What is an incubator, anyway?

Following her article reflecting on the Lab Fellowship, our Lead Strategist Anna Laycock asks: what is an incubator?

Like much business jargon, the terms ‘incubator’ and ‘accelerator’ seem designed to make people confused. They’re rarely explained, sometimes used interchangeably, sometimes contrasted, and often combined with other jargon.

Both incubators and accelerators have the same general purpose: they help start-up businesses develop, by providing support such as mentoring, training, networking and access to potential investors. Incubators tend to offer physical space for start-ups and have a long, if not open-ended timeframe. Accelerators tend to provide more intensive support and have a set timeframe, ranging from a few weeks to a few months, at the end of which there is usually a ‘Demo Day’ (a chance to present to investors).

Even though Lab Fellowship has a relatively short timescale (six months) and doesn’t offer a physical workspace, we refer to it as an incubation programme, for two reasons:

  • The concept of acceleration doesn’t fit well with our approach: we’re not about going as fast as possible, but about staying true to your social purpose while navigating the complexities of the financial system. Fellowship is a very intense experience, but it’s not intensive – monthly sessions give time for Fellows to apply their learning and encounter new challenges to bring to the next session.
  • The concept of incubation is rooted in nurturing (originally, cells or plants) – which better reflects our focus on caring for and developing the leadership capacity of our Fellows.  

Some incubators exist to identify, cultivate and invest in start-ups with the potential to generate significant returns. They look for the projects with the strongest commercial potential, including those which are disruptive in the classic sense: a small company challenges established incumbents by targeting an underserved segment of the market. Their recruitment processes are designed to identify the cream of the crop – particularly important for programmes which take equity in their incubatees – so it’s perhaps not surprising when those start-ups go on to wider success.

Some incubators may also exist to swallow up potential competition or sources of competitive advantage. This does little for a diverse financial ecosystem, but it’s often welcomed by the start-up – since ‘exit’ is the end point of the traditional start-up cycle. Exit is the bit where the entrepreneur cashes in, by selling their business, merging it with another, or publicly listing shares.  

Other incubators, like the Lab’s incubate ‘for good’. This could be a general public good, such as local economic regeneration, wider social impact, or, in the case of the Lab, transformation of the financial system. The more radical the mission, the greater the difference between incubation for good and incubation for profit.