BUSINESS INCUBATOR, ACCELERATOR OR VENTURE STUDIO?
What Path is Right for Your Innovation?
So, you developed a great new technology that has the potential to disrupt your target market. What do you do next? If you are new to the startup ecosystem, it is important to determine which startup resource best fits your needs and objectives.
Incubators, Accelerators and Venture Studios – What are they, and how do they differ?
Incubators are Business Schools for Startups
Business Incubators help entrepreneurs develop the skills and resources they need to turn their innovation into a business.
Incubators may include programmed instruction and workshops or be less formal in their approach. They provide entrepreneurs with resources such as a workspace, mentorship, access to industry experts, networking opportunities, legal and accounting services.
Incubators vary in their business models and costs, but they can range from being fully grant-funded and free for participants to fee-for-service. Sometimes, the provider will take an ownership stake in any new company formed out of their program.
Business incubation programs often include access to investment funding or provide support when seeking initial pre-seed financing. However, these funds are generally insufficient to materially advance the opportunity.
Accelerators are Advisory Services
An Accelerator’s purpose is to rapidly advance the growth and development of existing companies. Participating companies move through an educational program designed to make a company investment ready.
Business Accelerators are often based on a cohort model, where startups apply to be accepted into the program. Programs are typically 3-6 months in duration and culminate in a ‘Demo Day’, where company leaders pitch their ideas to an audience of potential investors.
In addition to the formal coaching, some Accelerators include mentoring, access to office space and networking opportunities.
Similar to Incubators, there are many different ways in which Accelerators make money. Some programs are fully subsidised by grants or corporations, which makes them free for participants. Some charge a fee to participate or, like Incubators, the Accelerator is awarded a small ownership position in each of the companies passing through their program. Some Accelerator programs invest in their graduated companies, and most will offer introductions to investors.
Both Incubator and Accelerator programs are built around supporting entrepreneurs. However, not all inventors want to be entrepreneurs. This is where Foundries or Venture Studios come in.
Venture Studios are Foundries for New Companies
Rather than providing support services to entrepreneurs or funding to existing companies, Venture Studios form new companies around promising technologies. Venture Studios offer an alternate path to market for intellectual property holders.
Although there are significant variations in approach, the basic process for a Venture Studio is to:
- Source or co-develop novel innovations
- Source the talent needed to lead the venture
- Form and then fund a new company
The model is to share the initial ownership of the new company between the inventor, the new leadership team, and the studio. The split between these parties will vary by Venture Studio and depend on the technical readiness of the innovation and the relative contributions of each party.
The value proposition of a Venture Studio is to increase the likelihood of a successful outcome because of the care taken to assemble a strong foundation of technology, talent, corporate structure, and capital.
Carrot Ventures is a Form of Venture Studio
Carrot Ventures has several unique features that differentiate it from other Venture Studios.
A Focus On AgTech
Although many studios specialize in certain types of technology, it is less common for Venture Studios to be specifically focused on a single industry.
Carrot focuses exclusively on the agricultural sector. We define AgTech broadly as innovations connected to the production, manufacturing, logistics and distribution of food and agricultural products. Example industries include animal health, crop production, digital ag, food safety and logistics, food tech, and value-added products.
Sourcing Technology
Many Venture Studios develop technology in-house to solve a specific problem. They invest heavily in technical teams and resources to progress technology to an investable stage.
By contrast, Carrot starts by searching for defensible technology that has demonstrated an ability to solve a significant problem in the agricultural industry. Once we identify a compelling opportunity, we seek to acquire the rights to that technology and build a new company around it.
Sourcing Talent
Most Venture Studios draw on their internal pool of talent, or their own network of potential CEOs to lead their new ventures.
Carrot’s approach is to engage a global executive search firm to find a specific leader for each opportunity, with the domain expertise, experience, skills, and interest to lead the new company as its CEO. This allows us to scour vast networks to find the most appropriate CEO for each opportunity.
Funding New Companies
Almost all Venture Studios invest significant time and expertise into the launch of each new company. However, their financial investments vary widely. Initial cash investments often range between $50,000 to $500,000. With this level of investment, the resulting companies still need to raise significant capital to commercialise their technology.
Carrot Ventures takes a different approach. We want to see our companies raise sufficient capital at the initial seed stage to have two years of runway. This allows them to focus on commercialising the technology, rather than being distracted by having to raise more capital. Carrot acts as lead investor in their seed round with a significant financial investment. We also support the CEO in raising external capital. This ensures the initial financing round provides enough capital to get the company through the costly setup and launch phases.
The Carrot Ventures Advantage
Companies formed by Carrot Ventures have vetted technology, an experienced CEO, a properly structured company, and sufficient capital to execute their initial business plan.
The goal is to increase the likelihood of a successful company by optimising the elements most needed for success.
Many Paths To Market – How to Decide Which One is a Fit for You?
There are many ways to bring new technologies to market. In the startup ecosystem, Incubators and Accelerators are common and widely known. Venture Studios present an alternative path worth considering.
To determine which is right for you, ask yourself some questions about the advancement of your opportunity, your skills, interests, and available resources:
- If you want support to start a business and nurture your idea, then an Incubator may be the best fit for you.
- If your company is formed and you are seeking support to accelerate your business growth plans, then joining an Accelerator is a good option.
- If you have strong technology but don’t have the resources or desire to create and run a company yourself, a Venture Studio may be a great way to create value from your invention.
To learn about Carrot Ventures, download our eBook and contact us to discuss your AgTech innovation.
