7. EDSR 06-12-2006ITEM # 7.
tuver
MEMORANDUM
TO: Economic Development Authority
J
FROM: Heidi Steinmetz, Assistant Director of Economic Develop nt ~ 1
Catherine Mehelich, Director of Economic Development]
((((((
DATE: June 12, 2006
SUBJECT: Discuss EDA Business Incubator Program Analysis
Attachments
"Characteristics of Minnesota's Business Incubators," MN Dept. of Trade & Economic
Development report, Febmaxy 2001
"10 Keys to Incubation Success," National Business Incubation Association Website, May
2006 Feature
Background
In early February, former Incubator building owner Larry Hickman provided notice to the EDA
that he had sold the building.
In February, the EDA discussed the status and future of the Incubator Program per the attached
staff memorandum. The EDA directed staff to do the following:
• Complete an analysis of the pxogxam
• Explore options fox a new Incubator pxogxam model ox explore the options of investing the
Tescom loan fund balance into a new ox different economic development pxogxam (if an
incubator is not feasible)
The results of the above mentioned tasks axe provided below.
Program Analysis
A pxogxam analysis was completed via the following methods:
• Cost-Benefit Analysis
• Prospect History
• Cuxxent Access to Capital
Cost-Benefit Analysis
Discuss EDA Business lurnbator Program Analysis
f me 12, 200(
Pagc 2 uF4
From the inception of the program in 1997 through 2005, the EDA spent approximately $220,000
on the pxogxarn. This accounts fox the initial cost to improve the building and the program
operating costs not paid by rent revenue. The results of the program axe indicated in the following
table:
Year of Entry Company Time in Incubator Status
1997 SolaxAttic 5 years Operating in founder's
exsonal residence
1998 -PxotectoxCaxe 1 year fox each All companies no longer in
-Watermark company business
Submersibles
-MAS Technolo es
2000 -Cymbet -Cymbet, 8 mos. -Cymbet leasing 14,800 SF
-Vertical Publishing -Vertical Pub, 2 yrs. in Elk River; 25 employees
-Vertical Pub. no longer in
business
2002 -Bixby Energy -Bixby, 1 year -Bixby will soon be leasing
Systems -K-Netica, 4 yrs. in 95,000 SF of space in
-K-Netica May 06 Brooklyn Paxk (curxendy
leasing 23,500 SF in
Rogers)
-K-Netica, relocated to
Brookl n Center
2003 -Lap2 Technology 18 mos. Operating in founder's
Corp. personal residence
In summary, 30% of the program tenants "graduated" into market rate space. Two graduated
tenants relocated outside of Elk River. One out of the ten incubator tenants, Cymbet, graduated
and continues operations in Elk River. Since the goal of the incubator program was to assist
companies that would continue operations and provide jobs in Elk River, the end result of the
incubator program and its im*estment equates to approximately $8,800 of City/EDA assistance per
job created as compared to $1Q,000 of subsidy assistance per new job by typical economic
development standards.
Prospect Historx
Fox the past three years, the EDA required Incubator consultant Harlan Jacobs to submit semi-
annual prospect reports. Included in Mx. Jacobs's reports were approximately twenty prospects, five
of which became actual prospects, meaning the prospects met with staff and applications were
submitted and reviewed by the Incubator Advisory Committee (IntelliPatch, Intellanet, Manage The
Farm, Laptwo, K-Netica and SOLUMEN Corp.) Of those five, two became Incubator tenants
(LapTwo and I{-Netica).
With a 10% success sate of prospects to secured tenants over the past three years, it appears that
most prospects and even applicants were essentially not interested in occupying space in the
Incubator building, rather preferred gaining access to the area's venture capital funding. Therefore,
it is questionable if there is a sufficient pool of tenant prospects interested in locating in Elk River to
Diceusa P.UA Business Incubator Pcobrtam Malysis'
June 12, 200(
Page 3 of 4
warrant the need fox a "reserved" incubator building, in addition to the higher cost of leasing a
newer building.
Access to Capital
Between 1997 and 2003, Incubator tenants enjoyed access to investments from the following funds:
• Anoka Shexbuxxie County Capital Fund (ASCCF).......Up to $50,000
• Elk River Investment Club ..................................Up to $25,000
• Initiative Foundation Seed Capital Fund ................Up to $50,000
Below is the current status of each of the funds:
Anoka Sherburne County Capital Fund (ASCCF)
According to Board Chair Jeff Johnson:
• There is currently no funding available.
• The fund has provided one or two investments since the passing of the Anoka County
Partners' former executive director.
• The board is evaluating the following options regarding the future of the fund: 1) liquidate
the fund 2) act as a caretaker monitoring the previous fund's investments and 3) partner with
a new community development group that would act as a champion of the fund.
• The board received formal notification in Apri12006 that Anoka County Partners, formally
known as the Anoka County Economic Development Partnership, would no longer provide
administrative support to the fund. According to Executive Director David Piggot, the
Anoka County Partners:
o have recently written off investments made to 15 companies
o severed ties with the Anoka Investors and the ASCCF in Apxi12006
o plans to sever ties with the Columbia Heights Incubator.
