Benchmarking Incubators - UKSPA - Benchmarking Incubators... · Benchmarking Incubators Background...

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Benchmarking Incubators Background Report for the Entrepreneurship Index 2004 December 2004

Transcript of Benchmarking Incubators - UKSPA - Benchmarking Incubators... · Benchmarking Incubators Background...

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Benchmarking Incubators Background Report for the Entrepreneurship Index 2004

December 2004

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Table of contents 1 Summary .....................................................................................................................3 2. Introduction................................................................................................................4

2.1 Defining the boundaries of incubators.................................................................5 2.2 Measuring incubator performance .......................................................................6 2.3 The impact of the local community .....................................................................7 2.4 Master Plan ........................................................................................................10

3 Methodology.............................................................................................................10 3.1 Incubator selection .............................................................................................11

3.1.1 Denmark......................................................................................................11 3.1.2 The United States........................................................................................13 3.1.3 Finland, England and Sweden.....................................................................14

4 Measuring incubator performance ............................................................................16 4.1 Exit Rates ...........................................................................................................16 4.2 Attracting foreign capital ...................................................................................19 4.3 Total incubator performance..............................................................................21

5 Incubator business models ........................................................................................22 5.1 Degree of specialisation.....................................................................................23 5.2 Strategic counselling..........................................................................................24 5.3 Financing............................................................................................................25 5.4 Monitoring .........................................................................................................26 5.5 Outreach.............................................................................................................27 5.6 Co-operation with knowledge institutions .........................................................27 5.7 Networks ............................................................................................................28 5.8 Overall incubator activity levels ........................................................................29

6 Exploring the link between performance and business areas ...................................30 6.1 Degree of specialisation.....................................................................................31 6.2 Networks ............................................................................................................32 6.3 Financing............................................................................................................33 6.4 Strategic counselling..........................................................................................33 6.5 Monitoring .........................................................................................................35 6.6 Outreach.............................................................................................................36 6.7 Co-operation with universities...........................................................................36

7 The role of entrepreneurship infrastructure ..............................................................37 7.1 Incubators with a narrow focus on entrepreneurship infrastructures.................37 7.2 Incubators with a strong focus on entrepreneurship infrastructures ..................39

7.2.1 Comparing Danish and international incubators focusing on improving entrepreneur infrastructures .................................................................................43

8 Conclusion ................................................................................................................45

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1 Summary This report benchmarks 8 Danish incubators - DTU Innovation, CAT Research Park, HIH Development, NOVI, Syddansk Innovation, Symbion Science Park, Teknologisk Innovation and Østjysk Innovation - against a selection of top-rated incubators across the United States, UK, Finland and Sweden. A total of 19 incubators are benchmarked. The study compares the incubators’ ability to hatch viable businesses, as well as their ability to attract venture capital. Three of the Danish incubators perform well, whereas the remaining 5 perform under-perform compared to the top-performing incubators. In particular Danish incubators NOVI, Symbion and CAT rank with the best in terms of attracting venture capital, whereas exit rates among Danish incubators collectively are significantly lower compared to the top-performing incubators. The top-performing Danish incubators (NOVI, Symbion and CAT) have all been in business for a considerable amount of time, whereas the 5 other Danish incubators have been in operation for a short period of time. Among the international incubators we find a number of young incubators having produced excellent results. Furthermore the study compares incubator performance across the 19 selected incubators. A total of 7 dimensions are covered: degree of specialisation, strategic counselling, financing, monitoring, outreach, networks and co-operation with knowledge institutions. The selection and subsequent analysis of the 7 dimensions have been carried out in close collaboration with Danish and international incubators to ensure that all relevant aspects of incubator activities are covered. The study also shows that the quality of the surrounding entrepreneurship infrastructure is essential to incubator growth and survival. The growth process of Danish enterprises may be promoted by improving the quality of the entrepreneurship infrastructure, and incubators play a significant role in the continued development of entrepreneurship infrastructures. This is also supported by the fact that the top-performing incubators operate in areas where significant efforts have been made to improve entrepreneurship infrastructures. The study shows that compared to other countries Danish incubators are less involved in developing entrepreneurship infrastructure. The study confirms that the best-performing incubators offer a higher degree of specialisation and work closer with the local communities. At the same time compared to the lower-performing incubators, the top-performers maintain a lower focus on formal monitoring and strategic counselling. We detect no significant variation in incubator performance across the areas of financing, co-operation with universities and outreach.

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2. Introduction The creation and subsequent growth of enterprises with a substantial growth potential is vital to the economic prosperity of industrialised countries. The road towards company start-up and growth may be long, difficult and risky. New enterprises may find it difficult to grow revenues and enter a healthy growth pattern if entrepreneurs do not have access to adequate professional and business advice. To help entrepreneurs through the first difficult years of operation incubators serve an important role in supporting the commercialisation of research and business ideas. Within a limited time frame incubators supply a range of professional and business services and resources to a carefully selected and limited stock of entrepreneurs. Against payment incubators assist entrepreneur business ideas and newly-established companies (hereafter referred to as “affiliated companies”) to ensure the best possible chance of survival and growth. Services include venture capital, professional and commercial networks, strategic counselling on sales and marketing, as well as technical and financial development. Rated by their numbers incubators have grown increasingly popular. In 1984 only 26 incubators existed in the United States. Today we see thousands of incubators across the United States, and incubators are rapidly spreading across Europe and Asia.1 Despite the growing number of incubators, the impact of incubators in promoting start-up activity and new-firm growth is dubious. The purpose of this study is two-fold: Firstly, the individual performances of a select group of Danish incubators are presented by comparing them to an elite field of international incubators. Secondly, the study aims to identify factors conducive to the commercialisation of research and business ideas. Over the past few years several attempts have been made to benchmark incubators.2 This study addresses three problems that need to be solved to allow for any meaningful comparison of incubator performance to be carried out; defining the boundaries of incubators, measuring incubator performance, and measuring the incubator’s impact on society as a whole.

1 Philippe Albert, Lynda Gaynor (2001): ”Incubators – Growing Up, Moving Out. A Review of the Literature.” 2 Over the past few years several attempts have been made in benchmarking incubators. Tornatzky, Louis G., Hugh Sherman and Dinah Adkins (2001): ”A National benchmarking Analysis of Technology Business Incubator Performance and Practices. A Report by the NBIA to the US Department of Commerce”; European Commission and the Centre for Strategy and Evaluation Services (2002): ”Benchmarking of Incubators. Final Report”; UKBI (2003): ”Benchmarking Framework for Business Incubation final Report.”

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2.1 Defining the boundaries of incubators Traditionally incubators have been closely tied to the development of high-tech companies. Today the term incubator is used to describe a wide range of organisations and institutions. The report applies a somewhat narrow definition of incubators. The scope of the report is limited to incubators that are attached to universities or other educational establishments in a formal or informal way. However even among incubators attached to knowledge institutions we detect different approaches to the overall objectives of the incubator. The lion’s share of incubators surveyed has been launched with the specific purpose of creating a concentration of new firms with a significant growth potential. In that respect the incubator assumes a wealth-creating role throughout the region and focuses on altering regional business structures. The incubator at the University of Texas, Austin, is exclusively focused on building and attracting specialised IT skills. The success of the Austin incubator has prompted the incubator to pursue other potential high-growth industries in the region, including environmentally safe energy and wireless technologies. Several incubators have maintained a strong local and social focus as well as being located in high-growth regions. The San Jose Software Business Cluster in Silicon valley was launched by the City of San Jose in 1994 in an attempt to revitalise sections of downtown San Jose. Incubators attached to universities or other educational establishments maintain a strong focus on the areas of commercialisation of research and the development of new enterprises based on research and student business ideas. Incubators that maintain a strong focus on the aspects of commercialisation are often affiliated with a university. These incubators are primarily attached to students and researchers that wish to patent or sell research. Other incubators are focused exclusively on assisting students in drafting business plans as part of their entrepreneurial studies. The above mentioned examples show that in some cases it may be beneficial to isolate and compare specific groups of incubators with similar goals. This could apply to incubators that wish to create a large local concentration of companies within specific technology, or incubators that focuses on university spin-offs. This will make it possible to compare incubators on a specific performance goal which is directly related to a specific objective. However this will severely limit the number of incubators in the analysis. We have attempted to use the approach by comparing selected incubators in terms of their involvement in improving entrepreneurship infrastructures (please refer to section 7). Alternatively one can apply a general performance measure in evaluating incubators. This report evaluates incubators by their ability to launch sustainable companies that contribute to wealth creation. This serves as a generic measure of incubator activity. Applying a generic measure implies that a stringent demarcation of incubator boundaries be conducted.

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2.2 Measuring incubator performance The value - or effect – created by incubators remains difficult to measure. It seems reasonable to measure incubator performance by their ability to create viable enterprises that contribute to regional wealth. Thus incubator performance can be measured by applying two dimensions: 1) the share of sustainable enterprises and 2) their contributions to regional wealth.

It is quite simple to construct a measure of the incubator’s ability to foster viable companies. Exit rates provide a reliable measure for the number of sustainable companies as a share of the total number of affiliated companies in the incubator. Exit rates explore the relationship between the number of business ideas generated in the incubator, and the number of viable companies. The link between the number of attached companies and the number of surviving companies exiting the incubator is a straight-forward measure of incubator performance. There are some built-in weaknesses in applying exit rates. On the surface it is not possible to evaluate the effect of the incubator on company start-up and survival. It cannot be ruled out that that company may have been launched and survived the first few years of operation without having access to an incubator. For the purpose of the analysis it is assumed that companies affiliated to an incubator have done so voluntarily because of the expertise and competences offered by the incubator. This leaves us to conclude that the indicator measures the positive contributions to the creation of new companies. The incubator’s wealth contribution to the local economy is also difficult to measure. Some incubators monitor exiting companies. In principle it is possible to estimate the amount of wealth created by exiting companies. However when doing one should address the following questions: what is the optimal time frame for monitoring departing companies? May total future wealth creation be accredited to the company being a part of an incubator for a short period of time? If companies are tracked for a prolonged period of time results may be affected. The San Jose Software Business Cluster assumed an active part in the launch of Adwill Software. With 35, 000 employees Adwill has a significant impact on the San Jose incubator whereas other affiliated companies in the San Jose incubator have helped create more than 2,500 jobs in the city of San Jose. When including Adwill the performance of the San Jose cluster increases by a factor 14. It is hardly viable to limit the monitoring period. When choosing a shorter time frame the positive effects of the incubator in creating jobs will be limited as compared to overall job growth in the region. If companies are monitored for a prolonged period of time most incubators will show significant growth rates which may be accredited to one or more factors; 1) a successful company was part of the incubator a long time ago, 2) the company merged with another successful company or 3) the company took part in building a successful company through a spin-off.

