realize they don’t have the next Google– that means it costs money to help them and they can’t make up for it with equity.   

Equity-Based Models (In Search of the Googles)

There’s an interesting conundrum here- the question of who has the next Google and therefore actually has valuable equity to give (almost no one).

Silicon Valley is always afraid to say the ‘emperor has no clothes’.   They have witnessed something special enough to know it exists, so everything is considered special.  And because they kept all the opportunity isolated to one area- they could afford to assume everyone was special.

The rest of the World had the exact opposite problem- they aren’t tainted by their experience and similar group beliefs.  But they have never seen something special, so nothing is ever automatically assumed to be special.  In fact trying to do anything special, was usually completely hopeless because of Silicon Valley’s high concentration of venture capital.

The disparity between these two, allow both to remain ignorant in their own worlds.  Resolving that isn’t the entire solution, it’s actually only a very tiny portion, but it is the first thing that must happen.

Incubators

Most incubator models are actually just selling desk space and throw in some mentors; who then evolved into YCombinator like models propositioning themselves on a little bit of cash and resources in exchange for equity to launch a company.  The YCombinator models breaks here- the “next Google” doesn’t need to be prepared with “mentors’ and launch resources” for venture capital to begin with.  Because this REALLY just lowers value and the focus on launching takes the focus away from discovery (where Google stayed for 4 years and Standard Oil for 7).  And venture capital shouldn’t be investing in incubator companies.  But because the equity/mentor incubator biz model falls apart unless it raises follow-on VC funding for it’s companies, the ruse continues.  There is perhaps a question over the value of “middle ground” companies (what are basically “successful” lean startups), but I won’t get into that because then I can write 100 more pages.

Co-Working

If they don’t do the money and mentoring component, we also might call them co-working spaces. Again it’s the same thing- ie desk space. Coworking spaces are like incubators, but decided that mentors were difficult to get to volunteer, so peers could mentor each other.  WeWork for example fit into this real estate category, because it’s value proposition was redesigning the office space and reducing the lease terms.  We call it desk space because actual commercial leasing still involves retail storefronts, medical, warehousing, etc.

Commercial Leasing

The reason these real estate models evolved into incubators in the first place- was because commercial real estate leasing was very different then residential: commercial uses the income approach for valuation of the property. So the more successful the tenant was- the higher $ for the landlord. Instead of focusing on other metrics like vacancy rates. Most people didn’t realize that commercial leasing was always similar to investing too, because it was about picking the right businesses. Often landlords invested upfront as well in their companies to “build-to-suit”, and would loose too much money if 90% of them failed. Hense why the lease terms were often so long to begin with. But there’s a critical difference- one picks for returns because the LP is the customer, and the other is going to focus on short-term metrics to increase rents because you are the customer.

So all these models: incubators, startup accelerators, and coworking spaces are actually very unrevolutionary. They’re all pretty much the same thing. It’s easy to see why people are getting them confused, as venture capitalists are also trying to compete with each other now and have started offering more services and increasingly are loosing sight of being a specialist.

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