Elk River Investment Club
According to member Cliff Lundberg:
• There is currently no funding available.
• The club has written off most of their investments, with the exception of Cymbet and I{-
Netica.
Initiative Foundation Seed Capital Fund
According to John Kaliszewski of the Initiative Foundation:
• There is cuxxendy no funding available.
• The Initiative Foundation plans to promote the development of five to seven RAIN funds
(angel investor funds) in Central Minnesota. St. Cloud recently became one of Minnesota's
thirteen RAIN funds.
• As done in the past, the Initiative Foundation would prefer to follow the lead of a local
investment fund when investing in start-up companies in Elk River. If a new fund was
formed ox the ASCCF became active again, the Initiative Foundation may be willing to
invest in the fund.
Discuss IiUA Business Inenbator Pmg~am t\nalpsis
June 12, ?006
Page 4 of 4
Without sufficient access to local/area seed capital investments the attractiveness of an incubator
program would be very little, as the program has recently experienced the past few years.
Options to Consider
The attached xepoxt completed by the MN Dept. of Trade & Economic Development, now known
as the Dept. of Employment & Economic Development, provides research findings based on a
2001 survey of twenty-eight Minnesota incubators. The xepoxt includes information on different
organizational structures and payment mechanisms of Minnesota incubators.
The attached article authored by the President and CEO of the National Business Incubation
Association offers "10 Keys to Incubation Success," which is also important information fox the
EDA to consider. Number two of the "10 Keys" is "Business Incubators axe service programs, not
buildings."
Based on the analysis of the previous program model, staff suggests the following options fox EDA
discussion, with details to be refined upon the EDA's direction:
Option 1 Own and operate an Incubator building
Option 2 Sublease space within a building and operate pxogxam
Option 3 Operate an "Incubator without walls" (subsidize tenant rent at various available
locations within the City based on EDA policy parameters to be developed)
Option 4 Do nothing
Staff Recommendation
Based on staff's analysis of the previous model and issues associated with operating an incubator
program it appears that the EDA may want to consider discontinuing the incubator model and
explore an alternative program.
A shared goal of the EDA and Energy City Commission is to encourage businesses to incorporate
energy efficient technologies into their buildings. Staff recommends the EDA consider investing the
balance of the Tescom loan funds ($133,095) that would have been dedicated to the incubator
program into an incentive program fox businesses to incorporate energy efficient design and/or
materials in the construction of their facility. The pxogxam could be developed as a new pxogxam
within the EDA Micro Loan Fund. The pxogxam could also capitalize off of existing environmental
assistance low-interest loan programs offered by the state to finance capital equipment upgrades that
meet ox exceed environmental regulations.
Hatching Good Ideas?
Characteristics of Minnesota's
Business Incubators
~SCiNESOT9
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F e b r u a r y
Hatching Good Ideas? Characteristics of Minnesota's Business Incubators
Introduction
Despite Minnesota's booming economy, studies and
academic and business leaders have suggested that
the state's low new business start-up rate is a
warning sign for future economic growth. Business
incubators are frequently mentioned as a potentially
important component of start-up success and
integral to a growing economy.
The term "business incubator" describes a variety
of methods that are used in economic development
to nurture new, small businesses. In general,
incubators are intended to provide new firms with
the supportive network necessary to increase their
probability of survival during the crucial eazly
years when they are most vulnerable.
Some proponents of business incubators suggest
that an organized system of incubators is necessary
to jump-start economic activities. Other proponents
suggest that there is a shortage of ideas rather than
resources, and that incubators sponsored by local
groups (whether non-profit or for-profit) can meet
the needs of the state's budding entrepreneurs.
Finally, there are those who believe that business
incubators are a flawed approach to business
development that add little value and divert
resources from other economic development
opportunities.
This report describes business incubators as
discussed in recent professional and academic
literature, provides questions to consider when
thinking about incubators, provides a description of
business incubators in Minnesota, and includes a
list of Minnesota business incubators. The
discussion on the merits of business incubators'
approach to business development is beyond the
scope of this brief. There is also no discussion on
the quality of incubator investments. The
Minnesota Department of Trade and Economic
Development (DYED) neither advocates nor
opposes business incubators.
The following list represents the key findings from
the survey of 28 business incubators in Minnesota.
These results aze discussed in the Survey of
Minnesota's Business Incubators section of this
report.
• Minnesota business incubators are evenly split
between non-profit and for-profit incubators.
• Half of all surveyed incubators were
established in 1997 or later. This result was
the same for both non-profit incubators and
for-profit incubators.
• The median incubator had seven companies in
residence, one company that had "graduated"
from the incubator and one company that went
out of business. Non-profit incubators tended
to be slightly larger than the median, while
for-profit incubators tended to be slightly
smaller.
Nearly 60 percent of all incubators surveyed
were located in the Twin Cities. Non-profit
incubators tended to be located in outstate
regions, while for-profit incubators tended to
be located in the Twin Cities.
• Non-profit incubators tended to receive
payment for services through fees. For-profit
incubators surveyed tended to receive equity
in incubated companies as either full or partial
payment for incubator services.