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Alternatively one could construct an indicator that rates the survival- and growth potential among affiliated companies prior to their departure. The scope of venture capital in proportion to the total number of affiliated companies serve as is an indicator of general market expectations. The indicator may be constructed by measuring the amount of external capital accumulated during the companies’ incubator tenure. The scope of external capital should be measured in proportion to the total stock of companies having been part of the incubator since its inception. The indicator fails to measure wealth contribution. High-growth and survival are not related to the amount of capital accumulated. However the indicator does measure the potential for high-growth and survival. In conclusion we find that there is no definitive approach to measuring incubator’s effect on wealth creation. Throughout the report incubator performance is base on exit rates and their ability to attract foreign capital. In our assessment the two measures serve as meaningful indicators in sizing incubator performance; their ability to nurture viable enterprises and their ability to nurture companies that will make positive contributions to the local economy.

2.3 The impact of the local community Incubators cannot be isolated from their environment in which they operate. Companies that emerge from incubator activities are products of the local community. The ability to hatch new and sustainable companies is affected by a series of cultural and institutional conditions on which incubators have limited influence. It is however a fundamental condition that a majority of the adult population has the desire and ability to become entrepreneurs, and that society is appreciative of the courage and energy associated with being an entrepreneur. The existence of entry barriers is another issue that needs to be taken into consideration. The supply of knowledge, skills and capital within the local environment is essential in supporting entrepreneurs and the start-up of new enterprises. Lawyers, patent lawyers, realtors, financial advisers, technical specialists, management consultants, and the skills and competences of investors are important elements in the entrepreneurship infrastructure. It is equally important that advisers be part of tightly-stitched networks that are frequently attached to certain clusters or technical skills. The challenges faced by a bio-tech research company may differ significantly from the challenges faced by an IT company that manufactures computer games to the global market, or a fashion house competing with global fashion houses. The scope and quality of guidance is critical to regional entrepreneurship activity. The collective pool of competences among advisers and the scope of networks are often referred to as the entrepreneurship infrastructure. The demand for guidance

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hinges on the specific challenge of the individual entrepreneur, but most entrepreneurs and start-ups will at some point during the early stages benefit from engaging in a dialogue with a wide range of stakeholders (Box 2.1). Box 2.1: Entrepreneurship infrastructure A strong entrepreneurship infrastructure implies that competences are readily available in the local community. Furthermore it is vital that advisers have a keen understanding of the entrepreneur’s professional challenges. In some instances advisor fees are paid only when the company is well-established and show stable revenues. In the United States it is common for advisors to exchange regular fees for obtaining a share of the company. The share may be sold back to the company at a later time. It is essential that advisors are part of various networks that are affiliated to specific clusters or technical skills. In the United States and the UK the specialisation of advisor networks dates back to the late 1970s and early 1980s. Connect, a network for entrepreneurship advisory services, was launched in 1985 in San Diego. Building on the success of the Connect program, Scotland and Sweden set up Connect organisations in 1996 and 1998, respectively. Connect programs were launched in Denmark, Finland, Estonia and Lithuania in the year 2000.

Otherentrepreneurs

Managementconsultants

Lawyers

Accountants

Patentlawyers

Realtors

BusinessAngels

Venturecapitalists

Financialadvisers

Technicalexperts

Marketingexperts

Advertisingconsultants

PR-advisers

Private Entrepreneurship

Infrastructure

Otherentrepreneurs

Managementconsultants

Lawyers

Accountants

Patentlawyers

Realtors

BusinessAngels

Venturecapitalists

Financialadvisers

Technicalexperts

Marketingexperts

Advertisingconsultants

PR-advisers

Private Entrepreneurship

Infrastructure

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When measuring incubator performance one also measures the environment that the incubator is part of. An incubator cannot be isolated from the entrepreneurship infrastructure since incubator performances are affected by the strength of the regional entrepreneurship infrastructure.

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2.4 Master Plan The first part of the report is devoted to a discussion of the methodology applied. The scope of the report and the rationale behind the selection of countries and incubators are also described. Given the above mentioned challenges incubators are then compared based on their performance and a range of business areas perceived as being critical to overall incubator performance. This will allow us to detect possible patterns across low- and high-performing incubators. Finally Danish incubators are compared to a range of international incubators that have maintained a strong focus on improving entrepreneurship infrastructure by building and developing entrepreneurship advisor networks.

3 Methodology The analysis compares Danish incubators to a select field of top-performing incubators from the United States the UK, Finland and Sweden. The inclusion of an elite field of incubators should provide us with a set of best-practices on which one can draw inspiration. The fact that the Danish incubators are compared to some of the world’s top-rated incubators implies that a low ranking may not be all that bad. This will depend on how the 1000+ other incubators perform. In theory a low ranking in this study may still make it possible for an incubator to claim a position among the world’s top-20 incubators. The study draws on two field trips in Denmark and the United States as well as a number of phone interviews. We have collected data and conducted semi-structured interviews with 19 incubators in Denmark and abroad. Interviews and data have been applied in ranking incubator performance and the scope of incubator business areas. Benchmarking has been applied in testing the link between incubator performance and the factors conducive to incubator performance. The benchmark analysis includes several steps. First, we present a method for measuring incubator performance. Based on their performance incubators are ranked and further analysis is conducted to determine the underlying factors behind incubator performances. This is initially carried out by determining to which extent business areas foster overall incubator performance. Finally, the link between incubator performance and business areas is analysed in further detail. Thus the benchmark analysis provides an opportunity for evaluating the positive correlation between a specific business area and overall incubator performance. It should be noted that a benchmark analysis fails to identify and causal relationship. For

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example it is not possible to rate the direct effect of a higher degree of specialisation on incubator performance.

3.1 Incubator selection To ensure a homogenous group of incubators we have laid down two criteria for including incubators in the study: 1. Incubators are dedicated to assist entrepreneurs in building new businesses and promoting their potential for growth over a limited period of time. This should ensure that research parks or office centres that offer permanent accommodations and that are not committed to the development of new enterprises are omitted from the analysis. 2. Incubators are formally attached to one or more universities or government-supported knowledge institutions (R&D institutions). This will ensure that focus be directed to a homogenous stock of incubators that support knowledge-intensive entrepreneurs. A total of 19 incubators meet the criteria presented above and are part of the formalised benchmark. A brief introduction to selected incubators as well as the selection process is presented below.

3.1.1 Denmark We have selected eight Danish incubators that are all attached to universities or other educational establishments; DTU Innovation, CAT Research Park, HIH Development, NOVI, Syddansk Research Park, Symbion Science Park, Teknologisk Innovation and Østjysk Innovation (Box 3.1).

Box 3.1: Danish incubators included in the report

Name Start-up Attached university Number of affiliated

companies DTU Innovation 1998 DTU and Teknologisk Institut 50 CAT Research Park 1991 Roskilde University, Risø and DTU 30 HIH Development 1998 The Herning School of Engineering 30 NOVI 1988 Aalborg University among others 40 Syddansk Innovation 1998 Syddansk University among others 28 Symbion Science Park 1986 Copenhagen University among others 24 Teknologisk innovation 1998 Teknologisk Institut 50 Østjysk Innovation 1998 Aarhus University among others 44

In Denmark the distinction between research parks and incubators is somewhat blurred. Some research parks operate as incubators, but also rent office space to established companies. Therefore the Danish incubators are often located in research parks, where start-ups requiring counselling and capital live next door to established companies that see the research park as an attractive location.

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The study focuses exclusively on emerging companies that receive active counselling with the purpose of creating a positive exit. In the event that the incubator is attached to a research park the incubator has identified the share of new companies as well as collecting information pertaining solely to new companies that receive strategic counselling. DTU Innovation is physically located at DTU and has recently been attached to the Scion DTU research park. DTU Innovation was launched as part of the innovation habitat scheme. The incubator is dedicated to the commercialisation of technical and science-related research with specific focus on bio-technology and medico companies as well as IT (hardware and telecommunication). A small number of affiliated companies focus on the development of new materials and foods. Today 50 companies are affiliated with DTU Innovation. The CAT research park is affiliated to Roskilde University, Risø, and the Danish Technical University (DTU). Launched in 1991 CAT is a research park and an incubator. The incubator has dramatically increased its impact following the launch of CAT-Symbion Innovation in 1998, as well as the venture company CAT seed A/S in 2001. The incubator offer advisory services to Roskilde University, Risø and DTU. The affiliated companies are specialised micro system development, sensors, new material, environment technologies and ICT. CAT currently has 30 companies in its portfolio. HIH development is affiliated to the Handels- and Ingeniørskolen in Herning, Jutland. The number of exiting firms is limited. The incubator was set up in 1998 as part of the launch of innovation habitats throughout Denmark and focuses on all aspects of production and services companies. The incubator currently numbers more than 30 new companies. Located in Aalborg in the northern part of Denmark NOVI has since its inception in 1988 been affiliated with Aalborg University. NOVI primarily focuses on commercialisation of research from Aalborg University and Aalborg Sugehus but has also engaged with a range of Danish knowledge institutions. NOVI’as area of specialisation is ICT (software and wireless technologies) as well as medico, biotech and developments of new materials. NOVI currently has 40 affiliated companies. Formerly known as Innovationsselskab FYN, Syddansk Innovation was set up by Forskerparken Fyn. Syddansk Innovation’s interest sphere covers Fyn and the Southern part of Jutland. Key areas of specialisation include life-science (health, biotech and medico) as well as production (robot technologies and ICT). The incubator hosts 28 new companies. In the early 1980s six Copenhagen-based scientists created the Symbion Science Park for local research institutions and companies. Symbion works as both a research park and an incubator. The Symbion incubator has been an integrated part of Symbion since 1986. In 1998 Symbion and CAT were for the first time chosen by the Ministry of Science, Technology and Innovation to be an approved innovation incubator. In 2001 Symbion launched the venture company Symbion Capital. Symbion is affiliated with universities and research institutions in the greater Copenhagen areas and

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specialised in the areas of biotechnology and IT. Symbion currently hosts 24 companies. Teknologisk Innovation is attached to Teknologisk Institut. Created in 1998 as part of the innovation habitat scheme Teknologisk Innovation focuses on a broad range of production- and services companies that are not based on an already commercialised business idea. The incubator hosts 50 new companies. Østjysk Innovation was set up by Forkerpark Aarhus, Aarhus University, DTI, Aarhus Kommune and Aarhus County, among others. Projects primarily originate from Aarhus University, danmakrs Jordbrugsforskning and hospitals throughout Aarhus County. Areas of specialisation include biotechnology, pharmaceuticals, foods, IT, new materials and environment technology. The incubator has 44 affiliated companies. Connect Denmark has been included in our research. Connect Denmark is a non-profit organisation engaged in setting up activities for entrepreneurs, advisers and investors. Launched in 2000 Connect Denmark draws inspiration from the US-based UCSD Connect. Connect and similar organisations are not recognised as traditional incubators. However a number of Connect activities such as the Springboard Program where entrepreneurs are offered the possibility of presenting business plans to a panel of experts resemble activities offered by incubators. Connect is often referred to as an incubator without walls.

