93038 Copyright © 2014 International Bank for Reconstruction and Rights and Permissions Development / The World Bank This work is available under the Creative Commons 1818 H Street NW Attribution 3.0 Unported license (CC BY 3.0) http:// Washington DC 20433 creativecommons.org/licenses/by/3.0. Under the Phone: 202-473-1000 Creative Commons Attribution license, you are free to Internet: www.infoDev.org copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Some rights reserved. Attribution – Please cite the work as follows: Impact This work is a product of the staff of The World Bank Assessment of Business Incubation Models in Eastern with external contributions. Note that The World Bank Europe & Central Asia. 2014. infoDev, Finance and Private does not necessarily own each component of the content Sector Development Department. included in the work. The World Bank therefore does not Washington, DC: World Bank. 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The boundaries, colors, denominations, and other the Office of the Publisher, The World Bank, 1818 information shown on any map in this work do not imply H Street NW, Washington, DC 20433, USA; fax: 202-522- any judgment on the part of The World Bank concerning 2625; e-mail: pubrights@worldbank.org. the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. 2 About infoDev and CSBKE Contributing authors infoDev, a global trust fund program in the World With extensive primary research for this study carried Bank Group, supports growth-oriented entrepreneurs out by UKBI, principal infoDev authors and reviewers to through creative and path-breaking venture enablers this study are Heidi Humala, Ellen Olafsen and Stefan such as incubators and accelerators. It also assists Schandera, with inputs provided by Michael Ehst and entrepreneurs with securing appropriate early-stage Sophia Muradyan. During an interim external peer review financing and convenes entrepreneurs, investors, in August 2012, inputs were provided by Steffen Preissler policymakers, mentors, and other key innovation (Fraunhofer MOEZ), Peter Lindholm (consultant), Julian ecosystem stakeholders for dialogue and action. Webb (infoDev consultant) and Krzysztof Zasiadly (independent expert). Among other initiatives, infoDev implemented the Creating Sustainable Businesses in the Knowledge Economy (CSBKE) program with the objective to increase the growth of small, innovative and technology businesses, primarily in the ICT and agribusiness sectors. The CSBKE program was designed as a public-private partnership between infoDev, Finland, and Nokia Corporation and covers the period from March 2010 to June 2014. º 3 4 TABLE OF CONTENTS 1. BUSINESS INCUBATION: AN OVERVIEW 8 2. EXECUTIVE SUMMARY 12 2.1 OUTCOMES 13 2.2 SUCCESS FACTORS 14 2.3 RECOMMENDATIONS 15 3. OBJECTIVES AND METHODOLOGY 16 4. INTRODUCTION TO INCUBATION MODELS AND TRENDS IN THE REGION 17 5. SOCIO-ECONOMIC IMPACT OF BUSINESS INCUBATION IN EASTERN EUROPE AND CENTRAL ASIA 20 5.1 REGIONAL OR NATIONAL ECONOMIC IMPACT OF BUSINESS INCUBATION 21 5.2 ECOSYSTEM-LEVEL IMPACT OF BUSINESS INCUBATION 25 5.3 FIRM-LEVEL IMPACT OF BUSINESS INCUBATION 28 6. INSIGHTS ON BUSINESS INCUBATION MODELS IN EASTERN EUROPE & CENTRAL ASIA 32 6.1 MISSION AND STRATEGY 32 6.2 INCUBATION SERVICES 36 6.3 FINANCIAL MANAGEMENT 40 6.4 SELECTION AND GRADUATION (EXIT) POLICIES 43 6.5 MONITORING AND EVALUATION 45 6.6 EXECUTIVE TEAM AND GOVERNING BODY 48 7. CONCLUSIONS & RECOMMENDATIONS 50 7.1 IMPROVING MONITORING & EVALUATION 51 7.2 INCREASING EARLY-STAGE FINANCING OPPORTUNITIES 52 7.3 INCREASING INTERNATIONAL MARKET ACCESS FOR INCUBATEES 53 7.4 ENABLING PEER-LEARNING AMONGST INCUBATORS 554 LIST OF TABLES AND FIGURES Figure 1. Business Incubation Ecosystem 8 Figure 2. The Four Components of Business Incubation 9 Table 1. Intermediary Vehicles for Innovative Enterprise Development 10 Table 2. Business Incubator Types and Trends in ECA 18 Figure 3. Profile of Incubatees 21 Figure 4. Salary Levels of Incubatees 22 Table 3. Revenues of Incubatees and Graduates 30 Table 4. Export Revenues of Incubatees and Graduates 22 Figure 5. Incubatees’ Customers and Markets 38 Figure 6. Sources of Revenue 40 Figure 7.Monitoring and Tracking: Indicators used for Performance and Results Assessments 46 APPENDIX 0. APPROACH AND METHODOLOGY 58 1. SUMMARY OF INDICATORS USED AND EXPECTED RESULTS 60 2. SUMMARY OF SELF-COMPLETED QUESTIONNAIRES WITH NINE BUSINESS INCUBATION MANAGERS 63 3. SUMMARY OF SELF-COMPLETED QUESTIONNAIRES FOR INCUBATEES 69 4. SUMMARY OF FINANCIAL RETURNS ON INVESTMENT 73 5. MEASURING PERFORMANCE OF BUSINESS INCUBATORS AND IMPACT OF BUSINESS INCUBATION: OVERVIEW OF THE LITERATURE REVIEW AND METHODOLOGY 75 6. INDIVIDUAL REPORT: ENTERPRISE INCUBATOR FOUNDATION (EIF) AMERICA 