• Mixed-use incubators that do not focus on a
particular sector were more prevalent than
technology-focused incubators. There was
little difference in the focus ofnon-profit
incubators and for-profit incubators.
• Nearly 65 percent of all incubators surveyed
indicated one or more affiliations with outside
organizations. Non-profit incubators tended to
be affiliated, while for-profit incubators were
more likely to be stand-alone (i.e., no
affiliations).
The most important characteristic of
Minnesota business incubators surveyed is
whether the incubator is non-profit or for-
profit.
Minnesota Department of Trade and Economic Development
Hatching Good Ideas? Characteristics of Minnesota's Business Incubators
Overview of Business Incubators
What is a Business Incubator?
The term "business incubator" describes a variety
of methods that are used in economic development
to nurture new, small businesses. In general,
incubators are intended to provide new firms with
the supportive network necessary to increase their
probability of survival during the crucial early
years when they are most vulnerable.
The U.S. Small Business Administration (SBA)
describes four aspects to business incubation:
flexible space for a number of companies at a
reasonable rate;
• shared equipment and services that would
otherwise be unavailable or unaffordable to
help businesses cut costs;
• experienced management advice and access to
professional expertise;
• access to capital.'
Candace Campbell,' an economic development
consultant and past chair of the National Business
Incubation Association (NBIA) Board of
Directors, also offers an additional element that
incubators may also provide: an environment of
synergy where small business people can share
ideas and assistance.'
There is no prototypical business incubator. Some
incubators provide physical resources, such as
space, shared services, and assistance with start-up
costs. Others focus more on providing managerial
and entrepreneurial resources. Incubators may be
sponsored by public or non-profit agencies, or
they may be private, for-profit ventures. They may
focus on a specific industry or provide services to
abroad range of companies.
Top Ten Most Offered Incubator Services
Help with business basics 96%
Conference room 92%
Marketing assistance 89%
Sharedadministratrve services 88%.
Networking activities 86
Accouritingffinanciatmanagemerit 77°Io.
e p wlt access to wmmercla oans
loan funds/loan guarantee programs 77%
Links tohigher education Institution
Telephone system/phone answering 65% 76%..
Internetaccess :62°h'-.I
Source. National Business Incubation Association. Accessed a[
www.nbia.org/info/facts on August 16. 2000,
Services offered and incubator attributes provide
some guidance in the definition of business
incubators. According to a 1998 survey conducted
by the NBIA, the following 10 business assistance
services were among the most frequently offered
by responding incubators: help with business
basics (96 percent), conference room (92 percent),
marketing assistance (89 percent), shared
administrative services (88 percent), networking
activities (86 percent), accounting/financial
management (77 percent), help with access to
commercial loans/loan funds/loan guarantee
programs (77 percent), links to higher education
institution (76 percent), telephone system/phone
answering (65 percent), and Internet access
(62 percent).°
Some incubators are "incubators without walls"
Typically, these incubators do not house tenants,
but serve non-resident tenants, providing access to
the same services as traditional incubators, except
for the office space. The principle behind such an
incubator is that small business success is not so
much a function of the need for a facility, but the
need For advice, capital, and networking
opportunities.
Minnesota Department of Trade and Economic Developmen(
Hatching Good Ideas? Characteristics of Minnesota's Business Incubators
After slow growth initially, the number of business
incubators has grown rapidly in recent years. The
first business incubator opened in 1957 in Batavia,
New York, and the number only grew to 12
business incubators in North America by 1980.E
By 1998, there were around 600 incubators.' In
early 2000, there were more than 800 business
incubators in North America."
Location is also a key feature of business
incubators. According to an NBIA survey, the
breakdown of incubator location was 53 percent
urban, 28 percent rural, and 19 percent suburban
in 1989.v By 1998, the distribution had shifted to
45 percent urban, 36 percent rural, and 19 percent
suburban. Overall, the key change between 1989
and 1998 was the increase in proportion of rural
incubators and corresponding proportional
decrease in urban incubators.
Location of U.S. Business Incubators
1989 and 1898
The Economics of Business Incubators
Theoretically, business incubators allow new
companies to exploit economies of scale in some
start-up costs. These cost advantages are usually
only available to large businesses. Small companies
often don't have funds for copiers, fax machines,
computer networks, administrative support staff,
and other necessary services. By renting space in
an incubator, the theory is that cash-starved small
companies could lower their fixed costs and make
funds more quickly available for profit-making
operations.
Small businesses may also have advantages over
large businesses. For example, small businesses are
generally considered less bureaucratic and more
entrepreneurial. In addition, small businesses are
thought to have more creative freedom, and are
able to respond flexibly to change. Adding potential
economies of scale is expected to enhance these
advantages by reducing the disadvantages of small
businesses.
Suburban
is^io
Urban
53%
1989 1998
Source: National Business Incubation Association. Accessed at
wwwnbia.org/info/facts on August 16, 2000.
A recent study from the Harvard
Business Review took these advantages
a step further. It suggested that the ideal
incubator provides an entrepreneurial
environment, economies of scale, and a
crucial final element: preferential access
to a network of companies. According to
the report, the so-called "networked
incubator," is the type of incubator that
will be most able to develop successful
start-up companies.'° Similarly, another
report states that the keys to success for
incubators in the future will depend on
deep pockets, deep connections, and
focused industry expertise."