3.1.2 The United States Danish incubators are compared to an elite field of US incubators. With its stature as the world’s leading entrepreneurial nation, the United States has been selected as the standard of reference throughout the report. The selected US incubators have primarily been picked from the NBIA’s (National Business Incubation Association) Top Incubations Programs, including ATDC, ATI, Rensselaer Incubator and the San Jose Software Business Cluster. MBIdeas and UCSD Connect have been included based on interviews with the NBIA as well as extensive desk research (Box 3.2).

Box 3.2: US incubators included in the report�

Name Start-up Attached university Number of affiliated companies

ATDC 1980 Georgia Institute of Technology among others 36

Austin Technology Incubator(ATI) 1984 University of Texas, Austin 25

MBIdeas 1988 Clark University among others 15

Rensselaer 1980 Rensselaer Polytechnic Institute 45

San Jose Software Business Cluster 1994 University of California, San Jose 15

UCSD Connect – Springboard Program 1985 University of California, San Diego -

Note: In addition to the six incubators presented above we have included performance measures from one other US incubator in comparing exit rates among all selected incubators (see figure 4.1). Due to a lack of data the additional incubator is not part of the other elements of the report.

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ATDC was launched in 1980 in close collaboration with the state of Georgia, Georgia Institute of Technology and the local business community. With main offices in Atlanta, Georgia, the ATDC has also opened offices in Columbus, Savannah and Warner Robbins. ATDC offers expertise guidance in the area of biotechnology, IT (hardware, software and telecommunications) and robot technology. ATDC hosts 36 companies. ATI has followed a similar path. The incubator was launched in 1989 in a joint effort between the state government, the University of Texas, Austin, and the local business community. Historically ATI has targeted a broad range of IT companies. In later years ATI has pursued a specialisation strategy aimed at making ATI an incubator of incubators. Thus ATI has launched a number of sub-incubators specialising in environmentally-safe technology and wireless technologies. Today ATI hosts more than 25 new enterprises. MBIdeas was established in 1988 and assists emerging biotech research companies. Situated in Worchester 60 kilometres west of Boston MBIdeas is part of the Massachusetts Biomedical Initiative (MBI). MBI is an independent organisation engaged in promoting the launch and subsequent growth of biomedical companies in the Worchester region. MBIdeas currently hosts 15 newly-established companies. The Rensselaer Incubator Program was set up by the Rensselaer Polytechnic Institute in 1980 in Troy, New York. The incubator actively works with companies that adhere to the overall objectives of the incubator. Rensselaer runs 3 office buildings covering IT, nano-technology and bio-technology. The incubator hosts 45 companies. The San Jose Software Business Cluster is located in San Jose, California. Launched in 1994 by the City of San Jose the incubator is formally attached to the San Jose State University. The incubator specialises in software development. A few years ago the Incubator launched the San Jose Environmental Business Cluster that focuses on environmentally friendly technologies.3 The incubator currently hosts 15 companies. Connect (San Diego) is not a traditional incubator and is often referred to as an incubator without walls. Launched by the USC, Connect is comprised of a series of organised networks that offer guidance for entrepreneurs and the San Diego business community. The Connect Springboard Program is focused on assisting knowledge-intensive entrepreneurs. The program was set up in 1985 and assists entrepreneurs in launching biotech- and IT companies. Since 1985 more than 200 companies have graduated from the Springboard Program. However no information is currently available as to the number of participating companies.

3.1.3 Finland, England and Sweden We have selected a small group of European incubators including two Finnish, one Swedish and two UK incubators (Box 3.3).

3 Subsequently our analysis has revealed that ATDC, ATI, Rensselaer and the San Jose Incubator (through its sister organisation) are all part of a network aimed at making the United States’ one if the world’s leading countries in the development of environmentally friendly energy.

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Box 3.3: Incubator from Finland, Sweden and the UK included in the report� Country Name Start-up Attached university. Number of

affiliated companies

FIN Jyväskyla Science Park (JSP) 1992 Jyväskyla University 16

FIN Oulutech Ltd 1994 Oulu University 17

UK Babraham Bioincubator 1999 Babraham Bioscience initiatives 21

UK Campus Ventures 1995 University of Manchester among

others 40

SWE Chalmers Innovation, Gothenburg 1999 Chalmers University 30

Finland has the largest number of incubators in proportion to total population. The Finnish trade organisation for incubators TEKEL has been helpful in selecting the top Finnish incubators and has interviewed incubators on historical exit rates as well as their ability to attract foreign capital. The Jyväskyla Science Park incubator is situated in Jyväskyla 225 kilometres north of Helsinki. JSP is attached to the JSP research park that maintains close ties with Jyväskyla University and other knowledge institutions in the area. Over time JSP has serviced more than 140 potential companies and remains one of Finland’s largest incubators. Over time JSP has focused on six types of companies: ICT, electronics, environmentally-safe energy, paper, nano-technology and health. JSP currently hosts 16 companies. Oulutech was launched in 1994 and is located in Oulu some 300 kilometres north of Jyväskyla. Current stakeholders include Sitra4 (40%), Oulu University (30%) and Technopolis Oyj5. Oulutech companies are specialised in the areas of medicine, biotechnology and ICT and currently hosts 17 companies. The remaining incubators have been selected from European Commission’s incubator database6. The database contains no record of incubator performance but provides access to incubator web sites. On that basis we have selected the following incubators: Babraham Bioincubator is a part of Babraham Bioscience Technologies, an affiliate of Babraham Institute. The Babraham institute is a charitable organisation that serves to promote biotechnology research. The Babraham Bioincubator is located on the Babraham campus 5 kilometres outside Cambridge. The incubator was launched in 1999 and focuses on biotech products. The incubator currently hosts 21 companies. Campus Innovation was originally affiliated with Manchester University but has since extended its scope and today the incubator is working actively with several research

4 Sitra is the Finnish National Fund for promotion of research and development. The fund was set up in 1967 and is focused on promoting economic development in Finland by facilitating research, education, business development and venture capital. 5 Technopolis Oyj is Finland’s largest supplier of research parks and incubator for high-tech companies. 6 http://www.cordis.eu/incubators. The database has been compiled by the European Commission's Enterprise DG

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institutions in the Manchester region. Today Campus Ventures has branches in East Lancashire, Bolton, the Westlakes research park and the Manchester Metropolitan University. Launched in 1995 Campus Ventures’ companies specialise in new knowledge and new technologies. The incubator hosts 40 companies. Chalmers Innovation is attached to Chalmers technical University in Gothenburg, Sweden. Chalmers Innovation has opened a branch in the old harbour of Gothenburg which ahs been transformed into a creative business and educational environment. Chalmers University is dedicated to commercialising knowledge and research and launched the Chalmers incubator in 1999. Chalmers has no specific areas of specialisation and currently hosts 30 companies.

4 Measuring incubator performance In an attempt to compare incubator performance we have selected two measures that are directly related to the individual incubator: 1) exit rates and 2) the ability to attract foreign capital7.

4.1 Exit Rates Exit rates measures the incubator’s ability to hatch viable companies. An exit occurs when a viable companies exits the incubator. In practical terms an exit implies that the incubator no longer provides intensive advisory services as the departing company proves itself to be self-sustaining. An exit also implies that the departing company leaves the incubator or becomes a part of a research park affiliated to the incubator. Exit rates are calculated as the total historical number of exits in proportion to the total historical number of companies in the incubator. An exit rate of 1 is achieved if all incubator companies leave the incubator as viable companies. All US, Finnish as well as one UK incubators have high exit rates while the Danish incubators collectively post consistently low exit rates. The San Jose Software Business Cluster heads the ranking followed by JSP and Turkyu Science Park Incubator (Finland), Campus Ventures (UK), the Intelligent Systems Incubator, the Rensselaer Incubator Program and ATDC (The United States). MBIdeas and ATI (the United States), Helsinki Business and Science Park, Oulutech (Finland) and NOVI (Denmark) make up the middle group. A group of nine incubators with low exit rates is headed by Chalmers Innovation (Sweden) and Babraham Incubator (UK) followed by Danish incubators CAT, Symbion, Østjysk Innovation, DTU Innovation, HIH Development, Syddansk Innovation and Teknologisk Innovation.

7 Unless otherwise noted Individual performances are estimated from incubator start-up through December 31st 2003

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The best ranked Danish incubator NOVI has a lower exit rate as compared to all US and Finnish incubators. The other seven Danish incubators are located in the bottom part of the index (Figure 4.1).

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Figure 4.1 Exit rates (number of exits in proportion to the total number of companies)�

Source: National Agency for Enterprise and Construction Note: Data for Rensselaer and MBIdeas is based on data from 1989 and onwards. Green bars = Denmark. Grey bars = United States. White bars = Other European incubators Young incubators may experience lower exit rates. Thus exit rates are calculated over a period of at least 4 to 5 years. Several incubators have specialised in certain sectors or technologies and the optimal incubator period may depend on the areas of specialisation of affiliated companies. Companies specialising in pharmaceuticals or biotechnology will often be engaged in time-consuming product development. Therefore some caution should be observed when comparing exit rates among young incubators that are focused primarily on medicine and biotechnology. Further analysis has been conducted to determine if the low Danish exit rates may be accredited to a large number of companies in medicine or biotechnology area. This does not appear to be the case. Compared to international incubators the Danish incubators – regardless of age – do not have a higher share of companies in medicine and biotech.8

8 The variation in the share of companies in medicine and biotech show some fluctuation between the individual incubators. When looking exclusively at the Danish incubators the share is between 0 and .7. Variation among international incubators is between 0 and 1. If looking at young incubators (launched after 1996) the variation in share is between 0 and .5, and .3 and 1, respectively. The overall average for all selected incubators is .4 (Intelligent Systems Incubator´, Helsinki Science Park Incubator, Syddansk Innovation and Turku Science Park Incubator are excluded from the analysis due to a lack of data.