83 7. INDIVIDUAL REPORT: TECHNOLOGY PARK MOGILEV (TPM) BELARUS 89 8. INDIVIDUAL REPORT: SODBI KAZAKHSTAN 95 9. INDIVIDUAL REPORT: BASTAU STBI STUDENT TECHNOLOGICAL BUSINESS INCUBATOR (BASTAU STBI) KAZAKHSTAN 101 6 10. INDIVIDUAL REPORT: KALISZ INNOVATION CENTER POLAND 107 11. INDIVIDUAL REPORT: TIMISOARA SOFTWARE BUSINESS INCUBATOR - UBIT ROMANIA 113 12. INDIVIDUAL REPORT: ZELENOGRAD NANOTECHNOLOGY CENTRE (ZNTC) RUSSIAN FEDERATION 119 13. INDIVIDUAL REPORT: BUSINESS TECHNOLOGY INCUBATOR OF TECHNICAL FACULTIES - BELGRADE LLC (BITF) SERBIA 125 14. CORE INCUBATION PROCESS SURVEY 133 LIST OF ABBREVIATIONS BI Business incubator BoD Board of Directors BSP Business service providers CBC Cross Border cooperation DTI Democratic Transition Initiative ECA Eastern Europe and Central Asia EEN European Enterprise Network FTE Full-time equivalent HEI Higher education institutions ICT Information and communication technology IPA Instrument for pre-accession assistance NBIA National business incubation association NGO Non-governmental organization NLI National Level Institutions OSCE Organization for Security and Co-operation in Europe R&D Research & Development ROI Return on Investment SME Small and Medium-sized Enterprises VC Venture capital WB World Bank 7 1. BUSINESS INCUBATION: AN OVERVIEW infoDev1 recognizes business incubation as a process aimed at supporting the development and scaling of growth-oriented, early-stage enterprises. The process provides entrepreneurs with an enabling environment at the startup stage of enterprise development. This environment should help reduce the cost of launching profitability. Business incubation is one of many tools the enterprise, increase the confidence and capacity aimed at fostering innovative enterprise creation and of the entrepreneur, and link the entrepreneur to growth. Other complementary intermediaries exist, resources required to start and scale a competitive such as business development service providers and enterprise. Entrepreneurs accepted into the business technology parks. Table 1 illustrates how business incubator stay until an agreed upon milestone is incubation is positioned in relation to these two reached, often measured in terms of sales revenue or complementary vehicles. A business incubator can play an important role in economies. Figure 3 helps to visualize the broader developing and supporting startup companies, and context within which an incubator operates. has the potential to stimulate local and regional A) The (wider) business incubation enviroment B) The business incubation (process) C) Business incubator (a business incubation environment) 1 · Section adapted from infoDev Business Incubation Management Training Program, Module 1: Business Incubation 8 Definitions and Principles. See www.infodev.org/training for training program details. Incubation is a continuous relationship between the by the incubator evolves along with the development incubator and the early-stage entrepreneur, with needs of the business. Business incubation has four graduation as the target and occurring when the basic components as shown in Figure 2. early-stage company has reached sufficient maturity. Through the incubation process, the support provided SERVICES VALUE TO THE ENTREPRENEUR INFRASTRUCTURE Economies of scale decrease e.g. office space, meeting rooms, the cost of starting a business + electricity, phone, internet, lab benefits from a professional look facilities, etc. and brand. BUSINESS SERVICES e.g. help with registration, licenses, Help with non-core business accounting, strategy advice, market activities saves time and money. research, exporting facilitation, etc. FINANCING Leveraging the credibility of e.g. brokering and/or providing the incubator and the portfolio financial services such as equity, of entrepreneurs to overcome credit, and guarantees. financing gaps. PEOPLE CONNECTIVITY Learning, exchange of ideas, e.g. mentoring, coaching, psychological support, and interaction with fellow partnerships, business entrepreneurs (a micro cluster), relationships. market linkages. 