Minneso(a Department of Trade and Economic Development
Hatching Good Ideas? Characteristics o/ Minnesota's Business Incubators
Incubator Organizational
Structure and Affiliation
Early incubators were often developed by local
economic and community development
organizations to redevelop vacant space. Over time,
however, the organization of incubators has changed.
According to an NBIA survey, 51% of all North
American incubators were sponsored by government
and non-profit organizations in 1998.' In the same
year, 27% of all North American incubators were
affiliated with universities and colleges, while 16%
of all North American incubators were joint efforts
among government, non-profit agencies and/or
private developers. In 1998, only 8% of all North
American incubators were run by investment
groups or by real estate development partnerships
as private, for-profit ventures. Finally, 5% of all
North American incubators were sponsored by other
sources, such as art organizations, Native American
groups, church groups, chambers of
commerce, port districts, etc. By early
2000, another NBIA survey estimated
that 75% of incubators were non-profit
(government or non-government) and
25% were for-profit." Overall, the key
change between 1998 and 2000 was the
increase of for-profit incubators as a
share of the total.
The increasing proportion offor-profit
incubators is bringing about a structural
shift in incubators. The rule of thumb is
that non-profit incubators tend to work
on a fee basis, with rent for space as the
most common fee. In contrast, rather
The increasing proportion of for-profit incubators
and, by extension, incubators that assume equity
positions in the companies incubated, does raise
additional issues regarding government
regulations. Under certain circumstances,
incubators could potentially be required to register
under the Investment Company Act of 1940, and
register their mangers under the Investment
Advisors Act of 1940.'° The registration process
imposes additional costs on the incubators.
Incubators, if required to be registered, would
need SEC approval for certain transactions
considered customary in the venture capital
industry. These requirements could make business
incubation less attractive for business developers
who might fall under this regulation. At least one
Minnesota company ended its incubation
operations, at least in part, because of the prospect
of government regulatory oversight."
Organizational Structure of U.S. Incubators
1998 and 2000
/ For-y y
/ ' Profi Private,
8% For-Profi
25%
All Others ' Alf Others.
92% ' 75% /
than charging astart-up company rent,
for-profit incubators may take an equity source:
position in the company. Giving up equity in the
company can be helpful to the entrepreneur,
particularly if cash is scarce. It can also ensure that
the incubator has the same incentives to see the
start-up succeed as the entrepreneur has. On the
other hand, some entrepreneurs are hesitant to trade
equity for incubator services for two reasons. First,
the entrepreneur must share the rewards when
success comes. Second, giving up equity may
eventually lead to giving up partial or total control
of the start-up company, with the extreme case
involving other equity holders forcing the founders
out of the company.
1998
2000
National Business Incubation Association. Accessed at
www,nbia Drg/info/facts antl www.nbia.org/Info/faCt_Sheel
on August 16. 2000.
Minnesota Department of Trade and Economic Development
Hatching Good Ideas? Characteristics o/Minnesota's Business Incubators
Incubator Focus
Because the purpose of early incubators was ofren
economic development in a broad sense, many
early incubators had little focus on a particular
industry or sector. This trend, too, is changing. In
1998, 43 percent of incubators nationally were
mixed-use, accepting clients from a wide variety
of business activities.'fi By early 2000, the share of
mixed-use incubators had fallen to 30 percent." In
1998, 25 percent of incubators focused on
technology firms, compared to 40 percent of
incubators focused on technology in 2000. In
1998, the remaining incubators were focused on
other sectors or goals: 10 percent on
manufacturing, 9 percent targeted a specific
industry, 6 focused on service industries, 5 percent
of incubators had empowerment as a goal, and the
remaining 2 percent of incubators had other
purposes. Overall, the key change between 1998
and 2000 was the increasing prevalence of
technology incubators.
A change in focus began in 1996 with the creation
of Idealab, one of the first Internet incubators.
Idealab had some highly visible successes among
its incubatees, including eToys, NetZero, and
GoTo.com. Idealab was proclaimed as a new form
of private incubator, heavily focused on dot-com
companies and affiliated with venture capital
firms.'" This new model was expected to transform
how new companies are created and nurtured.
Following Idealab's success, the Internet incubator
became a hot commodity in the late 1990s.
Internet incubators would take an equity stake in
Internet start-ups, helping the company
along its path toward an exit event,
usually either buyout or initial public
offering (IPO). The expected reward for
successes was huge. The increase in
technology-focused incubators between
1998 and 2000 is indicative of the
increase in incubators focused on
technology start-ups. However, the past
year has not been a good time to be an
Intemet incubator. The decrease in
value of Intemet stocks and diminished
optimism in the Intemet economy has
diminished the value of incubator
assets.'° Successful start-up companies
have been few and far between.
