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     Incubators

This page covers government and business incubator schemes and other assistance measures.

It covers -

• introduction
• effectiveness
• incubation gateways
• Australian government incubators
• other Australian incubators
• overseas incubators

     introduction

Business incubators nurture start-up enterprises during the initial period when they are most vulnerable.

Typically incubators provide management advice and access to services such as accounting and intellectual property protection. Many provide some support finance and exposure to other funding sources, often with advice about building relationships with those sources. Some incubators are industry-specific (eg concentrate on information technology or biotechnology). Others embrace a range of sectors.

Most incubators provide infrastructure to start-ups on a nominal cost basis, for example -

• shared office services
• access to business equipment
• access to broadband connectivity and hosting
• flexible leases
• expandable accommodation

with an expectation that the enterprises will move to other accommodation as they mature. The emphasis in Australia and other countries on commercialisation of academic research has led to a vogue for situating incubators in technology parks on/adjacent to the campuses of major academic institutions.

In Australia most incubators have had an essentially non-commercial basis, ie draw on government support and are not run as profit-making bodies (whether directly through service charges or through participation venture capital style in ultimate listing/sale of the incubated entities).

Some overseas incubators have, however, been run as unabashed businesses, leading on occasion to criticisms that the incubator exploited the start-ups. Such criticisms have been echoed in Australia, with the 2003 evaluation of the BITS Incubator Program & Intelligent Island Incubator and subsequent responses for example noting

• comments that some incubators have been disguised property ploys
• claims from some start-ups that funding was dependent on "lopsided contracts under which promises of cash injections evaporate under compulsory fee-for-service arrangements with the incubators"
• complaints that the small size of the local market meant that incubatees were unable to encourage best practice, because "rocking the boat would mean they would never raise funds"
• abuses that include overcharging for services such as phone connections or rent and conflicts of interest (eg directors of incubators being shareholders and directors of incubatees)
• lack of effective monitoring, with little scope for incubatees to audit their incubator or report on quality of service
• inflated figures for levels of investment in reporting by incubators to government.

The US National Business Incubator Association claims that 60% of US incubators are "either self sufficient or could be self sufficient if subsidies ceased", up from 13% in 1997.

     effectiveness

How effective are incubators and what are the best incubator models, given varying innovation and investment cultures in different countries and the varying nature of different technology sectors?

A 2003 European Commission report attempted to offer benchmarks for the assessment of performance. Those benchmarks include -

• Mission and strategic aims 
• Partnership and legal form 
• Premises and location 
• Financing 
• Management 
• Business planning 
• Target market and promotion 
• Admission and exit rules 
• Incubator space and services 
• Quality standards 
• Start-up and survival rates 
• Employment effects

The 2003 Australian government report (PDF) on incubator funding noted that the majority of enterprises assisted by incubators remain in the area where they commenced business and that the most significant economic benefits are also localised.

The gap between the level of funding provided by incubators and minimum venture capital investments has created problems. In Australia that has meant that some BITS incubatees and graduates have sought to focus on "organic growth", reflected in a slower growth path and lower returns.

     gateways

AusIndustry, a Commonwealth government agency, points to a number of government initiatives on its VC Programs page.

The Commonwealth government's Business Entry Point (BEP) has information for small business on matters such as government industry initiatives, taxation, recordkeeping and industrial relations.  

It includes pointers to "800 programs and services offered by government", industry associations and Chambers of Commerce, and the Business Licence Information Service (BLIS) - information on licences and permits required in the running of a business.

     Aust government incubators

Most Australian states and the ACT have government-supported incubators, generally in association with academic institutions and primarily driven by Commonwealth funding under the BITS program. As of June 2003 some 3,553 applicants had been screened by BITS incubators, with 267 entities accepted for incubation and 116 graduated.

The latest incubator is the Information Technology & Communications Incubator for the Northern Territory (ITCINT).

In Sydney the Australian Technology Park (ATP), the model for government incubators, spans the range from telecommunications to the biological sciences.