9 BUSINESS BUSINESS DEVELOPMENT INCUBATORS TECHNOLOGY PARKS SERVICE PROVIDERS Any SME Early-stage enterprises Emerging and established TARGET with high growth potential technology business ENTERPRISES KEY FEATURES • Ad hoc, demand-driven • Emphasis on location • Emphasis on co- assistance. and the “cluster” effect location and the • Focused on a particular between enterprises. “cluster” effect between issue for which the • Ongoing supply and enterprises. entrepreneur asks for demand driven assistance • Demand driven assistance. until an agreed upon assistance. • Usually broad business performance milestone • Emphasis on provision support, including has been reached of state-of-the-art real training and advisory • Integrated mix of estate, office space, and services. intensive strategic and research facilities and operational support networking opportunities. focused on the enterprise in its entirety REVENUE Government / donor Government / donor subsidies, fee-for-service, rent, SOURCES subsidies, fee-for-service royalties, equity • The business incubator (process) is a public and/or private, entrepreneurial, economic, and social development process designed to nurture businesses from idea generation to startup companies and, through a comprehensive business support program, help them establish and accelerate their growth and success • The wider business incubation environment is a broader context which should be conducive to the sustainable development of enterprises and nurturing their growth. Other business incubation activities and definitions for the purposes of this study: • Non-incubation activities All activities that are not directly related to the incubation process described above. • Upstream and Downstream activities Activities addressing the wider incubation ecosystem as well as outreach and networking activities as part of pre- and post- incubation. • Pre-incubation Services related to a specific incubatee before the incubation process. • Post-incubation Services related to a specific incubatee after graduation. • Informal incubation activities Incubation services as part of the incubation process that the incubator does not formally determine as a service and charge for (such as networking and access to market services for clients). 10 11 2. EXECUTIVE SUMMARY Business incubation can be a valuable tool for stimulating the startup and growth of new enterprises. Successful incubators accelerate the growth of their clients’ businesses as compared to innovation and entrepreneurship stakeholders that new or small businesses operating independently. expand the entrepreneur’s access to the knowledge, They do this by providing advice and guidance, networks, capital, and markets he or she needs to start and by leveraging linkages to a wide range of and grow the business. Indeed, most incubators in ECA to date are government stage businesses with high growth potential. Seven were driven initiatives. They are often initiated by ministries of established within the last ten years, and two (Kalisz ICT, education, youth, R&D, science, or economy. Privately Innovation Center in Poland and Technology Park Mogilev driven models are however gaining momentum. in Belarus) were established in the second half of the 1990s. Despite the significant investment in business incubation in An important common characteristic amongst all of the the region, little research has been done at the national or business incubators studied is that they offer business regional level with regard to the long-term return on (public) incubation services only as one component or service investment in business incubation. This assessment aims offering amongst others. This is not as common in other to provide further insights on the outcomes of business parts of the world. Another notable observation is that the incubation for the enterprises directly served by the business incubators generally had a poor understanding incubators, as well as for the broader socio-economic of the performance of their current and past clients, which environment the business incubators operate in. made data collection challenging. Many of the firms were quite reluctant to share financial data despite promises This study assesses nine business incubators in eight of confidentiality. This relates to the level of trust in of the countries across the ECA region2, namely Armenia, Belarus, respective societies, but it also relates to a key weakness Kazakhstan, Poland, Romania, the Russian Federation, identified across the business incubators assessed. Serbia, and Turkey. These countries were selected to While monitoring and evaluation (M&E) systems existed obtain representation from the various subregions of ECA. in all of the incubators studied, these often consisted of The specific business incubators were selected based on intermittent and irregular performance reviews, where interviews with stakeholders indicating that these were the purpose was limited to monitoring the progress well-performing business incubators. The intent was thus of incubatees against project deliverables as set up in to analyze what outcomes can be expected from a well- business plans or contracts. As a result, most of the M&E performing business incubator in ECA. That being said, the systems reviewed by the study fail to capture the long-term number of incubators studied here is small compared to impact of incubators on the local and subregional business the estimated overall number of incubators in ECA and not communities. The study also found that they were lacking all findings can necessarily be extrapolated to the region the instruments to track the performance of companies as a whole. once they had graduated from the incubator. An additional challenge is that the M&E systems examined the overall While business incubators in ECA-and worldwide-are performance of the organization (including non-incubation set up with varying objectives, all incubators selected for activities), but failed to segregate incubation services from this study are focused on innovative startups and early- the overall activity portfolio of the organization. 