0,00 0,10 0,20 0,30 0,40 0,50 0,60 0,70 0,80 0,90

Teknologisk Innovation (DK) Syddansk innovation (DK)

HIH Development (DK)

DTU Innovation (DK)

Østjysk Innovation (DK) Symbion (DK)

CAT (DK) Babraham Bioincubator (UK)

Chalmers Innovation (S) NOVI (DK)

Oulutech (F) Helsinki Bus. & Science Park (F)

ATI (USA) MBIdeas (USA)

ATDC (USA) Rensselar (USA)

Intelligent Systems Incubator (USA) Campus Ventures (UK)

Turku Science Park Incubator (F) JSP (F)

San Jose Software Business Cluster (USA)

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Several international studies suggest that it is conceivable to improve exit rates among young incubators that are specialised in time-consuming sectors. The Babraham Bioincubator is narrowly focused on companies in the pharmaceutical industry. The Babraham incubator is younger than all of the Danish incubators but still posts exit rates twice as high as the average for Denmark.

4.2 Attracting foreign capital Exit rates are a rough measure that fails to measure the quality of the exiting company. In theory a viable business could potentially be a low-growth business managed by an individual entrepreneur. Conversely departing businesses may be potential high-growth companies. To fully shed light on the aspect of wealth creation we have applied an indicator that measures the potential wealth contribution from incubators to the local economy. This is done by measuring market expectations. The scope of external private equity is valued in proportion to the number of affiliated companies in the incubator. A higher level of external capital creates a higher potential for affiliated companies. In general Danish incubators have been quite successful in attracting foreign capital. The top five incubators include Connect9, MBIdeas, the Babraham Bioincubator, Rensselaer and Symbion followed by ATDC, CAT, ATI and NOVI. The middle group is made up of Chalmers, Campus Ventures, the San Jose Software Business Cluster and the Intelligent Systems Incubator. A third group is comprised of the remaining five Danish incubators. The three Finnish incubators are ranked last. NOVI, Symbion and CAT match the record of the top-performing US incubators in terms of attracting foreign equity the stock of affiliated companies. DTU Innovation, Syddansk Innovation, Østjysk Innovation, HIH Development and Teknolgisk Innovation have had limited success in attracting foreign capital (Figure 4.2).

9 Participants in the Connect Springboard Program are affiliated for a few months, and affiliated companies have limited access to potential investors. To provide a reliable measure of Connect’s ability to attract foreign capital Connect companies are evaluated over a two-year period. Two years is a shorter time span than the average attachment period in Europe and the United States.

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Figure 4.2 Attracted foreign capital in proportion to the total number of companies

Source: National Agency for Enterprise and Construction. Note: Data for Rensselaer and MBIdeas is based on data from 1989 and onwards. Green bars = Denmark. Grey bars = United States. White bars = Other European incubators. Connect’s (US) score is based on the level of attracted capital in the first two years after graduation from the Springboard Program. Founded in 2001 Connect Denmark builds on UCSD’s business model. Connect Denmark has not been included in the index since the majority of companies are attached to other Danish incubators (Box 4.1). Box 4.1: Connect Denmark Founded in April 2000 Connect Denmark builds on the UCSD Connect Program. While the scope and magnitude of networking activities is limited compared to UCSD Connect Denmark does offer a range of entrepreneurship activities. The Springboard Program provides an opportunity for entrepreneurs to present their new business ideas and products to a panel of CONNECT members. Furthermore Connect Denmark has carried out a number of Investment Forums brings together 20 to 30 entrepreneurs with potential investors. The participating entrepreneurs are chosen via application and a screening process and have all been given advice from Connect Denmark’s professional network prior to presenting their business ideas. Some 200 entrepreneurs have participated in Connect activities since the year 2000. A significant share of those has moved on to become affiliated to a number of Danish incubators. In 2004 the 200 companies received a total of 500 million DKK in venture capital.

0,00 2,00 4,00 6,00 8,00 10,00 12,00

Oulutech (F)Turku Science Park Incubator (F)

JSP (F)Syddansk innovation (DK)

HIH Development (DK)Østjysk Innovation (DK)

Teknologisk innovation (DK)DTU innovation (DK)

Intelligent Systems Incubator (USA)San Jose Software Business

Campus Ventures (UK)Chalmers Innovation (S)

NOVI (DK)ATI (USA)CAT (DK)

ATDC (USA)Symbion (DK)

Rensselar (USA)Babraham Bioincubator (UK)

MBIdeas (USA)Connect (USA)

Mio DDK

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0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1

Syddansk innovation (DK)HIH Development (DK)

Teknologisk innovation (DK)DTU innovation (DK)

Østjysk Innovation (DK)Helsinki Bus+Science Park (F)

Oulutech Ltd (F)Chalmers Innovation (S)

Turku Science Park Incubator (F)CAT (DK)

JSP (F)Intelligent Systems Incubator (USA)

Symbion (DK)NOVI (DK)

Campus Ventures (UK)Babraham Bioincubator (UK)

ATI (USA)Software Business Cluster (USA)

ATDC (USA)MBIdeas (USA)

Rensselar (USA)

The top 3 incubators (Connect, MBIdeas and Babraham) are all specialised in the area of biotechnology. Biotech companies require substantial funding in the early stages which may help explain why incubators with a strong focus on biotech are ranked in the top part of the index. Still we see that incubators outside the biotech sector such as ATI also have been successful in attracting large amounts of foreign capital.

4.3 Total incubator performance The two performance measures are compiled into a composite performance index. The index shows that US and UK incubators show consistently better results when comparing to the Danish incubators. Three US incubators show remarkable results compared to the rest of the field. A group of 11 incubators make up a middle group. Three Danish incubators (NOVI, Symbion and CAT) belong to this group. The remaining five Danish incubators are ranked in the bottom part of the index. US incubators Rensselaer, MBIdeas, ATDC, San Jose Software Business Cluster and ATI head the composite performance index followed by the two UK incubators Babraham Bioincubator and Campus Ventures. NOVI and Symbion claim the number 8 and 9 spot, respectively, followed by Intelligent Systems Incubator (US), JSP (Finland) and CAT (Denmark). Turke Science Park (Finland), Chalmers Innovation (Sweden), Oulutech and Helsinki Science Park (Finland) claim positions 13 through 16, while the remaining five Danish incubators are found in the bottom part of the index (Figure 4.3).

Figure 4.3 Weighing exit rates and attracted capital�

Source: National Agency of Enterprise and Construction Note: Weighted average of figure 4.1 and 4.2

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The Danish incubators fall into two groups. On the one hand NOVI, Symbion and CAT match the record of the top-incubators. On the other hand the remaining five incubators are ranked in the bottom part of the index. When looking exclusively at the Danish incubators the index suggests that it takes time to build competences and to create a well-functioning incubator. Novi, Symbion and CAT have been in business for a considerable amount of time while the five low-performing Danish incubators only have business for a limited period of time. Among foreign incubators the Babraham Bioincubator and Chalmers Innovation have shown remarkable results despite the fact that they were launched as late as 1999.

5 Incubator business models The report presents a framework for identifying incubator business areas. Business areas have been selected and specified in an ongoing dialogue with nine Danish and US incubators. It has been our intention to present an exhaustive list of business areas. The incubators have contributed to the framework by identifying the business areas conducive to incubator success. Our model covers seven business areas. The selected incubators are active in all business areas; however the scope of activities varies significantly. The seven business areas – strategic counselling, financing, monitoring, outreach, co-operation with knowledge institutions, networks and degree of specialisation – may impact overall incubator performance (Figure 5.1). Figure 5.1: Framework for measuring incubators’ business model and the impact on incubator performance

Business Model

Monitoring

Outreach

Cooperation with universities

Financing

Specialisation

Strategiccounselling

Performance/effect

Exit-rates

Capital attracted

Networks

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Strategic counselling focuses on incubator involvement in binding and strategic guidance of the stock of emerging enterprises Financing measures the amount of venture capital available and the extent of networks and strategic co-operation in raising the necessary funds to support affiliated companies. Monitoring cover the extent to which incubators monitors the technical and financial development, and the ability to impose sanction if certain goals are not met. Outreach measures to which extent the incubator is actively involved in scanning and evaluating potential business ideas that fit the overall goals of the incubator. Co-operation with knowledge institutions measures the extent of collaboration between incubator and knowledge institutions as well as the extent of co-operation with institutions that are focused on the area of specialisation Networks cover the scope of external participants that offer guidance for attached companies Degree of specialisation measures to which extent incubators offer specialisation within specific technologies Incubators are measured by the level of activities in each of the business areas10 which makes it possible to rank incubators on the scope of their activities. The overall score in each of the business areas ranks from zero to 2. Individual scores are calculated by selecting a number of criteria in each of the business areas that reflect the business area in question. Consequently incubators have been interviewed as to the level of activities in each of the business areas. The selection of criteria has been conducted in close co-operation with Danish and US incubators to ensure that business activities are properly reflected by the criteria. To ensure a coherent image of incubator activities responses have been supplemented by a series of qualitative questions. Desk-top research of incubator web sites, follow-up calls and e-mails have also been used in collecting information. The collected data has made it possible to compare individual incubators in terms of identified business areas. The seven business areas are described in further detail below.

5.1 Degree of specialisation The interviews clearly show that incubators are often centred on specific technologies rather than industry sectors. Some incubators are specialised in biotechnology, while others maintain a broader focus most notably in IT and other high-tech areas.

10 The business area of specialisation covers the scope of specialisation and fails to measure activity levels.

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Some doubts remain as to the effect of specialisation on incubator performance. On one hand one can argue that a high degree of specialisation will lead to improved performances since a high degree of specialisation will eventually lead to more specialised guidance targeted at the specific needs of the incubator, greatly enhancing their chances of success. On the other hand one could argue that a high level of specialisation will hamper performance as it becomes increasingly difficult to compile a critical mass. We have not found incubators that have become less specialised since their launch. However our analysis suggests several incubators in the United States have become more specialised. In addition there is evidence that several US incubators have launched independent or specialised units that maintain focus a narrow on specific industries or technologies. Individual scores depend on the number of sectors or technologies that the individual incubators are involved in. In our model highly-specialised incubators receive the perfect score of two, whereas medium-specialised incubators were accredited one point. Non-specialised incubators receive the score zero (Box 5.1). Box 5.1: Degree of specialisation Three dimensions are applied in measuring the level of specialisation: o If the incubator is specialised in no more than two business segments or

technologies or if the incubator has launched independent and self-managing sub-incubators then the incubator is accredited the score of two.

o If the incubator is specialised in no more than two areas and has a marginal share of companies in other business or technologies the incubator is accredited the score of one

o If the incubator is specialised in more than two areas the incubator is accredited a zero score.

