Business incubator

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A business incubator is an organization that helps startup companies and individual entrepreneurs to develop their businesses by providing a fullscale range of services, starting with management training and office space, and ending with venture capital financing. [1] The National Business Incubation Association (NBIA) defines business incubators as a catalyst tool for either regional or national economic development. NBIA categorizes its members' incubators by the following five incubator types: academic institutions; non-profit development corporations; for-profit property development ventures; venture capital firms, and a combination of the above. [2]

Contents

Business incubators differ from research and technology parks in their dedication to startup and early-stage companies. Research and technology parks, on the other hand, tend to be large-scale projects that house everything from corporate, government, or university labs to very small companies. Most research and technology parks do not offer business assistance services, which are the hallmark of a business incubation program. However, many research and technology parks house incubation programs. [3]

Incubators also differ from the U.S. Small Business Administration's Small Business Development Centers (and similar business support programs) in that they serve only selected clients. Congress created the Small Business Administration in the Small Business Act of July 30, 1953. Its purpose is to "aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns." In addition, the charter ensures that small businesses receive a "fair proportion" of any government contracts and sales of surplus property. [4] SBDCs work with any small businesses at any stage of development, and not only with startup companies. Many business incubation programs partner with their local SBDC to create a "one-stop shop" for entrepreneurial support. [5]

Within European Union countries, there are different EU and state funded programs that offer support in form of consulting, mentoring, prototype creation, and other services and co-funding for them. TecHub is one of the examples for IT companies and ideas. [6]

In India, the business incubators are promoted in a varied fashion: as technology business incubators (TBI) and as startup incubators—the first deals with technology business (mostly, consultancy and promoting technology related businesses) and the later deals with promoting startups (with more emphasis on establishing new companies, scaling the businesses, prototyping, patenting, and so forth). The mission on creating specific innovations among the young minds of researchers via. 101 specialized incubators have been boosted in various parts of India through AIM-India. For instance, AIC-IIITKottayam, [7] a startup-based incubator, specializes in IoT Cloud research jointly with world class incubators from Germany, the US, Austria, and so forth. [8] [9] [10] [11] [12]

History

"THE FACTORIES BUILDING. Toledo's new $500,000 "Infant Industries Incubator." from "Bramble's views Toledo, Ohio : diamond anniversary 1837-1912" Bramble's views Toledo, Ohio - diamond anniversary 1837-1912 - DPLA - a4b983d79cfcfaaf7368d108fe048f73 (page 29) (cropped).jpg
"THE FACTORIES BUILDING. Toledo's new $500,000 "Infant Industries Incubator." from "Bramble's views Toledo, Ohio  : diamond anniversary 1837-1912"

The formal concept of business incubation began in the US in 1959 when Joseph L. Mancuso opened the Batavia Industrial Center in a Batavia, New York, warehouse. [13] Incubation expanded in the U.S. in the 1980s and spread to the UK and Europe through various related forms (e.g. innovation centres, pépinières d'entreprises, technopoles/science parks).

The U.S.-based International Business Innovation Association estimates that there are about 7,000 incubators worldwide. A study funded by the European Commission in 2002 identified around 900 incubation environments in Western Europe. [14] As of October 2006, there were more than 1,400 incubators in North America, up from only 12 in 1980. Her Majesty's Treasury identified around 25 incubation environments in the UK in 1997; by 2005, UKBI identified around 270 incubation environments across the country. In 2005 alone, North American incubation programs assisted more than 27,000 companies that provided employment for more than 100,000 workers and generated annual revenues of $17 billion. [15]

Incubation activity has not been limited to developed countries; incubation environments are now being implemented in developing countries and raising interest for financial support from organizations such as UNIDO and the World Bank.