2 · The World Bank Group works with 23 countries in Europe and Central Asia (ECA) to help improve people’s lives and achieve shared prosperity in a variety of ways, including through financial lending, analytical and advisory 12 services. For a complete list of target countries and activities, please visit www.worldbank.org/eca. 2.1 Outcomes The study concludes that the incubators studied have • Tax contributions generally been effective in fostering entrepreneurship One way of calculating the “return on public and innovation in their local contexts. investment” is to assess whether the public funds provided to the incubator led to an equal or higher Effects of incubators on their local regions & industries amount of tax revenue for the government. This figure is indeed positive for most of the incubators, indicating • Creation of enterprises that incubators help to create a net financial benefit in At the time of this study, the nine incubators were the region where they are located. providing incubation services directly to 146 firms and had incubated a total of 421 firms. The study also found • Bridging the financing gap that incubators appear to stimulate sector and cluster development. The effect was stronger for incubators Four of the incubators in the study directly assist their that specialize in a specific industry, such as ICT. incubatees with finance, either by taking equity in the incubatees or by providing them with low-interest • Creation of innovative products loans. If successful, these endeavors can provide new Measured by the number of patents, trademarks, models for reducing the financing gap for early-stage copyrights, innovative products, and initiatives entrepreneurs in the region. undertaken to collaborate with research organizations to commercialize research results generated, 75 • Ecosystem convenorship percent of the incubators studied generated more Through their boards, networking, and a combination than one innovative product and more than one R&D of upstream and downstream activities3, incubators collaboration in the past year. Some 50 percent of play an important role in developing the innovation and graduates indicate that they have developed more entrepreneurship ecosystem by fostering dialogue and than two innovative products during the last year. This cooperation among providers of business and financial can be compared favorably to the rate of early-stage support, policy makers, and entrepreneurs. entrepreneurs in Europe that have introduced a new product to the market, which according to the 2013 Effects of incubators on incubated businesses Global Entrepreneurship Monitor stand at 45 percent. • High rates of business survival • Creation of high-quality jobs More than 65 percent of the incubator managers in Upon entering the incubator, only 20 percent of the the study estimated that more than 80 percent of the companies had more than five full-time employees. companies they supported were still in business a year Post-graduation, 65 percent of the incubated after graduation. Half of the managers said that more companies had 10 or more employees and 89 percent than 80 percent of incubatees were still in business of the firms said that most of the new jobs they created five years after graduation. This is a very high survival require highly skilled employees. rate compared to a “non-incubator” average. 3 · Upstream activities target business ideas (i.e., pre-startup) and occur prior to client entry into the incubator environment, through means such as business plan competitions. Downstream activities generally involve established companies, including incubatees after their period of incubation (e.g., mentoring network, alumni associations). 