5.2 Strategic counselling Strategic counselling remains a core incubator service. Strategic counselling supports the entrepreneur by offering highly ambitious strategies for business and product development, financing, exit opportunities and marketing, among others. Our analysis reveals that all selected incubators offer strategic counselling. Still we detect a great deal of variation as to the actual magnitude of strategic counselling. Incubators may provide counselling, or take on a more ambitious role in taking part of the management of the company or by exerting their influence on board composition. Individual scores depend on how active incubators are in offering strategic counselling to the affiliated companies. Activity levels are determined by the level of day-to-day influence on management and board. Both areas are essential to strategic counselling. Furthermore it is essential that companies adhere to strategic counselling.

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Thus we rate counselling as to which extent incubator counselling is a part of the daily operations. A full set of criteria is presented in box 5.2 below. Box 5.2: Strategic counselling Three dimensions are applied in measuring the level of strategic counselling: o External consultants provide strategic counselling o If deemed necessary the incubator appoints or reorganises company boards o The affiliated companies comply with incubator counselling, or sanctions are

imposed if companies fail to comply. o If all three criteria are met the incubator receives a score of 2 o If two out of the three criteria are met the incubator receives a score of 1 o If one or none of the criteria is met the incubator receives a zero score

5.3 Financing University-based incubators primarily work with entrepreneurs that aim to launch an enterprise based on new knowledge, or a new technology with significant market potential. This often involves a great deal of R&D as well as extensive marketing efforts highlighting the need for additional resources. One of the incubator’s most important tasks is to facilitate access to venture capital. All selected incubators are actively involved in raising private capital to attached companies. However we detect a great deal of variation in terms of incubator strategies. Some incubators are directly affiliated to one or more venture companies, while others draw on an extensive and large network of venture companies and business angels. The Danish incubators have all been approved as innovation habitats11. The innovation habitat scheme opens up for government co-financing of potential high-growth companies and has led to the set-up of several incubator-managed venture companies thereby providing much-needed access to external capital. Individual scores are measured in terms of the level of co-operation with venture companies and business angels. The criteria for individual scores are presented in Box 5.3 below. Box 5.3: Financing Three dimensions are applied in measuring financing: o The incubator is engaged network activities and/or other informal co-operation

with two or more venture companies o The incubator have venture funds at its disposal through own venture companies

and/or through extensive so-operation with one or more venture companies o The incubator is involved in a formal co-operation with business angels

11 The CAT and Symbion incubators have been approved as a collective innovation habitat

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o At least one-third of the affiliated companies have been successful in attracting business angel capital

o If all four criteria are met the incubator receives a score of 2 o If two or three of the three criteria is met the incubator receives a score of 1 o If one or none of the criteria is met the incubator receives a zero score

5.4 Monitoring Strategic counselling is often followed up by systematic monitoring of the financial and technical development of affiliated companies. Extensive monitoring efforts allow incubators to take the necessary steps in imposing sanctions on companies that fail to comply with the overall stated goals of the incubator. Monitoring comes in various shapes and forms and the analysis detects some degree of variation in terms of the intensity of monitoring. Some incubators establish a set of milestones for affiliated companies. Alternatively the incubator may be represented in the management team or on the board of directors. In some cases the technical and financial monitoring is less formal. Here incubators track companies by consulting external experts. No evidence exists in determining how monitoring should be conducted to get the highest possible effect. On the one hand effective monitoring must ensure that unsuccessful strategies are quickly rectified. On the other hand one cannot dismiss the notion that a stringent monitoring scheme could have a negative impact on the entrepreneur. The entrepreneur may find himself in the position of having to allocate a large amount of resources to keep the incubator informed of the company’s progress, rather than focusing his or her efforts on business development. Individual scores are measured in terms of the level of monitoring as well as the presence of measures that allows the incubator to impose sanction on affiliated companies. A thorough and systematic monitoring scheme will result in a high score. The criteria for awarding individual scores are presented in Box 5.4 below. Box 5.4: Monitoring Monitoring is measured using the following dimensions: o The incubator does a background check on affiliated companies’ technical and

financial development at least 4 times a year o The affiliated companies reports on milestones at least 4 times a year o Financial or administrative sanction are imposed if the affiliated companies fails

to comply with milestones set out by the incubator o If all three criteria are met the incubator receives a score of 2 o If one or two of the three criteria is met the incubator receives a score of 1 o If one or none of the criteria is met the incubator receives a zero score

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5.5 Outreach An incubator may increase its chance of success in attracting emerging companies by actively searching for business ideas. Incubators may attempt to attract companies by posting ads via the incubator’s web site, while others are more active in terms of scanning the market for viable business ideas. Some incubators have set up independent companies exclusively targeted on commercialising research from affiliated companies. Outreach may be conducted by the incubator itself or by external networks. Most often incubators are involved in a formal relationship with a patent office or some other independent entity focused on the commercialisation of research. Individual scores reflect the extent to which incubators are actively engaged in scanning the market for viable business ideas from affiliated knowledge institutions. The criteria for awarding individual scores are presented in Box 5.5. Incubators receive a top score if they maintain a strong focus on outreach as an independent business area and are engaged in offering counselling to universities and other external stakeholders on the commercialisation of research. So do incubators having set up strategic co-operation with a patent office or some other independent entity actively engaged in searching for potential business ideas at the affiliated knowledge institutions. Box 5.5: Outreach Outreach is measured using the following set of criteria: o The incubator is actively engaged in scanning the market for new business ideas

consistent with incubator goals o The incubator organises – or is engaged in a strategic co-operation with a party

that organises – independent activities aimed at increasing the magnitude of new business ideas

o Outreach is an independent business area – or the incubator works together with a party that focuses on outreach as an independent business area

o If all three criteria are met the incubator receives a score of 2 o If two of the three criteria are met the incubator receives a score of 1 o If one or none of the criteria is met the incubator receives a zero score

5.6 Co-operation with knowledge institutions The selected incubators are all affiliated with universities or publicly funded knowledge institutions (R&D institutions). However we detect a great deal of variation in terms of the actual scope of co-operation. The incubator may be a part of the university’s strategy to nurture regional growth. In the United States where universities often receive extensive grants from former

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alumni or entrepreneurs universities will benefit from engaging in a close collaboration with incubators. Researchers and students are often encouraged to launch a new enterprise. Furthermore incubators affiliated to a university may be involved in entrepreneurship teaching. At the same time university researchers contribute to the incubator’s network of advisers. Co-operation may be limited even if the incubator is located on the university campus. Individual performances are measured in terms of the level of co-operation with affiliated universities and knowledge institutions. Incubators are ranked with respect to four criteria: 1) The university has been involved in the launch of the incubators or is a member of the governing body, 2) More than 50% of the affiliated companies have been launched by former students or university researchers, 3) the incubator is actively involved in entrepreneurship education and 4) students and researchers assume active roles in the daily operations of the incubator. The complete list of criteria is presented in Box 5.6 below. Box 5.6: Co-operation with knowledge institutions Co-operation with knowledge institutions is measured using the following set of criteria: o The incubator was launched by a knowledge institution that primarily conducts

research in areas that the incubator specialises in or the knowledge institution is actively involved in managing the incubator (board of directors)

o More than half of the affiliated companies were launched by students/faculty of the attached knowledge institution

o Student and faculty are involved in providing advisory services and guidance to entrepreneurs

o The incubator’s staff is involved in entrepreneurship education at the attached knowledge institutions

o If all four criteria are met the incubator receives a score of 2 o If two of the three criteria are met the incubator receives a score of 1 o If one or none of the criteria is met the incubator receives a zero score

5.7 Networks The importance of networks in supporting entrepreneurs is often accentuated. Incubators may benefit from exploiting competences and qualities found in the local community. For that reason all the selected incubators are involved in network activities that are primarily related to financing. However we detect differences in terms of activity levels and resources allocated in forming competent and skilled networks. Some incubators use grilling sessions where entrepreneurs are offered the opportunity to present their business plans to a panel of advisers or other interested parties. This provides an invaluable experience in presenting business plans, and advisers are given the opportunity to be involved in interesting business ideas. Incubators may also be actively engaged in developing networks by offering education activities for advisers

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and investors or by facilitating contacts between entrepreneurs and experienced advisers or venture companies from other regions. Individual scores reflect the incubator’s ability to develop and improve relations between entrepreneurs and external advisers. A full list of criteria is presented in Box 5.7 below. Box 5.7: Networks The extent of networking activities is measured by applying the following set of criteria: o The incubator engages professional advisers in the area of finance, product

development and business development o The incubator provides grilling sessions o The incubator provides educational activities for advisers and investors or

facilitates contacts between entrepreneurs and advisers/venture companies from other regions

o If all three criteria are met the incubator receives a score of 2 o If two of the criteria are met the incubator receives a score of 1 o If one or none of the criteria is met the incubator receives a zero score

5.8 Overall incubator activity levels Individual scores for each of the seven business areas are collated into a single index that ranks incubators in terms of the scope of business activities. The highest possible score is 14 (2 for each of the seven business areas). The individual business areas have been coded. This implies that a higher score carries business activity level and a higher degree of specialisation. For example a score of 14 implies that the incubator is narrowly specialised, is engaged in extensive strategic counselling, is actively involved in raising capital, closely monitors affiliated companies, maintains a strong focus on outreach, has intensive collaboration with universities or knowledge institutions and works actively to create and develop networks. By compiling incubator scores in each of the seven business areas we are able to rank incubators in terms of activity levels. Overall the composite index shows that the majority of incubators have given a high priority to each of the identified business areas. Only two incubators (Connect and Babraham Incubator) fail to score more than 7 points. With the exception of Teknologisk Innovation12 the Danish incubators are ranked in the top part of the index. The index is headed by six incubators; Novi (Denmark), ATDC (The United States), Symbion (Denmark), CAT (Denmark), Chalmers Innovation (Sweden) and DTU Innovation (Denmark). 12 The performance of Teknologisk Innovation is negatively affected by low scores in specialisation, co-operation with universities/knowledge institutions and limited outreach activities.

