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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 A Master of Business Administration (MBA; also Master's in Business Administration) is a postgraduate degree focused on business administration. The core courses in an MBA program cover various areas of business administration such as accounti ...
and
office space ''Office Space'' is a 1999 American black comedy film written and directed by Mike Judge. It satirizes the worklife of a typical 1990s software company, focusing on a handful of individuals weary of their jobs. It stars Ron Livingston, Jennife ...
and ending with venture capital financing. 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 institution Academic institution is an educational institution dedicated to education and research, which grants academic degrees. See also academy and university. Types * Primary schools – (from French ''école primaire'') institutions where children r ...
s; non-profit
development corporation Development corporations or development firms are organizations established by governments in several countries for the purpose of urban development. They often are responsible for the development of new suburban areas or the redevelopment of ex ...
s; for-profit
property development Real estate development, or property development, is a business process, encompassing activities that range from the renovation and re-lease of existing buildings to the purchase of raw land and the sale of developed land or parcels to others. R ...
ventures;
venture capital firms Below is a list of notable venture capital firms. Assets under management Shown below are the largest venture capital firms ranked by Assets Under Management. Capital raised Data is for capital raised between January 1, 2017, and June 30, 2022. ...
, and a combination of the above. Business incubators differ from research and technology
parks A park is an area of natural, semi-natural or planted space set aside for human enjoyment and recreation or for the protection of wildlife or natural habitats. Urban parks are green spaces set aside for recreation inside towns and cities. N ...
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. 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. SBDCs work with any small business at any stage of development, not only startup companies. Many business incubation programs partner with their local SBDC to create a "one-stop shop" for entrepreneurial support. 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. 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, a startup-based incubator, specializes in IoT Cloud research jointly with world class incubators from Germany, the US,
Austria Austria, , bar, Östareich officially the Republic of Austria, is a country in the southern part of Central Europe, lying in the Eastern Alps. It is a federation of nine states, one of which is the capital, Vienna, the most populous c ...
, and so forth.


History

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 Batavia is a city in and the county seat of Genesee County, New York, United States. It is near the center of the county, surrounded by the Town of Batavia, which is a separate municipality. Batavia's population as of the 2020 census was 15,6 ...
, warehouse. 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. 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. 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 The United Nations Industrial Development Organization (UNIDO) (French: Organisation des Nations unies pour le développement industriel; French/Spanish acronym: ONUDI) is a specialized agency of the United Nations that assists countries in e ...
and the World Bank. The first high-tech incubator located in Silicon Valley was Catalyst Technologies started by Nolan Bushnell after he left
Atari Atari () is a brand name that has been owned by several entities since its inception in 1972. It is currently owned by French publisher Atari SA through a subsidiary named Atari Interactive. The original Atari, Inc., founded in Sunnyvale, Cali ...
. "My idea was that I would fund he businesseswith 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."


Types of services

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: * Plan your Business: Turn your great idea into a great business plan * Launch your Business: Turn your business plan into a reality (register, file, and start doing business) * Manage your Business: Master day-to-day operations and prepare for success * Grow your Business: Find new funding, locations, and customers when business is good and it's time to expand Among the most common incubator services are: * Help with business basics * Networking activities * Marketing assistance * Market Research * High-speed Internet access * Help with accounting/financial management * Access to
bank loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that de ...
s, loan funds and guarantee programs * Help with presentation skills * Links to higher education resources * Links to
strategic partner A strategic partnership (also see strategic alliance) is a relationship between two commercial enterprises, usually formalized by one or more business contracts. A strategic partnership will usually fall short of a legal partnership entity, agency, ...
s * Access to
angel investor An angel investor (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an individual who provides capital for a business or businesses start-up, usually in exchange for convertible debt or owner ...
s or venture capital * Comprehensive business training programs *
Advisory board An advisory board is a body that provides non-binding strategic advice to the management of a corporation, organization, or foundation. The informal nature of an advisory board gives greater flexibility in structure and management compared to t ...
s and mentors * Management team identification * Help with
business etiquette Etiquette () is the set of norms of personal behaviour in polite society, usually occurring in the form of an ethical code of the expected and accepted social behaviours that accord with the conventions and norms observed and practised by a ...
* Technology commercialization assistance * Help with regulatory compliance *
Intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, c ...
management