The first high-tech incubator located in Silicon Valley was Catalyst Technologies started by Nolan Bushnell after he left Atari. "My idea was that I would fund [the businesses] with a key," says Bushnell. "And the key would fit a lock in a building. In the building would be a desk and chair, and down the hall would be a Xerox machine. They would sign their name 35 times and the company would be incorporated." All the details would be handled: "They'd have a health care plan, their payroll system would be in place, and the books would be set up. So in 15 minutes, they would be in business working on the project." [16]

Types of services

The building of the Business Incubator in Ulan-Ude, Buryatia The building of the Business Incubator in Ulan-Ude, Buryatia.jpg
The building of the Business Incubator in Ulan-Ude, Buryatia

Since startup companies lack many resources, experience and networks, incubators provide services which helps them get through initial hurdles in starting up a business. These hurdles include space, funding, legal, accounting, computer services and other prerequisites to running the business.

According to the Small Business Administration's website, their mission provides small businesses with four main services. These services are:

Among the most common incubator services are: [15]

Types

There are a number of business incubators that have focused on particular industries or on a particular business model, earning them their own name.

Industry sectors intentionally supported by incubation programs [15]
TechnologyCreative industriesConstruction
Computer softwareeBusiness / eCommerceArts
Services/professionalWireless technologyAerospace
ManufacturingHealthcare technologyKitchen/Food
InternetAdvanced materialsRetail
Biosciences/life sciencesDefense/homeland securityFashion
Electronics/MicroelectronicsEnergy/PowerWood/forestry
TelecommunicationsEnvironment/clean technologiesTourism
Computer hardwareLogistics/DeliveryManpower
Medical devicesNanotechnologyMedia

More than half of all business incubation programs are "mixed-use" projects, meaning they work with clients from a variety of industries. Technology incubators account for 39% of incubation programs. [15]

One example of a specialized type of incubator is a bio incubator. Bioincubators specialize in supporting life science-based startup companies. Entrepreneurs with feasible projects in life sciences are selected and admitted to these programs.

Overview

Incubation process

Unlike many business assistance programs, business incubators do not serve any and all companies. Entrepreneurs who wish to enter a business incubation program must apply for admission. Acceptance criteria vary from program to program, but in general only those with feasible business ideas and a workable business plan are admitted. [20] It is this factor that makes it difficult to compare the success rates of incubated companies against general business survival statistics. [21]

Although most incubators offer their clients office space and shared administrative services, the heart of a true business incubation program is the services it provides to startup companies. More than half of incubation programs surveyed by the National Business Incubation Association [22] in 2006 reported that they also served affiliate or virtual clients. [15] These companies do not reside in the incubator facility. Affiliate clients may be home-based businesses or early-stage companies that have their own premises but can benefit from incubator services. Virtual clients may be too remote from an incubation facility to participate on site, and so receive counseling and other assistance electronically.

The amount of time a company spends in an incubation program can vary widely depending on a number of factors, including the type of business and the entrepreneur's level of business expertise. Life science and other firms with long research and development cycles require more time in an incubation program than manufacturing or service companies that can immediately produce and bring a product or service to market. On average, incubator clients spend 33 months in a program. [15] Many incubation programs set graduation requirements by development benchmarks, such as company revenues or staffing levels, rather than time.

  1. Eligibility
  2. Admission process
  3. Intellectual property
  4. Seed loan
  5. Infrastructure
  6. Common infrastructure
  7. Other services
  8. Periodic assessment
  9. Information submission
  10. Consideration
  11. Tenure in BI
  12. Exit
  13. Conflicts of interests and confidentiality of information
  14. Disclaimer
  15. Agreements

Goals and sponsors

Business incubation has been identified as a means of meeting a variety of economic and socioeconomic policy needs, which may include job creation, fostering a community's entrepreneurial climate, technology commercialization, diversifying local economies, building or accelerating growth of local industry clusters, business creation and retention, encouraging minority entrepreneurship, identifying potential spin-in or spin-out business opportunities, or community revitalization. [15]