13 2.2 Success Factors A few trends could be observed in terms of key success factors for the incubators studied. Self-sustainability Organizational structure The majority (seven) of the incubators in the study were The quality and attitude of the incubators’ staff is key established with the goal of becoming self-sustainable. to the incubatees’ assessment of their incubation They reach financial self-sustainability, defined as experience. More than the incubator’s team, the the incubator generates enough revenue to cover manager is perceived as the incubator’s main asset, its operational expenses, within two to four years of along with the contacts and access to networks and operation. This compares favorably to what is observed markets he/she is able to provide. Furthermore, the elsewhere. incubator’s Board of Directors is expected to play an important role by providing credibility, leadership, A minority of incubators in the study receive ongoing strategic direction, networks of contacts, and support public subsidies to cover operational costs. Three of for the managing team. the nine incubators have developed business models based on success sharing (equity and/or royalty In most cases, the incubator benefited from the sharing) models. Revenue from office and workspace presence of a champion as the incubator manager as leases form the largest share of direct revenue for well as on the board: a well-known, respected individual business incubators. That being said, most of these who was committed to the success of the incubator and incubators have established business models based on who undertook external promotion of it. In a minority of a revenue mix, including direct revenue from incubation cases, incubators reported that the board did not fully and cross-financing through non-incubation services. understand the process of incubation (as opposed to According to incubator managers participating in the managed workspace) and the true value of incubation study, the non-incubation activities also enable them as a regional economic development tool. to develop and maintain strong, effective networks on local, national, and international levels that can be leveraged for the incubation service. Incubators studied here also tend to provide a number of important, informal services to incubatees, which are often provided free of charge. These include organized networking, access to finance for incubatees, as well as support with access to local and international markets. 14 2.3 Recommendations The results of the study and the impact that these selected business incubators have on socio-economic development and enterprise growth generally speak to the opportunity to scale and replicate successful could result in a more comprehensive picture of the business incubation activities in the ECA region. Even real return on investment of incubators. with the limitations of the current M&E systems, there are clear indications that ECA incubators can be • Increasing international market access: cost-effective and create high-quality jobs, innovative As evidenced by infoDev’s recent internationalization products, as well as provide other industry benefits. pilots, business incubators can play a key part in facilitating access to international markets for their Three additional future opportunities include: incubatees. In ECA, a shared legacy of transition economies on one hand, and cultural commonalities • Enabling peer-learning amongst incubators: such as language and intraregional trade agreements Incubators should be seen as role models, embodying (such as the Customs Union of Belarus, Russia, and the values of early-stage enterprise support and best Kazakhstan) on the other hand, are factors that drive practice in their business models. Leading examples of opportunities for internationalization of SMEs in the both functions should be identified throughout the ECA region, and often at the startup stage. However, the region and each industry. A number of the incubators opportunity to facilitate internationalization is not fully that took part in this study could be role models and exploited by incubators in the region. their experience should be effectively communicated across the region. • Increasing early-stage financing opportunities: Access to early-stage finance is a critical constraint for • Improving monitoring and evaluation: growth-oriented enterprises in the region. Several of There is tremendous potential to develop a sound the business incubators are piloting innovative schemes methodology for assessing and regularly monitoring at a small scale. With proper M&E, an attempt could be the performance and impact of incubators in ECA, on made to scale up these models to extend the benefits both an individual and regional basis. Improving and to a larger population of early-stage growth-oriented extending the research methodology of this report entrepreneurs. 