Business incubators have been around for decades, helping new entrepreneurs learn the ropes. But a new kind of incubator has become hot, focused on dot-com start-ups. More than 100 Internet incubators have launched in the United States in recent months, and dozens more in Europe, seeking to rush new Web companies toward maturity–and stock-market rewards. London’s Antfactory has incubators in Milan, Madrid and Amsterdam, while Frankfurt’s VentureLab is setting up shop in Shanghai and Singapore. And the Japanese investment firm Softbank has teamed with the French media conglomerate Vivendi to set up Paris-based Adviso, an incubator specializing in U.S.-based dot-coms expanding to Europe. This new breed shares some traits with the traditional ones. In both types, tenants share equipment–from copy machines to coffeepots. They get expert advice and administrative help. They enjoy the camaraderie of working alongside other new business owners. But the Internet incubators have distinct differences. Most are run by venture capitalists. Like traditional VCs, they infuse start-ups with cash in exchange for equity; unlike traditional VCs, they provide on-site guidance. And since they work at Internet speed, their start-ups morph quickly into sizable companies. “There’s a revolution going on,” says Dinah Adkins of the U.S. National Business Incubation Association.
Most Internet incubators share other traits: dust, scaffolding and guys wearing tool belts. That’s because most are still under construction. At Econa, an incubator housed in a refurbished 19th-century locomotive factory in old East Berlin, stacks of moving boxes still clutter the new lofts. By the year-end, managers expect up to 10 start-ups to be ensconced there. Opened last summer by four German multimedia entrepreneurs, Econa so far has signed on four companies–including Technology Mall, an online marketplace for patents and hot new technologies. Each firm hands over a sizable chunk of its equity. In return, the start-ups get up to 3 million in funding and a fully equipped office. There’s no need to worry about benefits, payroll, contracts or accounting; Econa has deals in place to handle those hassles. The more important benefits, the incubator’s directors say, are their own connections and experience. “We’ve all founded our own successful start-ups and know what it takes to bring ideas to market,” says Thomas Heilmann, one of Econa’s cofounders.
In Boston, they’re moving just as quickly at the Cambridge Incubator, opened last August by two MIT business-school grads. One afternoon last week CEO Tim Rowe scribbled out his vision on a whiteboard. First he drew a graph showing the two extremes of career risk: the safe salary earner and the maxed-out-his-credit-cards entrepreneur. By teaming with Cambridge, which pays $500,000 for a 50 percent stake in each start-up, entrepreneurs can find a place in the middle, Rowe says, getting more security than going alone, while retaining a huge upside. Then Rowe draws a graph showing how most new businesses spend their first months with just a few employees, struggling to get anything done. “What we’re saying is ‘Let’s have you operate from day one like you have 10 people by lending you people from the incubator’,” Rowe says. “It’s about acceleration.” That’s particularly important for Internet plays, many venture capitalists say, since being first to market is critical.
Cambridge tenants get some powerhouse help. Suffering from a cluttered Web-page design? Danny Oran, a former Microsoft designer who helped create the Windows 95 interface, can lend a hand. Another principal who just sold his own dot-com for millions helps newbies plot strategy. In a high-rise across the street, workmen are scrambling to finish the new office that Cambridge’s five start-ups move into next month. Surgeon Robert Adelman, CEO of Veritas Medicine, an online medical-information site, wanders around admiring views with Sean Brown, a former McKinsey consultant who now heads BrandStamp, an online product-registration company. If those companies succeed, they won’t enjoy the new digs for long. In a traditional incubator, a firm typically “graduates” to its own facilities after two years. But at Internet incubators, the average stay is less than 12 months.
As the Internet expands, even traditional incubators feel its pull. At the Denver Enterprise Center, would-be Bens and Jerrys toil in a large commercial kitchen, cooking, baking and bottling family recipes they hope to put on super-market shelves. Though many owners play entrepreneur after hours, some hope the Internet will change that. Don Mauro, who runs Mrs. Mauro’s Potica, used to sell loaves of the doughy Slovenian dessert in local malls. But last year 3,500 orders arrived online, a 700 percent increase from 1998. That helped push total sales to 13,500 loaves. If Mauro can sell 20,000, he’ll quit his construction job. “I expect to do it this year,” he says.
title: " It S All About Acceleration " ShowToc: true date: “2023-01-29” author: “Fernando Kelly”
Business incubators have been around for decades. Mostly run by nonprofits and universities, more than 700 now operate across the country, helping new entrepreneurs learn the ropes. But a new kind of incubator has become hot, focused on dot-com start-ups. More than 100 Internet incubators have launched in the last six months, seeking to rush new Web companies toward maturity–and stock-market rewards. This new breed shares some traits with the traditional ones. In both types, tenants share equipment–from copy machines to coffeepots. They get expert advice and administrative help. They enjoy the camaraderie of working alongside other new business owners. But the Internet incubators have distinct differences. Most are run by venture capitalists. Like traditional VCs, they infuse start-ups with cash in exchange for equity; unlike traditional VCs, they provide on-site guidance. And since they work at Internet speed, their start-ups morph quickly into sizable companies. “There’s a revolution going on,” says Dinah Adkins of the National Business Incubation Association.