Information City Melbourne (ICM) is a state government initiative with substantial Commonwealth funding, bringing together various Melbourne incubators and support services. Its ambit includes dot coms, software development, e-commerce applications and photonics. The initiative includes venture capital funding.

MelbourneIT's 'Incubator Centre' as part of the Information City initiative provides advanced ICT facilities, office accommodation and services from Melbourne University-related bodies such as the Melbourne Business School.

I Cubed - the Interactive Information Institute at Melbourne's RMIT - is concerned with interactive media product and service development. Photonics incubator RedCentre is another Information City affiliate.

The Australian Distributed Incubator (ADInc) - promoted as the 'National Virtual Incubator' - delivers 6 month structured business programs to startups. The programs involve mentoring, consulting and online support services.

WA-based eHatch offers financing, technical and legal advice, coaching and support services. Members of the consortium include Imago Multimedia Centre, Zernike (Australia), the Australian Telecommunications Cooperative Research Centre and Software Engineering Australia (WA).

ITem3 is a NSW-based IT incubator offering short-term (2 year) support, including management support, facilities and communications infrastructure. Its members are Iplus Developments, Lateral Concepts International and Software Engineering Australia (NSW).

EPIcorp and the Capital Region Technology Business Centre in Canberra offers "a structured business growth program", including early stage finance, management and specialist services, coaching and mentoring. Members include the Canberra Business Centre, Anutech, CSIRO and University of Canberra.

     other Aust incubators

BlueFire Group (NSW) is a commercial incubator that offers hardware, network integration, legal services, accounting, recruitment, marketing and public relations, access to entrepreneurial and managerial talent, access to initial funding and subsequent capital raising.

ePark was established by Deloitte Touche Tohmatsu and venture capital firm Allen & Buckeridge. Its focus is on e-business: B2B, infrastructure, middleware and mcommerce.

inQbator in Queensland, to be located in the technology precinct at Varsity Lakes on the central Gold Coast, will take equity in return for providing startup services and facilities. Partners include Amwin Investment Fund, Boeing Australia, Bond University, CM Capital, Delfin, Gartner, Grant Samuel Technology Fund, Griffith University, Nanyang Management, QUT, Sun Microsystems and Schiavello Commercial Interiors.

     overseas incubators

The US idealab! has spawned numeous startups such as eToys and Eve.com, several of which melted down. It has attracted attention for its problematical New.Net alternate domain name scheme.

Among the more colourful US incubators eHatchery appears to base its support on "eCeleration" software. First Base Ventures (FBV) eschews the software and instead offers a baseball metaphor to "get them ready for the big game". Ground Floor Ventures (GFV) is a commercial incubator exclusively for female-owned or operated web companies.

Divine Interventures (DI) offers a "nurturing environment" that includes web development, sales and marketing, legal assistance and other services. eCompanies claims a 'Henry Ford approach', startups being "fitted" with experts in strategy, finance or technology. Austin Ventures (AV) offers 'semi-custom manufacturing' of startups, aiming to move them to the next round of financing within three months instead of the traditional 12-18 months.

CMGI (partly owned by Microsoft, Pacific Century CyberWorks, Compaq, Intel and Sumitomo) and Japan's Softbank (a major shareholder in Yahoo!, ZDNet and E*Trade) are large-scale incubator cum investment funds.

At the more boutique end of the market Internet Capital Group (ICG) offers operational assistance, capital and networking to B2B startups. IdeaEdge Ventures focuses on wireless Internet technology, infrastructure and "post-PC" technologies. B2B incubator Camp Six provides marketing, business development, legal, engineering and other services.

A perspective is provided by Elena Scaramuzzi's 2002 Incubators in Developing Countries: Status & Development Perspectives (PDF) and the US government's 2003 A National Benchmarking Analysis of Technology Business Incubator Performance & Practices (PDF) and Business Incubation: Emerging Trends for Profitablity and Economic Development in the US, Central Asia & the Middle East (PDF).



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