15 3. OBJECTIVES AND METHODOLOGY As part of infoDev’s work to scale business incubators and to strengthen innovation and entrepreneurship ecosystems in ECA, this study provides an analysis of the impact of business incubators on entrepreneurship and innovation development. The objectives of the study are to: Georgia, Moldova, and Kazakhstan. The objective of these scoping missions was to understand the potential • Raise awareness among incubation practitioners, for growth-oriented startups and SMEs in the region policymakers, stakeholders, and donors on the and the particular needs and innovation ecosystem importance of enabling entrepreneurship in the region of incubators as they related to startups. Findings from these scoping missions were translated into • Establish a segmentation of incubators (e.g. business key research questions and objectives of this report. model, years of operations, sources of funding) to evaluate the effect of incubation on firms through key This study analyzes the results of business incubation questions (e.g. creation of jobs, increase in income and on entrepreneurship and innovation development in the productivity) ECA region. More specifically, the study reports on: • Provide a good practice methodology for evaluating • The socioeconomic impact of the incubators on the impact of business incubators on a regular basis innovation and entrepreneurship activities (Section 2) The findings of this study are based on a mix of quantitative • The sustainability trajectory of the incubators and and qualitative primary data collected from incubator an evaluation of their financial return on investment managers, stakeholders, incubatees, and graduated (Section 3) companies. The assessment involved self-completed questionnaires (SCQs), on-site face-to-face interviews, • Key elements of the business incubation process to and group discussions with recipients. Recipients consider for generating results (Section 4). included incubator managers, incubatees, graduates, board members, and stakeholders. Data collection tools Findings from the study also provide insight into the were structured around a set of indicators identified effect of incubation on the local area, namely: in collaboration with infoDev. Data gathering and interviews were carried out from late 2010 to mid-2013. • Creation of sustainable jobs In 2010, infoDev conducted scoping missions • Commercialization of innovative business to Armenia, Belarus, Georgia, Kazakhstan, and models, products, processes, or services Ukraine and held discussions with incubator • Local, regional, and national economic managers and other stakeholders in Belarus, development • Sector competitiveness 16 4. INTRODUCTION TO INCUBATION MODELS AND TRENDS IN THE REGION The first business incubators in ECA were established in the early to mid-1990s, including the countries of Belarus, Poland, the Russian Federation, and has been increasing and in 2010 they represented Uzbekistan. A second generation of incubators, about 10 percent of incubators in ECA. Mission and established in the mid- to late 1990s and substantially key stakeholders are major determinants of business supported by the international donor community, incubator types in ECA. Major business incubator included incubators in Kazakhstan, Ukraine, Armenia, “groupings” include sector-focused incubators (e.g., and Kyrgyz Republic. The majority of incubators in for ICT, the EIF incubator in Yerevan/Armenia, Hi-Tech these two generations were mixed profile, without a Park Minsk/Belarus), incubators focusing on youth particular sector focus. Long-term experiences with employment and academic entrepreneurship (e.g., this type of incubators in the ECA region indicate a YES Incubator in Skopje/Macedonia, Ust-Kamenogorsk relation between long-term public support and the Technology Park and Incubator in Kazakhstan), and sustainability of incubators. Since the mid-1990s, a a group of mainly mixed profile incubators with the significant number of incubators of this type have mandate to strengthen regional development outside ceased operations, often due to discontinued public the major cities (e.g., Soroca Incubator in Moldova, or donor support. A third generation of sector-focused Tambov Innovation Incubator in the Russian Federation). incubators emerged by the beginning of the new century, including the EIF incubator in Armenia for Scoping visits by infoDev in 2010 reflected that an example. effective link between state support for incubation and incubator impact and performance measurement A fourth generation of incubators has been emerging was not in place, to effectively manage and monitor since around 2005, including startup communities and incubator operations. Policymakers expressed strong grassroots initiatives linked to investment communities interest in strengthening business incubation program (e.g., virtual incubator within BAVIN Belarus Business