There is some skepticism about the viability of
many newly-founded incubators. Dinah Adkins,
the NBIA's executive director, said that incubators
have become an "investment vehicle" in recent
years, adding, "It's such a fad. People are jumping
into forming them so quickly, but they're not well-
constituted"'° Now, according to a New York Times
report, some investment companies consider
"incubator" to be a tainted term"
Others are not so bearish on incubators that focus
on technology. One report suggests that the
business incubation industry became overcrowded
with start-up incubators with the same business
model.' In this context, the report states that many
newer and weaker incubators are exiting the
business. Incubators that survive this downturn
will be better managed, better financed, and have
proven track records.
The focus of an incubator creates a potential
dilemma for incubator developers. Mixed-use
incubators, while well managed, might not offer
industry specific knowledge to help businesses
succeed. However, niche incubators may be
vulnerable to a downtum in the specific sector. For
example, for-profit, technology-focused incubators
that take an equity stake are sharing in the
hardships of the technology sector. One possible
action would be for a technology incubator to be
organized as a non-profit to insulate itself from
business cycles. However, removing the down-side
of risk also removes the up-side of reward.
Focus of U.S. Incubators 1998 and 2000
Other Mixed Use Other
32% 30%
.,, 43%
1998
Mixed Use
30%
2000
Source. National Business Incubation Association. Accessed at
www.nbia.org/info/facts and www.nbia.org/info/fac[_sheet
on August i6, 2000,
~nnesoaa Department of Trade and Economic Development
Hatching Good Ideas? Characteristics o/Minnesota's Business Incubators
Questions To Consider About
An Incubator
Because incubators come in a variety of forms, it
is often difficult to compare incubators. However,
finding ways to make comparisons is a key
concern to both economic development
professionals and potential entrepreneurs
interested in learning more about incubators in
genera] or about a specific incubator. These
questions have been developed with exploration of
this topic. It is by no means original, however.
Two key lists of questions were synthesized and
expanded to develop this list, including one by the
NBIA~' and one from EntreNetwork.'°
• Are you ready to listen to the advice provided
by incubator management and act upon it as
necessary?
Do you meet the incubator's criteria?
• What is the incubator's track record?
• What is the incubator's graduation policy?
• Does the incubator provide the facilities,
services, access to capital, and contacts that
you need to be successful?
• What are the background and skills of the
manager and staff of the incubator?
• What types of educational opportunities are
available?
• How does the incubator promote networking
among tenants?
• How are the incubator's fees structured?
• What are the alternatives to locating in an
incubator?
Minnesota Department of 73~ade and Economic Development
Hatching Good Ideas? Characteristics of Minnesota's Business Incubators
Survey Of Minnesota's
Business Incubators
Incubators In Minnesota
It is possible to draw some reasonable
Introduction
The Analysis and Evaluation Office of the
Minnesota Department of Trade and Economic
Development (DYED) conducted a telephone
survey of the state's business incubators in
October-November 2000. The results of the survey
are summarized in this section. This survey was an
attempt to develop a description of the state of
business incubators in Minnesota.
A list of business incubators in Minnesota was
generated from a variety of sources, including a
bulk e-mail to all members of the Economic
Development Association of Minnesota (EDAM),
DYED Publications, the NBIA, local media
sources and other referrals. These business
incubators were contacted by telephone. All
incubators contacted responded to a standard
survey questionnaire. In order to generate as
complete a list as possible, incubator
representatives were asked for other incubators of
which they were aware. Some organizations
contacted offered primarily space for business
activities. These organizations, which fulfill a
useful role in Minnesota's economy, cannot be
considered incubators according to the definition
included in this brief.
As a result of the survey, information was
obtained from 28 business incubators. As
mentioned previously, there is no prototypical
incubator. Some incubators may excel at product
placement and marketing, while others may excel
in financial management. Still others may have
connections that aze beneficial in securing
financing. This is clearly the case in Minnesota as
well. Different incubators have well developed
expertise in some areas, while they are continuing
to develop expertise in other areas.
generalizations about the surveyed incubators.
These conclusions are developed in the following
section. Overall, the most important characteristic
of Minnesota business incubators surveyed is
whether the incubator is non-profit or far-profit.
• Organizational Structure
Minnesota incubators are split evenly by type
of organization. There are 14 incubators each
(50 percent of the total) that are non-profit and
for-profit. This proportion of for-profit
incubators is higher than the proportion
nationally.
Year ojEstablishment
The average Minnesota incubator was
established in 1994. However, half of the
incubators in the state were started in 1997 or
later. There is also no difference between non-
profit and for-profit incubators surveyed. For
both non-profit and for-profit incubators, 7 of
14 incubators were established in 1997 or later.
Business incubators in Minnesota, like
nationally, aze likely to be recently established.
• Size
The business incubators surveyed had a median
of 7 companies in the incubator. The median
incubator had created 1 business that had
"graduated" from the incubator. The median
incubator also had 1 business that had gone out
of business.
There is, however, a difference between non-
profit incubators and for-profit incubators in
terms of average firms served. The median
non-profit incubator surveyed had 7.5
companies in residence. It had seen 2
companies graduate, while 1 company had
gone out of business. For-profit incubators, on
the other hand, had a median of 5 companies in
residence. A median of 1 company had
graduated, while 0.5 had gone out of business.
