Magazine article University Business

Incubation Is Alive and Well: Let the Budget Cuts Fall Where They May, Schools Continue to Feed the Incubators That Nurture New Business and New Revenue. (Business)

Magazine article University Business

Incubation Is Alive and Well: Let the Budget Cuts Fall Where They May, Schools Continue to Feed the Incubators That Nurture New Business and New Revenue. (Business)

Article excerpt

Chances are you've never heard of Knowledge Dynamics, Hydroglobe, or AnthroTronix, but one day, their products may improve life for us all. These, and hundreds of successful products and companies--the Google and Lycos search engines, the cancer-busting drug Taxol, and the Internet grocer Peapod, to name but a few--began life in university-affiliated business incubators.

At more than 200 colleges and universities across the country, administrators are hoping to leverage their relationship with business incubators to bring in research funding, attract entrepreneurial faculty and students, strengthen local economies, and bring in revenue from licensing research discoveries to startups.

RETURN ON INVESTMENT

But incubators offer more than revenue-generating opportunities for colleges and universities, they create a bit of cache to research-focused institutions such as Columbia University, Ohio State, Rensselaer Polytechnic Institute, and Massachusetts Institute of Technology. They also help these schools to attract high-caliber faculty and students. In fact, according to the National Business Incubator Association (www.nbia.org), colleges and universities are affiliated with or sponsor more than a quarter of the 950 business incubators in North America.

And for as many schools involved with incubators, there are nearly as many approaches to managing and funding the operations. Most successful incubators are nonprofits, largely outside the realm of university governance. This independent setup is prized because it allows the incubator management to be entrepreneurial and turn on a dime--two characteristics often anathema to university culture.

What's more, says Meredith Erlewine, director of Publications for NBIA, "I believe a large part of an incubators success is attributed to the invaluable network it creates for its clients. An incubator tenant is not a standalone company--it shares space with many other startups, and can brainstorm with them about how to deal with revenue shortfalls and the like. And, unlike start ups in the corporate world, these startups have incubator managers and whole networks of professionals that they can call on."

Many schools build and subsidize the incubators as part of research parks, and spring for the salaries and benefits paid to incubator staff, says Erlewine. Of course, startup costs vary by the nature of the business, but operational startup costs typically total several million dollars, with annual operating costs running at half a million or less, depending on the breadth of the program. For universities, the incubator is the valuable link between research and the marketplace, nurturing young companies through the critical startup phase.

The top incubators are themselves dynamic models of business efficiency. Like Purdue University's Purdue Gateways (www .purdue.edu/Research/PRF/Gateway.htm; see sidebar), they not only provide office space under affordable, flexible terms, but also offer shared resources such as office equipment and technology support. Most also have marketing and management services for their fledgling, temporary tenants.

Other institutions go further, providing seed funding to new companies. And today, many university incubators also reduce or eliminate the licensing fees that the startups would normally have paid to commercialize the discoveries made in the university research labs, opting instead to take equity positions in the new companies.

These capital and annual outlays are repaid in several quantifiable ways, including:

* the dollars that schools collect in licensing their discoveries to incubator companies

* fees paid to rent university lab time or equipment

* the returns realized when a startup (in which a school owns equity) is acquired, or goes public

The equity-stake path hasn't resulted in vast returns, however, because most new, publicly held high-tech companies flounder for some time. …

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