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The elite group is followed by a group five incubators; Rensselaer, ATI, Østjysk Innovation, HIH Development and Syddansk Innovation. JSP, Oulutech, MBIdeas, San Jose Software Business Cluster, Campus Ventures and Teknologisk Innovation make up a third group (Figure 5.2).

Figure 5.2 Ranking incubators on business area activity levels

Source: National Agency for Enterprise and Construction

6 Exploring the link between performance and business areas Incubator performances and incubator business activities have now been mapped. This section is devoted to further exploring the link between performance and business areas. Individual business areas are compared to the overall incubator performance to assess to which extent individual business areas have an impact on incubator performance. This is carried out by grouping incubators based on their overall performance (Top-5, low-5, and the median group). The best-performing incubators are more specialised and more engaged in networking activities. AT the same time the top-performing incubators are less involved in monitoring and strategic counselling as compared to the low-performing incubators. In the areas of financing, co-operation with knowledge institutions and outreach we detect no significant differences between top- and low-performing incubators (Figure 6.1).

0 2 4 6 8 10 12 14

Babraham BioincubatorConnect

Teknologisk innovationCAMPUS Venture

Software Business ClusterMBIdeasOulutech

JSPSyddansk innovation

HIH DevelopmentØstjysk Innovation

ATIRensselar

DTU InnovationChalmers Innovation

CATSymbion

ATDCNOVI

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Figure 6.1 Ranking incubators in terms of business area activity levels

Source: National Agency for Enterprise and Construction Note: The ranking is not affected when changing the size of individual groups of incubators. We se identical results when comparing the top-three with a larger median group or by comparing the top seven with a smaller median group and the seven low-performing incubators. In the following section we investigate the individual business areas in further detail.

6.1 Degree of specialisation The figure points to a positive link between the degree of specialisation and incubator performance. Further analysis points to a limited variation with respect to the degree of specialisation between the three groups. Over the past few years the United States has moved towards a higher degree of specialisation. Qualitative interviews have revealed that a number of effective incubators including ATI, ATDC and Rensselaer initially were focused on a broad range of high-tech companies. Today the three incubators have become much more specialised (Box 6.1).

0

0,5

1

1,5

2Specialisation

Networks

Financing

Co-operation with knowledge institutions Strategic counselling

Monitoring

Outreach

high 5 low 5 median

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Box 6.1: Degree of specialisation - Austin From its inception in 1984 the Austin Technology Incubator (ATI) has focused on the development of information- and communications technology such as wireless technologies, computers as well as computer-related products and programs. ATI has focused their efforts on technology-intensive companies and the incubator is regarded as one of the primary factors in the successful building of a technology-heavy business sector in Austin, which also help explain why entrepreneurs are keen on moving to the Austin region. Since 2001 ATI has worked on a strategy for obtaining a higher degree of specialisation. IT is ATI’s stated vision to become an “incubator of incubators”. Based on the success of ATI the incubator is building 6 incubator units specialising in the areas of Clean Energy, Wireless, ICT, Nano-Biotechnology, Interactive Arts as well as a Non-Profit incubator. CLEAN Energy and Wireless have been launched while ICT lies within the traditional boundaries of the ATI. The remaining units are currently on the drawing board. ATI has made a conscious effort to extend the scope of activities while simultaneously lifting the level of specialisation thereby targeting and improving guidance and assistance to the affiliated companies.

6.2 Networks Figure 6.1 revealed that the top-performing incubators have higher activity levels in terms of networking activities when comparing them to lower-performing incubators. The overall performance of the top-5 is negatively affected by MBIdeas and the San Jose Software Business Cluster. This is explained by the fact that the two incubators are physically located in regions where formal or informal networks are instrumental in providing advisory services. The level of incubator involvement in expanding relations and tying the business community to the networks hinges on the demand for such activities. Some incubators may not find it relevant to be a part of a network simply because advisers or counsellors have a strong focus on co-operating with the entrepreneurs. Box 6.2 provides an example of an incubator that actively uses networks in promoting activities. Box 6.2: Networks in the Rensselaer Incubator Program The Rensselaer Incubator Program carries out two specific activities aimed at attracting venture capital to support entrepreneur business ideas as well as promoting and coordinating collaboration between entrepreneurs and experienced advisors. Working with the Centre for Economic Growth Rensselaer carries out the Venture Bplan Series, a monthly event where start-ups are invited from across the region to present their business plans and financial needs before a panel of local business

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leaders, business angels, venture companies and a general audience. The Venture Bplan Series is taped and broadcast throughout the region. The networking event helps entrepreneurs build network and raise capital, and introduces potential stakeholders to ground-breaking business ideas. The Rensselaer Program frequently travels to other regions13 or cities (such as Boston or New York) where a select group of entrepreneurs present their business ideas to successful Rensselaer University alumni. Former students work both as advisers and assume an important part role in facilitating contacts with business leader, expert advisers and venture companies outside the boundaries of the Rensselaer incubator. ‘

6.3 Financing Our analysis reveals that all selected incubators are active in attracting capital, and that financing remains a high priority. Still we detect some variation in how the individual incubators approach potential investors. In the Nordic region and in Denmark in particular, venture companies and incubators form close partnerships. In the United States we see less formal relationships, whereas business angels have assumed the role as primary fund raisers. The Symbion incubator has launched an independent venture company and is also involved in brining in venture companies and business angels from its extensive network of investors. Box 6.3: Financing – Symbion Launched by Symbion in 2001 Symbion Capital is Denmark’s largest equity fund for pre-seed and seed capital. Today Symbion Capital is part of the new Danish entrepreneurship fund SeeD Capital Denmark. SeeD Capital Denmark will have a capital base of app. DKK 500 million of which DKK 300 million will be allocated to new investments. The fund is headed by Ulla Brockenhuus-Schack, managing director at DTU-innovation A/S and Trine Winterø, managing director at Symbion Management A/S. Symbion Capital works with a range of Danish and international venture companies as well as a few business angels in raising additional capital for the affiliated companies.

6.4 Strategic counselling Strategic counselling appears to be a low-priority business area for the best- performing incubators when compared them to low-performing incubators. To some extent all incubators are involved in providing business advice to their affiliated companies, but the analysis suggests that the low-performing incubators are more active in terms of offering strategic counselling. 13 The Rensselaer Incubator Program is located in Troy some 200 kilometres north of New York City. The cities of Albany, Schenectady and Troy are located near the incubator. The region has a population of more than 1 million (2003 data)

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Further analysis shows a large spread in the level of strategic counselling among the top-performers which in effect lowers the average score for the top-group. At the same time we detect a significant level of strategic counselling – and consequently a lower spread - among lower performing incubators. Box 6.4 illustrates CAT’s approach to strategic counselling. Box 6.4: Strategic counselling – CAT (Denmark) CAT runs an extensive internal advisory program for affiliated companies. CAT is present on the boards of all affiliated companies, often in the role as chairman. I practical terms this implies that a CAT employee is appointed (project manager or investment manager) to the board. In that capacity CAT will get valuable feedback on product development as well as the overall performance of the company. The CAT board member offers a range of advisory services including business plans, general business development and patents, among others. To ensure a professional approach to advisory services CAT draws on a network of external consultants in supplying guidance in more complicated areas such as the legal aspects of patenting, among others. The large spread among top-performing incubators may be accredited to detectable differences in the demand for advisory services. Further analyses suggest that the top-performing incubators make extensive use of advisor networks found in the local community, and that entrepreneurs are aware of the fundamental challenges of launching a new business. This significantly lowers the demand for a formal, active and systematic approach to strategic counselling. The Danish incubators have s strong focus on using qualified external consultants. However the supply of advisors is limited and the incubators have taken on the task themselves to be active in terms of offering strategic counselling. The Babraham Bioincubator has addressed the limited demand for strategic counselling (Box 6.5) Box 6.5: Strategic counselling in the Babraham Bioincubator The Babraham Bioincubator is located 5 kilometres outside Cambridge, the UK. From its inception in 1999 the incubator has opted not to focus on strategic counselling and has spent little time and effort in attracting venture capital. According to the incubator the affiliated entrepreneurs are serial-entrepreneurs which effectively limits the demand for strategic counselling. Entrepreneurs at Babraham have extensive experience in attracting venture capital for to support their business ideas. Often entrepreneurs are backed by first-round venture capital prior to presenting business ideas to Babraham.

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6.5 Monitoring Our analysis suggests that all of the selected incubators are engaged in some form of monitoring activity. However it appears that the top-performing incubators are less active in terms of monitoring affiliated companies whereas on average the lower-performing incubators show higher activity levels in terms of their monitoring efforts. The level of monitoring is close tied to the level of strategic counselling and we have calculated a correlation of .7 between the two. Not surprisingly we detect a large spread in the magnitude of monitoring in the top-performing group whereas the group of low-performing without exception is engaged in extensive surveillance of affiliated companies. The fact that low-performing incubators are actively involved in strategic counselling and monitoring may be explained by regional characteristics. Low-performing incubators are often located in regions with a limited supply of competent external advisers forcing incubators to develop strong competences in the area of strategic counselling. Correspondingly the incubator itself assumes responsibility for monitoring affiliated companies. Box 6.6 details Syddansk Innovation’s thorough approach to monitoring. Box 6.6: Monitoring at Syddansk Innovation Syddansk Innovation monitors affiliated companies in a number of ways. First of all Syddansk Innovation assumes responsibility for balancing company accounts working closely with the entrepreneur in tracking company developments. Secondly, companies are required to draft a milestone report and to provide monthly reports on the technical and financial records. Thirdly, the allocation of funds hinges on the company’s ability to comply with the stated milestones. The combination of a large demand for systematic and thorough monitoring and limited opportunities in using external partners for monitoring purposes may explain why low-performing incubators have developed strong competences in the area of monitoring. The top-performing incubators tend to be less focused on monitoring and often monitoring is conducted by external advisors (Box 6.7). Box 6.7: Monitoring at MBIdeas MBIdeas has no systematic approach to the monitoring of affiliated companies. The incubator is in regular contact with the affiliated companies but often this is instigated by the entrepreneurs themselves. MBIdeas has opted no to monitor product development and financial performances. Systematic monitoring only applies to entrepreneur payments of office or lab rents.

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MBIdeas states that the affiliated companies are highly knowledgeable in the areas of entrepreneurship and product development. Consequently it is assumed that the entrepreneur will contact the incubator in the event that problems arise. Furthermore the incubators make extensive use of external advisors that are heavily involved in offering guidance as well as conducting monitoring activities.