Overall, the median for-profit incubator had
fewer companies in residence, also with fewer
graduate companies and fewer companies that
went out of business, than non-profit
incubators.
Minnesota Department of Trade and Economic Development
Hatching Good Ideas? Characteristics of Minnesota's Business Incubators
• Location
Of the 28 incubators identified and surveyed,
16 (57 percent) were located in the
Minneapolis-St. Paul metropolitan area. The
remaining 12 incubators (43 percent) were
located in greater Minnesota. A total of 12
incubators (43 percent) were located in urban
areas, 6 were in suburban areas (21 percent)
and 10 were in rural areas (36 percent). This
result is simular to the distribution nationally.
Again, non-profit and for-profit incubators
surveyed tend to be located in different areas
of the state. Of the 14 non-profit incubators
surveyed, five were located in the
Minneapolis-St. Paul metropolitan area. The
remaining nine non-profit incubators were
located in greater Minnesota. The opposite is
true of for-profit incubators surveyed, with 11
of the 14 for-profit incubators located in the
Twin Cities area.
• Payment Mechanisms
The type of payment received by the incubator
for services differed among the incubators
surveyed. A total of 13 incubators received
fees exclusively. Seven incubators received a
combination of fees and an equity stake in
exchange for incubator services. Five
incubators accepted only an equity stake as
compensation from their businesses. Finally,
three incubators charged fees for an initial
entrepreneurship training program, following
completion of which businesses are charged
no or minimal fees.
The payment mechanism ofnon-profit
incubators compared to for-profit incubators
also differed. Non-profit incubators are more
reliant on fees with 10 of the 14 receiving
payment exclusively through fees. Another
3 incubators charge a fee for an initial
entrepreneurship training program, with no or
minimal fees upon completion. The remaining
incubator receives payment from a
combination of fee and equity.
For-profit incubators, on the other hand, have
more varied payment systems. Of the 14
for-profit incubators, only three receive
payment exclusively through fees. A total of
six incubators receive payment from a
combination of both fees and equity in
incubated companies. The remaining five for-
profitincubators work exclusively on equity
considerations. Overall, 11 of the 14 for-profit
incubators receive equity in incubated
companies as partial or full payment for
incubator services.
8 Minnesota Department of Trade and Economic Development
Hatching Good Ideas? Characteristics o/Minnesota's Business Incubators
• Focus
Of the surveyed incubators, 13 (46 percent)
were mixed-use. Another 8 incubators (29
percent) focused on technology. Two
incubators (7 percent) focused on the medical
products and healthcare industry. Energy and
environment, specialized food products, low
income and minority, and Latino retail were
the focus of one incubator each (4 percent
each). The remaining incubator was revising
its business plan at the time of the survey.
The distribution of non-profit incubators and
for-profit incubators by focus is very similar.
Of the 13 mixed-use incubators, seven were
non-profit and six were for-profit. The eight
technology-focused incubators were split
evenly with four incubators each non-profit
and for-profit. The major distinction came
from incubators focused on the medical
products and healthcare industry. Both of
these incubators were for-profit.
• Affiliation
Ten incubators were unaffiliated with any
outside group. The remaining 18 incubators
expressed a total of 27 affiliations. A total of
12 affiliations existed between incubators and
economic or community development
organizations. Four affiliations existed
between incubators and private groups. There
were three affiliations between incubators and
a university or college, and three relationships
also between incubators and other community
organizations. Two affiliations each existed
between incubators and cities and American
Indian organizations. The final affiliation
existed between an incubator and a local port
authority. The number of incubators by
affiliation is greater than the total number of
affiliated incubators because seven incubators
had multiple affiliations.
In affiliations, there are also some noticeable
differences between non-profit incubators and
for-profit incubators. Of the 18 incubators that
had affiliations, 12 were non-profit and only 6
were for-profit. Of the 10 incubators that had
no affiliations, eight were for-profit. Among
surveyed incubators, it appears that non-profit
incubators are more likely to be a
collaborative effort, while for-profit incubators
are more likely to stand alone.
