The technology incubator at Rensselaer Polytechnic Institute.
The Care and Feeding Of Entrepreneurs
August / September 2007
Volume 5 Number 4
Shortly after launching a software company in 1999, Peter Matsuo sought help from a well-known business incubator to fine-tune his business skills and grow the startup. He and a partner developed a "rich media" technology to help online marketers create advertising that uses expandable banners, videos and more. In 2001, they entered the business incubator program at Rensselaer Polytechnic Institute in Troy, N.Y., one of the first university-based incubators in the country.
The program provided them affordable office space, shared resources with other startups, business coaching and connections to investors and others with the expertise to get the company on its feet.
"At times, going through the incubator program was difficult," says Matsuo, "but I learned a lot of optimism and focus. It was one of the best experiences of my life."
And his focus has paid off. Internet giant Yahoo! recently purchased the company, now known as AdInterax. The financial terms of the agreement were not disclosed, but Matsuo says he never had to use venture capital or angel investments.
Matsuo's story is testament to the role incubators can play in helping entrepreneurs transform great ideas into successful businesses. Programs vary across the U.S. but generally they provide young companies with resources and services such as management guidance, technical consulting, rental space with flexible leases, shared business services and equipment, and help obtaining financing, according to the National Business Incubation Association (NBIA).
"Now there's a whole economic development, technology commercialization and entrepreneur support industry that we didn't have 25 years ago, says Dinah Adkins, president and CEO of the NBIA.
As of October 2006, there were more than 1,400 incubators in North America, of which 1,115 were in the U.S. The NBIA says 30 percent focus on technology. About 94 percent of Norh American business incubators are non-profit organizations engaged in economic deelopment.Adkins says the success of companies such as Microsoft, the fact small companies are responsible for a large percentage of job creation in the U.S., and that large corporations can't do all of their own research, have spurred the growth of incubators.
"Obviously, incubation is not a magic bullet," says Adkins. "While providing a physical environment for startups is important, what's most important is the comprehensive technical support and business assistance they offer."
Rensselaer's incubator was founded in 1980. Its goal is to enrich the academic environment of the school, foster technology transfer from the school, and to encourage economic growth in the region. Approximately 250 companies have gone through the program and 83 percent of those companies survive five years after graduating, according to Michael Tentnowski, RPI's director of incubator programs.
"It's a beehive of activity for entrepreneurs and their services," says Tentnowski, "but one thing we're not is a real estate deal." He says the incubator's extensive list of contacts in the business world is probably one of the most useful services to startups. Every company in the program receives customized services and the average length of stay is two to three years. Services may include help with refining business plans, meeting market projections, market research, assistance with hiring and having first dibs on hiring students graduating from the school.
RPI works with three types of companies: scientists who may have a great technology but little business sense, companies started by serial entrepreneurs that need help accelerating and established companies looking to break into international markets.
Matsuo says while in the program he updated his business plan, competed for positions to present to investors and met informally with investors. "We did not do a lot of collaborating with other companies in the incubator," says Matsuo. "In our experience the real benefit was meeting all of these talented people."
The Picatinny Technology Innovation Center was founded 13 years ago on the Picatinny Arsenal in Dover, N.J. The program nurtures companies that are commercializing products the Army is interested in using or those developed by the Army, according to the incubator's executive director, Mark Merclean.
The maximum amount of time companies can stay in the incubator is five years.
They are given office space for less than market rates, receive business advice from an advisory board at no cost, attend select conferences and may have access to a number of capital sources. Management of the incubator closely tracks the progress of companies.
"It's not a free-for-all, but you will get help," says Merclean. "We provide companies with access to skills. If you're serious and willing to roll up your sleeves, you'll have a good shot at becoming a viable business."
To be admitted, companies need to be less than three years old, need to be developing proprietary technology to support the Army, possess a business plan showing they can be financially successful and demonstrate the potential to benefit from a relationship with the incubator.
As the business incubator industry grows, programs are becoming increasingly specialized, especially in the area of technology, according to the NBIA's Adkins.
"Incubation has become more sophisticated," she says. "They now often focus on niche markets and specific industry clusters such as biotechnology, environmental technologies, nanotech and information technology. This whole environment has become much more research-rich, especially for technology companies."
For the entrepreneur, working in a specialized incubator is an opportunity to collaborate with similar companies. And the business professionals are more tuned in to the needs of the industry.
"In the beginning, incubators were more —€˜come one, come all,'" says Jim Robbins, executive director of the Environmental Business Cluster in San Jose, a nonprofit clean energy and environmental technology commercialization center.
"When innovation starts it's more generalized but as it matures it becomes more specialized."
