Incubators: more information

What are business incubators?

The main goal of most business incubation programmes is to produce companies that create jobs and wealth in their communities.  Business incubators nurture the development of entrepreneurial companies, helping them survive and grow during the start-up period, when they are most vulnerable. 

Business incubators provide their resident companies with business support services and resources such as guidance, assistance with business planning and help obtaining financing.  Incubators usually also offer companies rental space with flexible leases, shared basic office services and access to equipment all under one roof. 

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Is business incubation a new industry?

No. The term “business incubator” gained popularity with the recent explosion and subsequent demise of so called internet incubators, but the business incubation model traces its beginnings to the late 1950s in the USA and Europe.  Incubation is a much newer concept in New Zealand, with most incubators having been established since 2001.

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How many business incubators are there?

There are about 4,000 business incubators worldwide.  The incubation model has been adapted to meet a variety of needs, from fostering commercialisation of university technologies to increasing employment in economically distressed communities to serving as investment vehicles. 

New Zealand incubators are mostly focused on high growth early stage companies in the ICT, Biotechnology and Creative sectors.

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Who sponsors business incubators?

The majority of New Zealand business incubators are sponsored by academic institutions and local economic development organisations.  Corporate sponsors are involved with a number of them, while New Zealand Trade and Enterprise also provides significant funding support. 

Incubator sponsors – organisations or individuals who support an incubation programme financially – may serve as the incubator’s parent or host organisation or may simply make financial contributions to the incubator. 

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What makes a business incubator successful?

Incubator developers must first invest time and money in a feasibility study to lay the groundwork for a successful incubation programme.  An effective feasibility study will help determine whether the proposed project has all the factors crucial to an incubator’s success - a solid market, a sound financial base and strong community support. 

Once established, model business incubation programmes commit to industry best practices such as structuring for financial sustainability, recruiting and appropriately compensating management with company-growing skills, building an effective board of directors, and prioritising management’s time to place the greatest emphasis on resident assistance.   

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How do incubators help start-ups get funding?

Incubators help resident companies secure capital in a number of ways, including:

• Connecting companies with angel investors (high-net-worth individual investors).
• Working with companies to perfect venture capital presentations and connecting them to venture capitalists.
• Assisting companies in applying for loans.
• Assisting companies in accessing government agency (e.g. NZTE, Technology NZ) business assistance grant programmes.

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How do incubators contribute to local and regional economies?

Incubator graduate companies create jobs, revitalise neighborhoods and commercialise new technologies, thus strengthening local, regional and even national economies.  While in New Zealand we do not yet have meaningful statistics, figures from the USA are compelling:

• NBIA (National Business Incubation Association) estimates that North American incubator resident and graduate companies have created about half a million jobs since 1980.  That is enough jobs to employ every person living in Denver.
• Every 50 jobs created by an incubator resident company generate approximately 25 more jobs in the same community.
• In 2001 alone, North American incubators assisted more than 35,000 start-up companies that provided full time employment for nearly 82,000 workers and generated annual earnings of more than $7 billion.
• Business incubators reduce the risk of small business failures.  Historically, NBIA member incubators have reported that 87% of all firms that have graduated from their incubators are still in business.

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Why are business incubators worthy of government subsidies?

Government subsidies for well managed business incubation programmes represent strong investments in local and regional economies.  Consider these returns:

• Research has shown that for every $1 of estimated public investment provided to the incubator, resident companies and graduate companies of NBIA member incubators generate approximately $30 in local tax revenue alone.
• NBIA members have reported that 84% of incubator graduates stay in their communities and continue to provide a return to their investors.
• Publicly supported incubators create jobs at a cost of about $1,100 each, whereas other publicly supported job creation mechanisms commonly cost more than $10,000 per job created.

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How do business incubators differ from research parks?

Research parks, sometimes called science parks or technology parks, are property-based ventures consisting of research and development facilities for technology and science based companies.  Research parks often promote community economic development and technology transfer and tend to be larger-scale projects than business incubators, often spanning many acres or miles.  Research parks house everything from corporate, government and university labs to big and small companies. 

Unlike business incubators, research parks do not offer comprehensive programmes of business assistance.  However, an important component of some research parks is a business incubators focused on early-stage companies.