About one-third of business incubation programs are sponsored by economic development organizations. Government entities (such as cities or counties) account for 21% of program sponsors. Another 20% are sponsored by academic institutions, including two- and four-year colleges, universities, and technical colleges. [15] In many countries, incubation programs are funded by regional or national governments as part of an overall economic development strategy. In the United States, however, most incubation programs are independent, community-based and resourced projects. The U.S. Economic Development Administration is a frequent source of funds for developing incubation programs, but once a program is open and operational it typically receives no federal funding; few states offer centralized incubator funding. Rents and/or client fees account for 59% of incubator revenues, followed by service contracts or grants (18%) and cash operating subsidies (15%). [15]

As part of a major effort to address the ongoing economic crisis of the US, legislation was introduced to "reconstitute Project Socrates". The updated version of Socrates supports incubators by enabling users with technology-based facts about the marketplace, competitor maneuvers, potential partners, and technology paths to achieve competitive advantage. Michael Sekora, the original creator and director of Socrates says that a key purpose of Socrates is to assist government economic planners in addressing the economic and socioeconomic issues (see above) with unprecedented speed, efficiency and agility. [23]

Many for-profit or "private" incubation programs were launched in the late 1990s by investors and other for-profit operators seeking to hatch businesses quickly and bring in big payoffs. At the time, NBIA estimated that nearly 30% of all incubation programs were for-profit ventures. In the wake of the dot-com bust, however, many of those programs closed. In NBIA's 2002 State of the Business Incubation survey, only 16% of responding incubators were for-profit programs. By the 2006 SOI, just 6% of respondents were for-profit. [15]

Although some incubation programs (regardless of nonprofit or for-profit status) take equity in client companies, most do not. Only 25% of incubation programs report that they take equity in some or all of their clients. [15]

Incubator networks

Incubators often aggregate themselves into networks which are used to share good practices and new methodologies. Europe's European Business and Innovation Centre Network ("EBN") [24] association federates more than 250 European Business and Innovation Centres (EU|BICs) throughout Europe. France has its own national network of technopoles, pre-incubators, and EU|BICs, called RETIS Innovation. This network focuses on internationalizing startups.[ citation needed ]

Of 1000 incubators across Europe, 500 are situated in Germany. Many of them are organized federally within the ADT (Arbeitsgemeinschaft Deutscher Innovations-, Technologie-, und Gründerzentren e.V.). [25]

Silicon Valley Founder Houses

San Francisco and Silicon Valley are home to 'founder houses.' [26] These involve a collective of founders sharing an apartment or house while working to get their companies off the ground. Similar to tech/hacker houses in the same area, the founders collaborate to promote one another's success while enjoying the financial benefits of co-living in one of the most expensive regions of the country. [27] These collectives are typically located in San Francisco or near to Stanford University's campus. [28] Many of the founders have dropped out of Stanford University to pursue their careers– in fact, there is a more than a 1 in 10 chance that billion-dollar startups have one or more founders who attended Stanford. [29] In addition to the financial incentives of co-living, founders share investor recommendations, funding strategies, VC contacts, and other elements critical to a startup company's success in its early days. [30] These set-ups allow for largely virtual work, eliminating the burden on new founders to find a physical space for their company. [30] Due to the collaborative nature of these spaces, residents who have failed companies often pivot to taking a high-ranking position at a roommate's company. [26] Collectives such as these build on a legacy set forth by Mark Zuckerberg and Facebook. The house featured in the film The Social Network was a hacker's den rented by Zuckerberg that ultimately gave rise to a tech supergiant. [31] This house and the fortune it gave rise to was well-documented in the 2010 film The Social Network. [32]

List of business incubators

See also

Related Research Articles

A startup or start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable business model. While entrepreneurship includes all new businesses including self-employment and businesses that do not intend to go public, startups are new businesses that intend to grow large beyond the solo-founder. During the beginning, startups face high uncertainty and have high rates of failure, but a minority of them do go on to become successful and influential.