6.6 Outreach We detect no significant spreads in the level of outreach activities among the three groups of incubators. Further investigations reveal a larger variation in outreach activities within the three groups. In other words we find that both low- and high- performing incubators are active in terms of outreach activities. Conversely, we find both low- and top-performing incubators with low outreach activity levels. Danish incubator NOVI is actively engaged in outreach activities (Box 6.6). Box 6.6: Outreach at NOVI NOVI has set up two independent companies (Comlic and Licfond) that track and commercialise inventions and patentable development projects stemming primarily from public research. Comlic and Licfond has a strategic partnership with NOVI allowing the incubator to assess the market potential in the portfolio of business ideas. Comlic A/S track universities and knowledge-intensive companies in promoting technology transfer and attracting potential buyers. Comlic A/S is also engaged in formal relationships with universities and large corporation in Denmark and Sweden. Licfond is a venture capital company focusing on patentable development projects.

6.7 Co-operation with universities The three groups of incubators show consistently good results in the area of co-operation with universities. The average score for the three groups is solid and we detect no significant variation in scores. The case study presented in Box 6.7 introduces an incubator with a high activity level in the areas of strategic co-operation with knowledge institutions. Box 6.7: Chalmers Innovation’s co-operation with Chalmers University Chalmers Innovation was launched by Chalmers University with financial assistance from a private donor. The university has also been involved in the building of a venture company and the creation of an entrepreneurship education program as part of the overall entrepreneurship strategy in the Gothenburg area. The incubator works closely with the university with specific focus on entrepreneurship education of entrepreneurs. In one of the entrepreneurship courses 20 students are handpicked working full-time in one of the incubator’s affiliated companies. This provides student with a practical approach to entrepreneurship and allows them to take on an advisory role as well.

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On third of the affiliated companies were started by former or present students. Roughly half of the companies is attached to researchers in the Chalmers educational environment.

7 The role of entrepreneurship infrastructure Overall the analysis show little variation in incubator activity levels in the areas of co-operation with knowledge institutions, outreach and financing. All but a few incubators have extensive relation with knowledge institutions and maintain a strong focus on attracting foreign capital. Although companies are engaged in scanning the market for new business ideas outreach appears to somewhat less important. The low-performing incubators are very active in the areas of strategic counselling and monitoring of affiliated companies. This may be explained by differences in the entrepreneurship infrastructures. Qualitative interviews reveal that the majority of top-performing incubators have been successful in tying experienced and qualified advisers from the local community thereby limiting the demand for strategic counselling and monitoring. Some lover-performing incubators are working to extend the use of qualified advisers but have assumed the task of providing strategic counselling and monitoring activities. It seems logical for incubators operating in regions with a strong entrepreneurship infrastructure to use the infrastructure for the benefit of the stock of affiliated companies. Correspondingly it should come as no surprise that incubators which operate in regions with an under-developed infrastructure use significant resources on strategic counselling and monitoring efforts. At the same time the analysis show that the top-performing incubators maintain a higher level of specialisation and are more engaged in networking activities. At the same time some of the top-performing incubators (San Jose Software Business Cluster, MBIdeas and Babraham Incubator) are less engaged in networking activities due to the presence of highly qualified advisers in software and biotechnology.

7.1 Incubators with a narrow focus on entrepreneurship infrastructures The San Jose Software Business Cluster, MBIdeas and the Babraham Bioincubator are examples of top-performing incubators that have maintained a limited focus on developing entrepreneurship infrastructures. The incubators are located in Silicon Valley, on the outskirts of Boston and in Cambridge, the UK, respectively. The regions are characterised by having a large concentration of highly skilled software and biotechnology advisors. Collectively the above mentioned incubators have been able to draw on the networks and specialised competences readily available throughout the region (Box 7.1).

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Box 7.1: Exploiting entrepreneurship infrastructures in Silicon Valley and the Cambridge area The San Jose Software Business Cluster is not actively engaged in building networks and competences in entrepreneurship counselling. Instead the incubator makes use of competences readily available throughout the region. It has been the intention to attract local entrepreneurs and smaller software companies to the San Jose area by setting up an incubator with close relation to experienced advisors, business angels and venture companies form Silicon Valley. The incubator has a high set of standards for applying companies. Upon inclusion the incubator swill assist companies in drafting viable business plans as well as facilitating relevant contacts. The scope of strategic counselling is limited and advisory services are handled by incubator networks and entrepreneurs themselves. The Babraham Bioincubator draws on the extensive entrepreneurship infrastructure of the Cambridge region through, among others, the Cambridge Network. The Cambridge Network is a broadly based network and was launched by Cambridge University and five multinational corporations (3i, Amadeus, Analysys Ltd, Arthur Andersen and N.W. Brown). The network works to promote and support a joint effort in supporting high-tech companies across the Cambridge region. No data is available as to the quality of the Cambridge Network but the sheer size of the effort implies that the network is capable of offering a wide range of high quality activities. The San Jose Software Business Cluster was launched in an attempt to revitalise crime-ridden areas in down-town San Jose. The physical location of the incubator in downtown San Jose, the strong focus on a specific software niche and an experienced manager with a large and well-established network in Silicon Valley were instrumental in the successful launch of a diverse set of companies in down-town San Jose. Located in Worchester and Babraham, respectively, MBIdeas and the Babraham Incubator offer a high degree of specialisation in the area of biotechnology. Despite the presence of renowned universities and excellent research facilities most biotech companies opted to move their offices to Boston and Cambridge. Located on the outskirts of high-tech clusters in Boston and Cambridge the incubators were launched in an attempt to attract advisors and investors to the Worchester and Babraham regions. The large concentration of biotech entrepreneurs has attracted companies, investor and advisors to Worchester and Babraham.

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7.2 Incubators with a strong focus on entrepreneurship infrastructures Some incubators may not be able to draw on expertise in the local community. Instead they have pursued a strategy allowing them to develop and improve regional entrepreneurship infrastructures. In other words the incubators have focused on “educating” key players including lawyers, accountants and the financial sector to foster a “recognition” culture and to work as facilitators in building social relations between entrepreneurs and services (investor and advisors) on which they depend. ATDC, ATI, Rensselaer and Swedish incubator Chalmers Innovation have all maintained a strong focus on improving entrepreneurship infrastructures. The Atlanta business community widely regards the launch of the ATDC incubator as starting-point of the region’s highly successful information- and technology cluster. This is not limited to the fact that ATDC has hatched a large number of viable companies but also the fact that ATDC has been a dominant force in improving the entrepreneurship infrastructure by educating lawyers, accountants, investors and other private advisors to support the regional entrepreneurs. Prior to the launch of the ATDC the Atlanta business community including banks, lawyers and accountants, among others all had extensive experience in assisting large corporations in the Atlanta area. On the other hand these stakeholders had limited experience in assisting entrepreneurs with the commercialisation of high-tech products. Furthermore the supply of venture capital was limited. ATDC addressed three issues in an attempt to improve the regional entrepreneurship infrastructure (Box 7.2) Box 7.2: ATDC Organisation and education of regional entrepreneurship advisory services The ATDC (the Advanced Technology Development Center) united small and fragmented groups of advisers and business developers in the areas of entrepreneurship and commercialisation of high-tech products. The network was launched in 1981 as “The Business & Technology Alliance.” The main purpose of the network was to professionalize and integrate counselling and guidance of high-tech start-ups. Today the network is called TAG (Technology Association of Georgia) and provides a professional forum for venture capital, business leaders and promising entrepreneurs. Financing The ATDC was engaged in raising venture capital across the Atlanta region. The first venture company in Atlanta was established with the confines of ATDC, and the ATDC was the driving force in setting up conferences with venture companies from other regions (Boston and Silicon Valley). Although investment levels are

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significantly lower compared to Silicon Valley and Boston, Atlanta continues to be the dominant venture capital city in the South Eastern part of the United States. The ATDC has successfully involved alumni in helping raising venture capital. In 1980 Atlanta has no venture company. Today the city hosts 7 venture companies.14 In June 1989, the University of Texas at Austin, through its IC Institute, initiated a community- based experiment in launching companies devoted to science and technology - the Austin Technology Incubator (ATI). From its inception ATI has embarked on a venture to facilitate the creation high-growth companies in the wider Austin region. Today ATI has directed its focus towards a higher degree of specialisation which has led to the development of a cluster in the area of environmentally-safe energy. ATI stakeholders have made concurrent remarks as to impact of ATI on regional development in the late 1990s. This is related to the fact that ATI and other stakeholders at the University of Texas have been the dominant force behind improvements in the entrepreneurship infrastructure by educating entrepreneurs, venture capital employees and private business advisers while raising venture capital for the region as a whole. ATI have addressed the following issues to improve the entrepreneurship infrastructure in the Austin area: Box 7.3: ATI Financing From its inception ATI has worked diligently to attract investors to Austin. The first Austin venture company was launched in 1983. Although the region had experience in applying venture capital ATI felt that experienced venture companies would contribute immensely to the supply of venture capital and would further improve the competences of local venture companies Improving entrepreneurship infrastructure and culture through the Austin region Working with IC2 ATI has become a learning lab for student or faculty-entrepreneurs in providing entrepreneurial education. Entrepreneruship education has been extensive as well as involving a great deal of practical elements. In addition to offering independent courses ATI has contributed to IC courses in entrepreneurship, technological commercialisation as well as training financial advisers. Students are offered trainee position in existing venture companies. The incubators has taken on an active role in launching the university venture company where students are given the opportunity of start-up capital funding providing invaluable practical approach to the role as investor.