Minnesaia Department of Trade and Economre Development
Hatching Good Ideas? Characteristics o/ Minnesota's Business Incubators
List of Minnesota Business Incubators
Incubator Name/Contact Address Phone
Aitkin County Growth Center 316 First Ave. NW 218-927-2172
David Hasskamp Aitkin, Minnesota 56431
BBD Business and Technology Center 2010 E Hennepin Ave. #6-106 612-378-1144
Larry Homstad Minneapolis, Minnesota 55413
Breckinridge Industrial Mall 800 Buffalo Ave. 218-643-2733
Stan Thurlow Breckinridge, Minnesota 56520
Elk River Business Incubator PO Box 490 763-782-8576
Harlan Jacobs Elk River, Minnesota 55330
Fairmont Business Development Center 426 Winnebago Ave. 507-238-9461
Michael Humpal Fairmont, Minnesota 56031
Franklin Business Center 1433 E Franklin Ave. 612-870-7555
Theresa Carr Minneapolis, Minnesota 55404
Gateway Alliance 289 East Fifth St., Suite 204 651-225-4262
Wendell King St. Paul, Minnesota 55101
Genesis Business Center 3989 Central Ave. NE #530 763-782-8576
Harlan Jacobs Columbia Heights, Minnesota 55421
Itasca Technology Exchange 201 NW 4th St. 218-326-5828
Kirk Bustrom Grand Rapids, Minnesota 55744
Leech Lake Band of Ojibwe Business Incubator 6530 U.S. State Hwy. 2 NW 218-335-8237
Victoria White Cass Lake, Minnesota 56633
Mercado Central Cooperative 1515 E. Lake St. 612-728-5401
Maria Horn Minneapolis, Minnesota 55407
Midtown Business Center C/O NDC, 651 1/2 University Ave. 651-291-2480
Mike Temali St. Paul, Minnesota 55104
NDC Wlider Kitchen 919 Lafond Ave. 651-291-2480
Kathy Moriarty St. Paul, Minnesota 55104
North Shore Business Enterprise Center 1313 Fairground Road 218-834-3489
Mike Valentine Two Harbors, Minnesota 55616
Owatonna Incubator, Inc. PO Box 505 1065, 24th Ave. SW 507-451-0517
Ken Henricksen Owatonna, Minnesota 55060
Perham Technology Center 801 Jenny Ave. 218-346-9798
Bryce Anderson Perham, Minnesota 56573
Phillips Eco-Enterprise Center 2801 21st Ave. #110 612-278-7120
Jonathan Sage-Martinson Minneapolis, Minnesota 55407
Protostar, Inc. 6765 Wedgwood Road, Suite 100 763-416-6411
Tom Hektner Maple Grove, Minnesota 55311
Risdall Linnihan 2475 15th St. 651-631-1098
John Risdall New Brighton, Minnesota 55112
Serbus, LLC 15500 Wayzata Blvd., Suite 1009 952-404-1902
Gary Miller Wayzata, Minnesota 55391
Soft Center Duluth Incubator 11 East Superior Street 218-722-5501
Mike McNamara Duluth, Minnesota 55802 or 800-652-5524
St. Cloud Business Center 14 North 7th Ave. 320-259-0000
Rick Kinzer St. Cloud, Minnesota 56303
St. Paul Business Development Center 421 N. Wabasha St., Suite 200 651-222-8971
Randy Geller St. Paul, Minnesota 55102
Technology Plus 1961 Premier Drive, Suite 100 507-385-3203
Layne Hopkins Mankato, Minnesota 50100
University Technology Enterprise Center 1313 5th St. SE 612-379-3800
Doug Walker Minneapolis, Minnesota 55414
Valley Technology Park 510 County Road 71 218-281-8054
Kari Thompson Crookston, Minnesota 55716
Venturi Group, LLC 2800 Patton Road 651-634-3033
Mark Knudson St. Paul, Minnesota 55113
Whittier Emerging Business Center 2845 Harriet Ave. S. 612-879-0109
John Flory Minneapolis, Minnesota 55408
l0 Minnesota Department of Trade and Economic Development
Hatching Good Ideas? Characteristics o/ Minnesota's Business Incubators
Endnotes
1. U.S. Small Business Administration. "Business Incubators Hatch Voung Companies."
Accessed at wwwsba.gov/gopher/BUSiness~DevelopmendSuccess-SerieslVOl2llncu/incutxt on August i6, 2000. -
2. Candace Campbell was one of the first researchers [o examine business incubators. She co-authored Business Incubator Proliles with
Mihailo Temali, which was published by the University of Minnesota's Humphrey Institute of Public Affairs in 1984-
3. Emerson, Dan. "Incubators Help Small Ideas Happen" CiryBusiness. July 5. 1996, l6.
4. National Business Incubation Association (NBIA), "Executive Summary of NBIA's 1998 State of the Business Incubation Intlus[ry Findings."
Accessetl at www.nbia.orq/into/fac[s.html on August l6, 2000.
5. Neal, Julie. "Business Incubators Reinvent Revenue Strategies to Grow Net Companies." Saint Paul Pioneer Press. April 16, 2000, IOC.
6. National Business Incubation Association. "Business Incubation Facts."
Accessed at www.nbia.org/info/fac!_sheet.html on August i6, 2000.
7. Ibid. "Executive Summary."
e. Ibid, "Business Incubation Facts."
9. Ibid. "Executive Summary."
10. Hansen, Morten T., et al. "Networked Incubators. Hothouses of the New Economy." Harvard Business Review September-October 2000, 75.
1 L National Commission on Entrepreneurship. "Incubators Revisited." August 29, 2000.
Accessed at www.nme.org/newsletter/update/08_29_OO.html on September 6. 2000.
12 NBIA, "Executive Summary."
13. Ibid, "Business Incubation Facts."
14. Halloran. Michael J., et al. Uentnre Capital & Public Of/ering Negotiation. 3rd ed. Gaithersburg. Md.'. Aspen Law & Business. 2000. 5-3.
15. Reilly, Mark. "Two Interne[ Incubators Shutting Down," CiryBusiness September 29, 2000. 49.
i6. NBIA, "Executive Summary."
l7. Ibid, "Business Incubation Facts."