Most Internet incubators share other traits: dust, scaffolding and guys wearing tool belts. That’s because most are still under construction. At Hotbank, housed in a stunning 19th-century mansion in Boston’s Back Bay, only a third of the space is currently usable. But by the end of the year, managers expect a dozen start-ups to be ensconced in offices now outlined in steel studs. So far the incubator, opened last month by the Japanese investment firm Softbank and a group of American investors, has signed on three companies, including ClubTools. Each hands over 25 to 50 percent of its equity. In return, the start-ups get $1 million to $2 million in funding and an office already wired with computers and telephones. There’s no need to worry about benefits, payroll, contracts or accounting; Hotbank has deals in place to handle those hassles. The more important benefits, the incubator’s directors say, are their own experience and connections. “We can help get you above the clutter, get you to the people you need to see,” says Ellen Roy, a managing director.
Across the Charles River, they’re moving just as quickly at the Cambridge Incubator, opened last August by two MIT business-school grads. One afternoon last week, CEO Tim Rowe scribbled out his vision on a whiteboard. First he drew a graph showing the two extremes of career risk: the safe salary earner and the maxed-out-his-credit-cards entrepreneur. By teaming with Cambridge, which pays $500,000 for a 50 percent stake in each start-up, entrepreneurs can find a place in the middle, Rowe says, getting more security than going alone, while retaining a huge upside. Then Rowe draws a graph showing how most new businesses spend their first months with just a few employees, struggling to get anything done. “What we’re saying is ‘Let’s have you operate from day one like you have 10 people by lending you people from the incubator’,” Rowe says. “It’s about acceleration.” That’s particularly important for Internet plays, many venture capitalists say, since being first to market is critical.
Cambridge tenants get some powerhouse help. Suffering from a cluttered Web-page design? Danny Oran, a former Microsoft designer who helped create the Windows 95 interface, can lend a hand. Another principal who just sold his own dot-com for millions helps newbies plot strategy. In a high-rise across the street, workmen are scrambling to finish the new office that Cambridge’s five start-ups move into next month. Robert Adelman, a Yale-trained orthopedic surgeon who’s now CEO of Veritas Medicine, an online medical-information site, wanders around admiring views with Sean Brown, a former McKinsey consultant who now heads BrandStamp, an online product-registration company. If those companies succeed, they won’t enjoy the new digs for long. In a traditional incubator, a firm typically “graduates” to its own facilities after two years. But at Internet incubators, the average stay is less than 12 months because Web start-ups grow so quickly.
As the Internet expands, even traditional incubators feel its pull. At the Denver Enterprise Center, a nonprofit set in a low-income housing project, would-be Bens and Jerrys toil in a large commercial kitchen, cooking, baking and bottling family recipes they hope to put on supermarket shelves. These businesses are small beans; many owners still hold day jobs and play entrepreneur after hours. Some hope the Internet will change that. Don Mauro, who runs Mrs. Mauro’s Potica, used to sell loaves of the doughy Slovenian dessert (pronounced po-TE-za) in local malls. But last year 3,500 orders arrived online, a 700 percent increase from 1998. That helped push total sales to 13,500 loaves. If Mauro can sell 20,000, he’ll quit his construction job. “I expect to do it this year,” he says.
As the incubation concept continues to evolve, different models are emerging. Since its founding in 1996, Pasadena, Calif.-based idealab and its founder, Bill Gross, have launched a host of brand-name dot-coms, including eToys, Free-PC and GoTo.com. But idealab’s strategy differs from those of competitors, says vice chairman Robert Kavner, since all of its start-ups originate from Gross and his partners, not outside entrepreneurs. Walker Digital, a Connecticut incubator, used a similar strategy to conceive its biggest hit, Priceline.com. At the new Panasonic Internet Incubator in Cupertino, Calif., founder Jim Robbins is interested only in start-ups developing technologies that might be able to partner with Panasonic. Robbins’s outfit also eschews upfront financing, instead charging tenants rent and retaining an option to buy 10 percent of a firm’s equity in later financing rounds.