14 Council of Competitiveness: Cluster of Innovation Initiative: Atlanata-Columbus, 2001, http://www.gra.org/economicimpact.asp, http://www.atdc.org; http://www.epodunk.com

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The practical approach also applies to the entrepreneurship courses offered targeting both larger groups of students as well as small selected groups, where students work closely with companies attached to the incubator.15 In response to the economic recession of the late 1970s the Rensselaer Polytechnic Institute launched the Rensselaer Incubator in 1980, making it one of the oldest university-based incubators in the United States. From its inception the stated objective of Rensselaer has been to be the driving force behind regional economic development rather than simply focusing on creating new companies based on RPI technologies. The success of Rensselaer should not only be measured by the impressive number of exiting companies, but also by the enormous impact it has asserted on regional economic development. Rensselaer points to three factors that have contributed to the regional entrepreneurship infrastructure (Box 7.4). Box 7.4: Rensselaer Incubator Intensive collaboration with university students The incubator has allocated significant resources to create an environment that will attract students to entrepreneurial world. The RPIdealab manages a total of 100,000 square feet of office space for entrepreneurship-students and provides access to consultants, hardware and business plan sparring. The incubator actively engages students and professional internal or external advisers in providing practical guidance of affiliated companies. Students receive valuable experience in helping entrepreneurs, entrepreneur challenges are highlighted, and entrepreneur business ideas are continuously improved. More than 100 students are involved in assisting the development of affiliated companies Improved financing opportunities and extensive collaboration with experienced, regional investors In cooperation with the Centre for Economic Growth Rensselaer hosts the Venture Bplan Series, a monthly event where entrepreneurs are given the opportunity of presenting business ideas to a penal of local business leader, business angels, venture companies as well as a general audience. The Rensselaer Program frequently travels to other regions or cities (such as Boston or New York) where a select group of entrepreneurs present their business ideas to successful Rensselaer University alumni. Assistance to entrepreneurs outside the Rensselaer Incubator The incubator is not only committed to its own stock of companies. Rensselaer reaches out to affiliates that may benefit from the incubator’s range of services. Apart

15 Market Street Services: Austin, Texas Economic and Demographic Profile (2003), Greater Austin Chamber of Commerce: Business Climate Assessment Austin, Texas (2003), Greater Austin Chamber of Commerce: Report to Austin Mayor Kirk Watson from the Mayor’s International Infrastructure Task Force (2001), http://www.epodunk.com, http://www.ic2-ati.org

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from participating in networking activities and the Venture Bplan Series the incubator offers business advice to affiliated entrepreneurs on specific challenges in the areas of marketing, business plans, pricing etc.16 Chalmers Innovation was launched by Chalmers Technical University. 40 % of Sweden’s engineers are graduates of Chalmers Technical University. Furthermore Chalmers has a long tradition for addressing entrepreneurship. In the late 1960s a visiting professor was inspired to launch a series of entrepreneurial activities in collaboration with Chalmers. Building on a 50 million SEK donation from a local entrepreneur the Chalmers Innovation incubator was launched in 1999 (Box 7.5). Box 7.5: Chalmers Technical University In the early stages of the program Chalmers engaged in promoting entrepreneurship by conducting a series of analyses on the overall economic impact of spin offs. In time the university has launched a series of initiatives aimed a promoting entrepreneurship throughout the region. Early initiatives dealt with improving the financial aspects of entrepreneurship. In the 1980s the university helped launch a seed-financing company that only had limited success. In 1994 the early-stage venture company Innovationskapital was created. Today the company has made more than 40 substantial investments and Innovationskapital has an equity base of 1,8 billion SEK. Chalmers Invest was launched in 1998 and deals with the early seed stages. With the launch of the Chalmers School of Entrepreneurship in 1997 the universities vastly expanded its scope of activities. The Center is designed to increase the number of student entrepreneurs. The centre has applied a project-based approach and has created an elite group of students to work with entrepreneurship projects. The centre offers a Maters Program in innovation and entrepreneurship and has also developed a pre-incubator and the Entreprenörskolefonden, an entrepreneurship fund. In 2004 the centre set up an international network of experts and experienced entrepreneurs. From its inception the centre has helped launch 23 new companies. An increased demand for facilities that could support practical entrepreneurship education in the early 1990s prompted Chalmers to formally embark on incubator activities. In the mid 1990s the first office facilities were set up. The university expressed a keen desire to set up an incubator, and Chalmers contacted a local entrepreneur who donated 50 million SKR to help launch Chalmers Innovation. The university is responsible for the overall development of the region’s entrepreneurship infrastructure. However, as illustrated in Box 7.6., the Chalmers incubator and the entrepreneurship centre have launched a program designed to further develop student entrepreneurship skills. Box 7.6: Chalmers Innovation Extensive collaboration with university students 16 Rensselaer Polytechnic Institute: The Impact of Rensselaer Polytechnic Institute on the Economy of the Capital Region and New York State, Appleseed Inc (July 2003). http://www.nylovesbiz.com/nysdc/statecountypopests/03c1.pdf, http://www.eopdunk.com

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Each year the incubator and the entrepreneurship centre handpick 20 students from the university’s entrepreneurship program for intensive education in the area of entrepreneurship advisory services. Students are attached to an affiliated company and work full-time under the supervision of the incubator’s professional staff as well as university faculty. Students are not allowed to work on projects that they are already familiar to. The purpose of the arrangement is to provide students with a practical approach to entrepreneurship and entrepreneur-counselling as well as providing valuable guidance to affiliated companies. The increased focus on investors, entrepreneurship education and incubators picked up pace in the late 1990s. While the incubator already has shown remarkable results the next decade will undoubtedly provide evidence as to the success of the intensive efforts of Chalmers Innovation as future generations of entrepreneurs graduate from the incubator and the university. The incubator has already outperformed NOVI, CAT and Symbion.17

7.2.1 Comparing Danish and international incubators focusing on improving entrepreneur infrastructures While Denmark has maintained a strong focus on entrepreneurs financing through the innovation habitat scheme we detect a lack of focus on the creation and subsequent development of entrepreneurship infrastructures. Table 4: Creating and developing networks and entrepreneurship infrastructures Setting up networks Developing network and entrepreneurship infrastructures

Has set up ow

n advisory network

Has set up ow

n network for financing

Develops netw

orks through ”grilling sessions”

Develops netw

orks through know

ledge sharing programs for

specific sectors in local comm

unity

Develops netw

orks through educational program

s for advisors, business angels and venture

capitalists 18

Have developed or is engaged in

developing networks by bringing in

advisors, business angels and venture capitalists from

entrepreneurship regions 19

USDC Connect + + + + + + ATDC + + + + + + ATI + + + + + + Rensselaer + + + + + Chalmers Innovation + + + +

17 Konjunkturbarometer för Västsverige, Summer 2004, Business Region Gothenburg, http://www.businessregion.se, http://www.chalmers.se, http://www.entrepreneur.chalmers.se, http://www.chalmersinnovation.com, http://www.telematicsvalley.org

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NOVI + + (+) + Symbion + + +/(+) + CAT + + +/(+) Teknologisk Innovation + + (+) DTU innovation + + (+) Østjysk innovation + + (+) Syddansk Innovation + + (+) (*) (*) (*) HIH Development + + (+) Note: + engaged in program/activity. (+) uses Connect Denmark. No mark indicates that the incubator is not engaged in program/activity. (*) it has not been possible to collect information On the one hand the table shows that the Danish incubators have been active in terms of establishing advisors- and investor networks. On the other hand Danish incubators have been less active in the actual development of such networks. All Danish incubators have formal relation with Connect Denmark and participate in grilling sessions20 through the Springboard Program which allows entrepreneurs to present business plans to a panel of investors and business advisors. Panel members include representatives from financial institutions, lawyers, IP attorneys, accountants, advertising consultants, management consultants, PR advisors, private investors, experienced entrepreneurs, realtors, technical specialists and venture capitalists, among others. The breadth of expertise found in the Springboard Program is not only important in drafting viable business plans but also serves to foster investor network providing an excellent opportunity for knowledge sharing. Danish incubators NOVI and Symbion are involved in activities targeted at improving entrepreneurship infrastructures (Box 7.7). Box 7.7: Novi and Symbion NOVI Through the NorCOM network NOVI fosters networking activities by engaging in extensive knowledge sharing for specific industries. NorCOM was started in 1997 addressing companies and knowledge institutions in the area of wireless technology. From its inception NorCOM has organised seminars focusing on technical and business development knowledge sharing technical between the Aalborg business community and wireless technology researchers. NorCOM activities are partly financed by NOVI and its members. Since 2000 NorCOM has officially been running in the nature of an association with an independent board of directors. NOVI has been instrumental in developing the Center for Network Communities (CfN). Launched in 2001 the CfN is devoted to attracting new companies to the

18 The question also covers practical educational programs (such as MBA programs) for potential advisors and investors 19 In practice this covers experienced advisors, business angels or venture companies from the Silicon Valley or Boston Regions that have been persuaded to relocate to the incubator’s region or that have been persuaded to provide regular business opportunity assessment in the incubator’s region. 20 The term grilling sessions was defined in Box 6.2

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Aalborg region. CfN runs the so called Expolab, a meeting place where interested stakeholders such as politicians, companies, organisations, municipalities, and the general public, are briefed on the potential benefits of emerging technologies. Symbion Symbion has set up a network of 140 Goodwill ambassadors. Among other things the ambassadors participate in Symbion’s monthly grilling session on IT or biotech. Swedish advisors and investors are also invited to participate. Start-up stand-ups involve 5 or 6 new companies as well as one or two presentations that will inspire both entrepreneurs and goodwill ambassadors. With regards to the other Danish incubators - CAT, DTU Innovation, Teknologisk Innovation, HIH Development, Syddansk Innovation and Østjysk Innovation – extensive interviews have not identified independent activities aimed at promoting entrepreneurship infrastructures.

8 Conclusion The analysis shows that NOVI, Symbion and CAT have been successful in attracting foreign capital to their stock of companies matching the records of top-performing US incubators. DTU Innovation, Syddansk Innovation, Østjysk Innovation, HIH Development and Teknologisk Innovation have had limited success in attracting foreign capital. While the Danish incubators have had some success in attracting capital, the share of exiting, sustainable companies has been disappointing. The analysis fails to explain which factors contribute to incubator performances. However the case studies suggest that incubators and entrepreneurship will benefit from the accessibility of a multi-faceted and competent entrepreneurship infrastructure. The development of regional entrepreneurship infrastructures is a complicated matter. To some extent it is an issue of “the hen and the egg”; on the one hand entrepreneurs will not be successful without the presence of a strong infrastructure. On the other hand a lack of successful entrepreneurs will be detrimental to the development of strong entrepreneurship infrastructures. Over the course of the analysis we have observed different attitudes towards the impact of entrepreneurship infrastructures. Some have argued that it is possible to build strong entrepreneurship infrastructure based on concrete initiatives while others have argued that a strong entrepreneurship infrastructure emerges by coincidence and that no clear pattern is detectable. The general opinion probably lies somewhere in between the two opposing views. While it is possible to improve entrepreneurship infrastructures the actual development will depend on a range of circumstances

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The analysis suggest that incubators assume an important role in building infrastructures by taking on an active part in maintaining and strengthening entrepreneurship infrastructures, and by utilising the infrastructure to nurture the stock of companies. Subsequent comparisons reveal that Danish incubators operating in regions with an under-developed infrastructure have been less active in developing infrastructures compared to international incubators located in under-developed entrepreneurship infrastructures.