Social venture capital is a form of investment funding that is usually funded by a group of social venture capitalists or an impact investor to provide seed-funding investment, usually in a for-profit social enterprise, in return to achieve an outsized gain in financial return while delivering social impact to the world. There are various organizations, such as Venture Philanthropy (VP) companies and nonprofit organizations, that deploy a simple venture capital strategy model to fund nonprofit events, social enterprises, or activities that deliver a high social impact or a strong social causes for their existence. There are also regionally focused organizations that target a specific region of the world, to help build and support the local community in a social cause.

Business incubators began in the 1950s and took off in the late 1990s as support for startup companies who need advice and venture capital to get their ideas off the ground. As the dot-com bubble burst, many high-tech business incubators did so too. Today, the model of a business incubator is changing. Several of the incubator companies who survived the dot-com bubble switched to a virtual model.

The US Market Access Center, located in Menlo Park, is a business accelerator and trade gateway into the United States for high-tech international companies. The USMAC specializes in US market entry for small to mid-sized, high-growth companies in the information and communications, clean technology, and the life sciences sectors planning to expand their marketing, sales and operations to the United States.

Techstars is a pre-seed investor that provides access to capital, mentorship, and other support for early-stage entrepreneurs. It was founded in 2006 in Boulder, Colorado. As of January 2024, the company had accepted over 4,100 companies into its accelerator programs with a combined market capitalization of $106bn USD. Techstars operates accelerator programs in the Americas, Europe, the Middle East, Africa, Asia, and Oceania.

A technology business incubator is a type of business incubator focused on organizations that help startup companies and individual entrepreneurs which use modern technologies as the primary means of innovation to develop their businesses by providing a range of services, including training, brokering and financing. In several countries, including India, China, and the Philippines there have been government initiatives to support TBIs. Organizations under the title of technology business incubator often receive funding or other forms of support from the national government.

<span class="mw-page-title-main">Meltwater Entrepreneurial School of Technology</span> School in Accra, Ghana

The Meltwater Entrepreneurial School of Technology (MEST) is an Africa-wide technology entrepreneur training program, seed fund, and incubator headquartered in Accra, Ghana. The three-phased institution was founded in 2008 to provide training, investment, and mentoring for aspiring technology entrepreneurs with the goal of creating globally successful companies that create wealth and jobs locally in Africa.

<span class="mw-page-title-main">Jørn Lyseggen</span> Norwegian businessman

Jørn Lyseggen is a Norwegian serial entrepreneur, patent inventor and the founder and Executive Chairman of Meltwater and the Meltwater Entrepreneurial School of Technology (MEST).

Startup accelerators, also known as seed accelerators, are fixed-term, cohort-based programs, that include mentorship and educational components, and culminate in a public pitch event or demo day. While traditional business incubators are often government-funded, generally take no equity, and rarely provide funding, accelerators can be either privately or publicly funded and cover a wide range of industries. Unlike business incubators, the application process for seed accelerators is open to anyone, but is highly competitive. There are specific accelerators, such as corporate accelerators, which are often subsidiaries or programs of larger corporations that act like seed accelerators.

The Louisiana Business & Technology Center (LBTC) at Louisiana State University plays an important role to the state's flagship university, Louisiana State University as a part of LSU's Office of Research and Economic Development. LBTC's primary goal is to increase the economic growth of Louisiana by enhancing the development of small businesses and assisting in the development of new businesses. The center is ranked among the top ten entrepreneur programs in the nation. In 1988 it was jointly funded through LSU and the Greater Baton Rouge Chamber of Commerce to foster economic growth in Louisiana by providing businesses with applications and tools necessary for growth and survival in the real world. It comprises the Louisiana Technology Transfer Office (LTTO), the LBTC Business Incubator, and the LSU Student Incubator.

<span class="mw-page-title-main">Blue Startups</span>

Blue Startups is a Hawaii-based accelerator company co-founded by Henk Rogers, Maya Rogers and Chenoa Farnsworth in 2012. They created it to help startup companies, and help make Hawaii more identifiable as a technological business hub. The company has a network of over 120 mentors from the Hawaii, Silicon Valley, and Asia areas. The company's stated goal - according to former Program Manager Meli James - is to get companies started in Hawaii and make them want to keep working in the state.

