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The startup world is fast paced and always changing. Newcomers to the arena are often lost in the day to day jargon surrounding startups. But a common question among entrepreneurs trying to turn ideas into money is what is the difference between incubators and accelerators?

The good news is that both incubators and accelerators support startups in their early stages to get past the startup phase. Both frameworks provide capital, operating resources, help with management and valuable networks to help businesses grow. Startups who participate in incubators and accelerators are generally shown to have a higher rate of success raising follow on capital.

But which program is best to help you strategically grow your business to be the million-dollar idea you know it to be?

Incubators

Generally, incubators provide a space for startups to translate ideas into businesses. Incubators provide startups with a broad range of mentorship and guidance in areas like business, finance, presentation skills, fund raising and managing intellectual property. The typical incubator aims to provide low or no cost office space for multiple startups looking to grow their ideas with the supervision of technical advisors. One of the benefits of incubators is they typically do not require an equity stake in your business in return for their services. Incubators are usually sponsored by universities, non-profits and government entities looking to grow your idea for an unspecified amount of time. Some incubators are even sponsored by venture capital (VC) firms, angel investors or other major corporations.

With that being said, incubators are not the panacea for every growing business. Some incubators are understaffed and lack the entrepreneurial drive or pressure to deliver successful startups because of their lack of an equity interest. Some research even suggests that the majority of startups don’t become successful or are slow to realize the benefits of an incubator until the 5 years into the program.

But not all incubators are bad, many have the adequate resources to achieve your startup goals. Here is a list of some of the great incubators we found around Los Angeles: Viteribi Startup Garage, LA CleanTech Incubator, Hub101

Accelerators

Unlike incubators, accelerators are geared more toward taking an existing business and scaling it to accelerate growth.

Mike Bowry, general manager of Brandery said, the goal of an accelerator program is “to help a startup do roughly two years of business building in just a few months.”

Accelerators are intense 3-6-month commitments which require startups to give up equity in exchange for in-depth training and access to a valuable network of investors, financial advisors, successful startup executives and industry experts. The accelerator framework can help your business secure funding to grow, provide living expenses for entrepreneurs and even find long term business partners who can help you down the road. Accelerator programs generally have a high rate of success with their startups because they have a stake in your success if you succeed they succeed.

But the benefits of an accelerator come at a cost. Putting equity aside, accelerator programs are extremely competitive to participate in. Accelerators receive thousands of applicants every year and must carefully hand-pick the most scalable startups. The framework necessarily drives accelerators to select startups that will take the least amount of time and produce the highest return on investment.

Overall, accelerators are a great resource for achieving rapid growth and building networks despite intense commitment to the program. Here is a list of some of the great incubators we found around Los Angeles: Launchpad LA, McKernan, Disney Accelerator, Amplify LA.

Ultimately, incubators and accelerators are different programs each with their own unique benefits. Some incubators look more like accelerators and some accelerators can look more like incubators. To determine which pathway might be best for your business it is important to look into specific programs, who sponsors them and how might their benefits affect your business.

We like to think of ourselves as rational beings who operate from a rational mindset. However, after reading a short but fascinating excerpt of a conversation between Malcolm Gladwell and Steven Johnson, titled “Malcolm Gladwell on Why the Best Decision-Makers Are a Little Bit Irrational” I was inspired to think about the continual balance I try to find as a lawyer, entrepreneur, and counselor.

The article reminded me that while my job as a lawyer is to understand risk and help clients mitigate it, my job as an entrepreneur and founder of a law firm is to look for openings in the market and push my firm to greater heights when I know the odds are against me to succeed.

This duality has always fascinated me. Attempting to use my rational mind when advising clients, but also recognizing that to be a startup founder or entrepreneur is to live in an irrational world where the odds are against you, but you are willing to bet on yourself anyway.

The conversation between Gladwell and Johnson provides some useful insights on how to think about the risk of launching a new product or business. Johnson discusses utilizing a storytelling exercise before launch to think about three ways it may turn out: one version where things get better, one where things get worse, and one where things get weird. The last scenario opens you up to the possibility of seeing things that you may not have foreseen (or turned a blind eye to) if you didn’t go through that exercise.

The dance between the rational and irrational is one that every entrepreneur must learn. By practicing some of the exercises featured in this article, you can learn to master the balance.

Forming your corporation is the first step to limit your personal liability and to ensure the protection of your personal property. However, we are often asked, “Is forming a corporation sufficient to achieve such protection?” or “Is it sufficient to resolve any issues that may arise between me and my partners down the line?”

The short answer is – NO.

After forming a corporation, there are several considerations that startup founders should take into account to mitigate their risk and to adopt a corporate structure that is in line with their expectations.

The below summary describes the initial documents necessary to ensure your corporation is legally compliant and to create effective asset protection mechanisms. Note: many of these principles can be applied to LLCs as well, but for the purposes of discussion here, we are focusing on corporations.

Director Resolutions

Director Resolutions are how you make important decisions for your corporation during the meetings of the Board of Directors. The basic initial resolutions include:

  • electing Directors and appointing Officers, such as the CEO, CFO, and Secretary;
  • approving Bylaws and Shareholders Agreement (discussed next);
  • obtaining authorization to open a separate bank account for your startup; and
  • issuing shares to shareholders of your corporation, etc.

Following such corporate formalities is essential to prevent your business creditors from reaching your personal assets. In the event of an audit or lawsuit, it provides evidence that you keep your personal and business assets separate, treat your corporation as a distinct entity, and cannot be personally liable for corporate actions.

Bylaws

Bylaws provide a governance structure and procedures for your startup. Adopting Bylaws is mandatory in California and many other states. The Bylaws address the following questions:

  • how to manage the corporation, and elect the Directors and the Executives;
  • how to make important decisions, such as approving major transactions; or
  • how to accept new investments or investors into your business, etc.

Adopting and following your Bylaws regularly is crucial in shielding shareholders’, directors’ and executives’ personal assets from corporate liabilities. This is why you should have well-structured Bylaws for your corporation that is is easy to understand and follow.

Shareholders Agreement

A Shareholders Agreement is helpful when your business has more than one founder or new investors join your startup. This Agreement memorializes the understandings and intentions of shareholders and can introduce significant protections for you and your partner(s), such as:

  • the right to buy existing shares before non-owners (Right of First Refusal);
  • the right to sell your shares back to the corporation (Put Option/Buy Back);
  • the right to buy newly issued shares before non-owners (Pre-emption Rights); and
  • the right to buy other owners’ shares in case they breach their duties (Buy-Sell Rights).

Having those provisions in place will allow you to tackle finance and governance disputes efficiently without impairing your regular business operations.

At Carbon Law Group we can help you to negotiate, draft, and incorporate these documents into your new business structure. This will shield your personal assets from your business creditors’ claims and will set clear paths for dispute resolution between you and your partners.

If you have any questions about how to draft governance documents for your startup or need assisting with setting up your corporation, do not hesitate to reach out to us. You can use this link to schedule an appointment to speak with an attorney today.

This blog article is published for educational purposes only. Its sole purpose is to give you general understanding of the law and not to provide specific legal advice. By using this website you understand that no attorney client relationship has been established between you and the publisher. Please contact an attorney licensed in your state for competent legal advice.

We see many bright eyed, intelligent entrepreneurs come through our office. Each of them is equipped with a new idea that will revolutionize an industry. However, many do not realize that the biggest factor that will dictate their success may not be how great the product is or how smart they are. It may come down to correctly timing the market.

Bill Gross speaks on this fascinating conclusion in this short, must-watch, Ted Talk.

 

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