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. * Virtual business incubator – online business incubator **Since the 1950s, an older incubator model required startups to set up at the incubator's site. After the dot-com bubble, the virtual model was born, allowing companies to receive advice on incubators without physically being at the shop. This new virtual business incubator model has been a major step forward for entrepreneurs, and are especially ideal for those who need the advice that an incubator office provides but who want to maintain their own offices, warehouses, etc. *
Kitchen incubator A shared-use kitchen is a licensed commercial space that is certified for food production. Renters or members can use the kitchen by the hour or day to produce food while fulfilling regulatory compliance. Food entrepreneurs, ranging from chefs, cate ...
– a business incubator focused on the food industry **Specialty foods are typically high value and low production. Starting a commercial kitchen from scratch is a huge investment. The average food entrepreneur has to invest a lot of money before even making their food product, therefore not making profit for quite some time. Kitchen incubators give culinary entrepreneurs the opportunity to use low-cost kitchen space where they can rent a commercial kitchen space for an hourly or monthly rate. They also help culinary entrepreneurs make a profit by aiding in packaging, marketing, and selling their food products. * Public incubator – a business incubator focused on the public good **Social incubators' goal, similar to all other business incubators, is to provide social entrepreneurs with the tools they need to expand their business. While some businesses avoid their social responsibility, others such as charities need to have the ability to be more business savvy to survive. *
Seed accelerator 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 g ...
– a business incubator focused on early startups **"Seed accelerators, also known as startup 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 typically government-funded, accelerators differ in that they can be either privately or publicly funded and focus on a huge variety of industries. Seed accelerators also differ from business incubators in that the application process for seed accelerators is open to anyone, and is highly competitive. ***
Corporate accelerator A corporate accelerator is a specific form of seed accelerator which is sponsored by an established for-profit corporation. Similar to seed accelerators they support early-stage startup companies through mentorship and often capital and office spac ...
– a program of a larger company that acts akin to a seed accelerator ****A specific type of seed accelerator which is often a subsidiary or program of larger corporations that act like seed accelerators, sponsored by an established for-profit corporation. *
Startup studio A startup studio, also known as a startup factory, or a startup foundry, or a venture studio, is a studio-like company that aims at building several companies in succession. This style of business building is referred to as "parallel entrepreneurshi ...
– a business incubator with interacting portfolio companies *Venture builder: These are similar to a startup studio, but builds companies internally. **Venture-builders are also called tech studios, startup factories, or venture production studios. Unlike incubators and accelerators, venture builders do not take any applications and are a non-competitive program, but rather build companies using their own ideas and resource and assign internal teams of engineers, advisors, business developers, sales managers, etc. to develop them. *Medical incubator: a business incubator focused on medical devices and biomaterials **This type of business incubator focuses on start-up advice for medical devices and biomaterials. Medical technologies are always changing and improving, and therefore this type of incubator is ideal for encouraging innovation and entrepreneurship within the medical field. 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. One example of a specialized type of incubator is a ''bio incubator''. Bioincubators specialize in supporting
life science Life is a quality that distinguishes matter that has biological processes, such as signaling and self-sustaining processes, from that which does not, and is defined by the capacity for growth, reaction to stimuli, metabolism, energy trans ...
-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. It is this factor that makes it difficult to compare the success rates of incubated companies against general business survival statistics. 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 in 2006 reported that they also served affiliate or virtual clients. 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 Life is a quality that distinguishes matter that has biological processes, such as signaling and self-sustaining processes, from that which does not, and is defined by the capacity for growth, reaction to stimuli, metabolism, energy trans ...
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. Many incubation programs set graduation requirements by development benchmarks, such as company revenues or staffing levels, rather than time. #Eligibility #Admission process #Intellectual property #Seed loan #Infrastructure #Common infrastructure #Other services #Periodic assessment #Information submission #Consideration #Tenure in BI #Exit #Conflicts of interests and confidentiality of information #Disclaimer #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. 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. 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%). 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. 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 The dot-com bubble (dot-com boom, tech bubble, or the Internet bubble) was a stock market bubble in the late 1990s, a period of massive growth in the use and adoption of the Internet. Between 1995 and its peak in March 2000, the Nasdaq Compos ...
, 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. 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.


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") association federates more than 250 European Business and Innovation Centres (EU, BICs) throughout Europe. France has its own national network of
technopole A technopole, commonly referred to as a high-technology cluster or tech hub, refers to a center of high-tech manufacturing and information-based quaternary industry. The term was coined by Allen J. Scott in 1990 to describe regions in Southern ...
s, pre-incubators, and EU, BICs, called RETIS Innovation. This network focuses on internationalizing startups. 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.'').


List of business incubators


See also

* Science park – to support innovation on a university campus


References


External links

* {{DEFAULTSORT:Business Incubator Types of organization