18. National Commission on Entrepreneurship, "the Rise of Private Business Incubators." January 27. 2000.
Accessed at www.ncoe.org/newsletter/uptlate/01 27_OO,html on September 6, 2000.
19. Reilly, Mark. "Incubators Shifting Focus." CiryBusiness. August 18, 2000, 36.
20. Neal, 10C.
21. Holson, Laura M. "Hard Times In The Hatchery" The New York Times. October 30, 2000. Ci.
22. NCOE. "Incubators Revisitetl."
23. National Business Incubation Association. "Guidelines for Selecting An Incubation Program."
Accessed at www.nbia.org/press/guidelines.Mml on October 16, 2000.
24. Philips, Brenda. "IS an Incubator For You?"
Accessetl at www.en[renetwork.com/articles/32.cfm on October 24. 2000.
Minnesota Department of Trade and Economic Development 11
~ i ~i
Information and Analysis Division
Analysis and Evaluation Oft7ce
Neal Young
Economic Analyst
500 Metro Square Building
I21 7th Place East
Saint Paul, Minnesota 55IO1-2146
65I-297-3548
www. d ted. state. mn. us
~1r1NESOT9
`/
-Trade &
Economic
Development
18A-0061
2/01-]60
May 2006 Feature -LABIA
May 2006 Feature
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~~~
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'~' "' ~ 10 results -
10 Keys to Incubation Success
~ ~ ~`l; .
Need some tips on running an effective business incubation program?
Who better to turn to than LABIA President and CEO Dinah Adkins?
Best Practices in Action: ', The following 10 points, which were adapted from a popular speech by
'. Guidelines for Implementing '. Adkins, are key to the success of any incubator, regardless of mission
First-Class Business or focus.
Incubation Programs, the
I. most comprehensive report ', 1. Effective business incubation programs are based on legitimate
ever on incubation best ' feasibility studies and business plans. These essential documents
'... practices, is available at the '.. must identify the market an incubator will serve and prove its financial
'. LABIA Bookstore. viability.
2. Business incubators are service programs, not buildings. No
building can grow companies, provide mentoring and assist emerging
'. '. companies in meeting benchmarks necessary for growth. It has been
many years since any knowledgeable person thought a building was
the key innovation in business incubation. If your stakeholders aren't
'. I aware that they need to invest in people and knowledge more than in
--- ----- --- bricks and mortar, you need to work with them to open their eyes.
3. Top incubation programs are well managed, which means their
sponsoring organizations provide appropriate salaries and benefits to
individuals who have the skills to help companies grow and to
transform communities. If local authorities pay for a concierge, they will
get a multitenant building with a receptionist, not a vibrant business
incubator that can grow the local economy.
4. Flexibility and commitment to service are key to effective incubation.
Incubator staffs themselves must be entrepreneurial and
nonbureaucraticond recognize that they're in a service industry. Not
only do they have to help companies develop management teams,
they also have to get the mail out on time. They must maintain a
special relationship with their clients -bath leader and servant -and
only those types of personalities are appropriate for incubator staff.
5. Effective incubator managers proactively provide business
development services. They screen clients, analyze their strengths
and weaknesses, help set benchmarks for growth, and bring in
mentors and business service providers to provide customized
assistance. Effective incubator executives also monitor these activities,
garnering enough feedback from the entrepreneurs and the mentors to
determine what is and isn't working. Effective managers don't make a
referral and walk away, confident that they've done their job.
6. A top-of-class incubation program knows its mission, and
management, board and staff clearly understand and work to support
that mission. Regular evaluation of all aspects of the program ensures
that the incubator meets its goals, evolves with the market, and
incorporates new tools and technologies to better serve its clients.
http://www.nbia.org/feature/OS_06.php 6/7/2006
May 2006 Feature -LABIA
7. The best business incubation programs are well integrated into their
community networks, resources, and economic development plans
and strategies. Gone are the days of stand-alone programs lacking
support from economic developers, academics and the business
community. More and more, we see incubation programs at the nexus
of significant angel equity investing networks, publicly sponsored seed
funds, technology infrastructure development and commercialization
programs, entrepreneurial campuses, or youth entrepreneurship
programs.
8. Top incubators adhere to NBIA's Principles and Best Practices of
Business. Incubation. These best practices include ensuring that
management time is focused primarily on serving companies, rather
than managing buildings, raising money or holding politicians' hands.
In fact, LABIA research has shown that incubators that adhere to best-
practice standards have better outcomes and are more self-sufficient
and sustainable. Public investors in these incubators get more return
for their investment.
9. Top incubator managers engage in continual learning. After all, this
feld is not like accounting, which has been around for mare than 1,000
years. The business incubation industry is only about 25 years old,
and not a day passes when someone doesn't develop a new tool or
technique or uncover a key piece of information that can help us grow
companies. Top incubator managers engage in professional
development activities, ongoing learning and networking to improve
their skills.
10. Effective incubator managers are committed, idealistic and hard-
headedly realistic at the same time. They take a hard and honest look
at their communities, roll up their sleeves and get to work. They
recognize that our successes are limited primarily by the size of our
dreams.
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