Another reason startups get involved with incubators is that many incubators are not looking to take an equity stake in the company. Or if they are looking for a share, it's often less than what a venture capitalist or angel investor might require. In the 2006 NBIA study, 23 percent of technology incubator respondents stated they take an equity stake in all of their companies, 23 percent said they have a stake in selected companies and 55 percent do not take equity.
"Taking an equity stake is counterproductive to the incubation of young companies," says Tentnowski. The payoff for RPI is recognition, student enhancement—€”since many students do internships with incubator companies—€”and the fact that companies that are successful often give back in the form of endowments, contributions and gifts. Robbins says more incubators are taking equity stakes in their companies, but they are modest. An equity position of one to five percent is quite common, he says.
In addition to working with startups, incubators play an important role in fueling regional economic development and established companies.
"Incubators are extremely important," says Randy Berridge , president of the Florida High Tech Corridor Council Inc. "Scientists and academics have an opportunity to do technology transfer by having a facility in place that nurtures their development." The Florida High Tech Corridor covers 23 counties and is connected to three of the state's universities. It has 10 industry sectors: agritechnology, aviation and aerospace, digital media, financial services, information technology, life sciences, microelectronics, modeling simulation and training, optics and photonics and sustainable energy.
The University of Central Florida Technology Incubator has jumpstarted the success of more than 70 companies, generated more than $150 million in revenue and more than $100 million in investments and has created more than 450 jobs, according to the incubator's web site. A few of the companies that have graduated have left the region, but Berridge says the majority stays and re-invests in the community. The University of Florida and the University of South Florida also have incubators. Tentnowski says 90 percent of the companies that graduate from the RPI incubator stay in the region or in the local technology park.
Robert Garzee, CEO of Synergy EV, Inc., entered the Environmental Business Cluster seven years ago as an established company. His business is dedicated to electronic vehicle implementation and technology development. He says the cluster helps him tap technologies in Silicon Valley that can be used for alternative surface transportation. "We joined the cluster because we wanted to be with other companies going in the same direction," says Garzee. "We now have 83 companies working with us to go after technology transfer. It's like a business cluster creating a business cluster."
Garzee says the cluster provides Synergy EV a structure where if he needs a certain technology solution for alternative transportation, he can tap a variety of resources. And Jim Robbins, the cluster director, is well-connected in Silicon Valley.
"It's a misnomer that incubators are just for brand new companies," says Garzee. "We're an example of a company that is not brand new but has benefited greatly from working with the team."
And as the incubator industry grows it is becoming more competitive, according to Tentnowski. More incubators are opening up overseas and there are some parts of the U.S. where a large number of incubators operate in fairly close proximity to one another.
"It's my opinion that incubation, in terms of product cycle, is at full maturity if not at a slight decline," he says, adding many programs are finding it necessary to increase the amount of services and incentives they offer.
Eric Billingsley is a freelance writer based in Albuquerque.
"Scientists and academics have an opportunity to do technology transfer by having a facility in place that nurtures their development." The Florida High Tech Corridor covers 23 counties and is connected to three of the state's universities. It has 10 industry sectors including agritechnology, aviation and aerospace, digital media, financial services, information technology, life sciences, microelectronics, modeling simulation and training, optics and photonics and sustainable energy.
The University of Central Florida Technology Incubator has jumpstarted the success of more than 70 companies, generated more than $150 million in revenue and more than $100 million in investments and has created more than 450 jobs, according to the incubator's web site. A few of the companies that have graduated have left the region, but Berridge says the majority stays and re-invests in the community. The University of Florida and the University of South Florida also have incubators. Tentnowski says 90 percent of the companies that graduate from the RPI incubator stay in the region or in the local technology park.
Robert Garzee, CEO of Synergy EV, Inc., entered the Environmental Business Cluster seven years ago as an established company. His business is dedicated to electronic vehicle implementation and technology development. He says the cluster helps him tap technologies in Silicon Valley that can be used for alternative surface transportation. "We joined the cluster because we wanted to be with other companies going in the same direction," says Garzee. "We now have 83 companies working with us to go after technology transfer. It's like a business cluster creating a business cluster."
Garzee says the cluster provides Synergy EV a structure where if he needs a certain technology solution for alternative transportation, he can tap a variety of resources. And Jim Robbins, the cluster director, is well-connected in Silicon Valley.
"It's a misnomer that incubators are just for brand new companies," says Garzee. "We're an example of a company that is not brand new but has benefited greatly from working with the team."
And as the incubator industry grows it is becoming more competitive, according to Tentnowski. More incubators are opening up overseas and there are some parts of the U.S. where a large number of incubators operate in fairly close proximity to one another.
"It's my opinion that incubation, in terms of product cycle, is at full maturity if not at a slight decline," he says, adding many programs are finding it necessary to increase the amount of services and incentives they offer.
Eric Billingsley is a freelance writer based in Albuquerque.
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