<span class="mw-page-title-main">Kerala Startup Mission</span>

Kerala Startup Mission is the central agency of the Government of Kerala for entrepreneurship development and incubation activities in Kerala, India. KSUM was primarily founded to undertake the planning, establishment, and management of the technology business incubator (TBI), a startup accelerator in Kerala, to promote technology-based entrepreneurship activities, and to create the infrastructure and environment required to support high-technology-based businesses.

Co-Creation Hub, commonly referred to as Cc-HUB or the HUB, is a technology-oriented centre located in Yaba, a district of Lagos. Founded in 2010 by Bosun Tijani and Femi Longe, it provides a platform where technology-oriented people share ideas to solving social problems in Nigeria.

<span class="mw-page-title-main">Mach 37</span> American venture capital organization assisting startups

MACH37 is an American startup accelerator that was established in 2013 as a division of the Virginia-based Center for Innovative Technology (CIT) with funding from the Commonwealth of Virginia. In 2017 CIT partnered with VentureScope, a strategic innovation consultancy and venture firm, to revamp MACH37's operating model and curriculum. Following a successful partnership between CIT and VentureScope, MACH37 became fully owned and operated by VentureScope in 2020. MACH37 focuses primarily on honing and strengthening startups' product-market fit through extensive customer discovery and market research, expanding emerging companies' professional networks, fostering founder wellbeing, and providing emerging companies in the cybersecurity industry with access to investment capital and an immediate customer base. In an October 2020 article Forbes named MACH37 'the Granddaddy' of top cyber accelerators giving a nod to the fact that MACH37 was one of the first accelerators in the world dedicated to cyber and cyber adjacent technologies, and it has lasted far longer than many of its peer accelerators while strengthening over time. The name 'MACH37' is a reference to the escape velocity of Earth's atmosphere. VentureScope applies Lean Startup methodology at MACH37 as an efficient and successful approach to assist startups to rapidly adapt their search for a successful business model and test their hypotheses about customer needs and market demands.

Tenity is a startup incubator, accelerator and early-stage VC founded in 2016 in Zurich focused primarily on Fintech, Insurtech, Regtech and Deeptech. It provides incubation and acceleration programs helping startups to connect with corporates, experts, mentors, and investors for early stage venture and late stage venture investing, and collaboration opportunities. The company currently has operating hubs in Zurich, Singapore, Madrid, and Tallinn.

<span class="mw-page-title-main">WEtech Alliance</span>

WE Tech Alliance is a Canadian non-profit Regional Innovation Centre located in Windsor, Ontario servicing the counties of Windsor-Essex and Chatham-Kent.

<span class="mw-page-title-main">Entrepreneurs Roundtable Accelerator</span> NYC technology startup seed accelerator

Entrepreneurs Roundtable Accelerator is an American seed accelerator launched in January 2011.

Icehouse Ventures is a New Zealand-based venture capital firm. The firm is headquartered in Auckland and mainly focuses on the technology industry and has backed 200 companies. The firm also operates a variety of angel groups networks such as Ice Angels and Arc Angels. Icehouse Ventures was formally founded in 2019 as a separate company but had operated as part of the Icehouse group since 2001. In 2019, the founding CEO of the Icehouse stepped down as CEO and joined the board of directors of Icehouse Ventures.

<span class="mw-page-title-main">CIIE.CO</span> Indian startup accelerator

CIIE.CO is an Indian startup accelerator and incubator that supports early-stage startups located at IIM Ahmedabad in Ahmedabad, India. It was founded in 2002 to promote innovation and entrepreneurship in India. It is a Center of excellence set up at Indian Institute of Management Ahmedabad with support from the Government of India's Department of Science and Technology and the Government of Gujarat.

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