management skills. An earlier infoDev survey among Angels and Venture Investors Network). This trend members of the Eastern Europe and Central Asia towards new business incubation models is gaining Network of Incubators (ECAbit) indicated that an momentum in the region. Models include business unstable incubator support policy from governments accelerators, co-working spaces, local innovation is seen by a majority of incubators as a major risk communities linked to global initiatives (e.g., globally in the region4. Further ecosystem-related needs operating Startup Weekend), venture acceleration include effective instruments and regulation for R&D networks, and grassroots initiatives linked to private commercialization and early-stage finance. investment communities (e.g., BAVIN virtual incubator in Belarus, Happy Farm Incubator in Ukraine ). In addition A trend towards new business incubation models to these private sector initiatives, governments in the is gaining momentum in the region. These models region have started to partner with the new incubators. include business accelerators, co-working spaces, An example is the Russian Venture Acceleration Fund. local innovation communities linked to global initiatives (e.g., Startup Weekend), venture acceleration According to informal market research carried out by networks, as well as grassroots initiatives linked to infoDev in parallel to this study, there were about 400 to private investment communities. This trend is often 600 incubators operating in the ECA region in October a model of private sector-driven incubation, whereby 2012. infoDev estimated that 20 to 30 percent of these governments (the traditional driving force, financier, incubators were sector-focused. A key focus area is and often administrator of business incubators in ICT, both as a sector and as an enabler of growth in the region) have started to partner with the private other sectors. sector to implement demand-driven incubators or new activities within existing incubators. Table 3 provides an Most incubators in ECA to date are government-driven overview of such business incubator types and trends initiatives. The number of university-based incubators in the region. 4 · Stefan Schandera, infoDev 2009: “Incubating the Incubators: Lessons learned from Eastern Europe and Central Asia”, presentation at World Bank Knowledge Economy Forum VIII 2009, INSEAD Fontainebleau/France, April 29-May 01, 2009 17 TYPE MISSION STAKEHOLDERS TREND TECHNOLOGY Technology Academies of Science, Small niche, emerging, limited INCUBATOR commercialization; Ministries of Science results and impact; In Russia, close to technology and Technology emerging based on R&D funding parks and supported by large state R&D programs Countries: Belarus, Moldova, Ukraine, Kazakhstan, Russia5 UNIVERSITY- Youth entrepreneurship Ministries of Education Good sustainability based on BASED university resources and long- INCUBATOR6 term stakeholder commitment; emerging, limited results and impact, but a few good examples Countries: Russia, Ukraine, Kazakhstan, and various initiatives (e.g. Moldova) REGIONAL MIXED Regional development; Often Ministries A large number of programs with INCUBATOR entrepreneurship of Economy, mixed results and consistent development goals municipalities, and challenges (e.g., Kazakhstan); regional governments; new approach in Russia; plans in also regional NGOs Ukraine, Moldova; regional youth incubator plans in Azerbaijan SECTOR- Sector development (in Sector ministries Sector-oriented incubators and FOCUSED the region mainly ICT) technology parks emerging; INCUBATOR small number of very successful organizations in the ICT field (Yerevan, Timisoara, Minsk, Moscow); a small number of agribusiness incubators (Uzbekistan, Belarus) with overall high potential in agribusiness PRIVATE Return on private Mainly private investors Emerging niche. Small number INCUBATORS, investment in Russia and Belarus, mainly ACCELERATORS virtual, as well as Ukraine and Bulgaria Access to early-stage financing is a critical constraint stage innovation. On the other hand, private sector for growth-oriented enterprises in the region; early- financing still focuses on traditional industry sectors stage innovation financing remains a key weakness of such as real estate, retail, and commodities. Market innovation ecosystems of the Eastern European and exposure for public innovation promotion mechanisms Central Asian region7. Public funding for innovation including business incubators and technology parks mainly addresses later development stages of the is considered as a key success criteria of these enterprises, leaving a gap from seed financing to early instruments, and remains a major challenge for public programs throughout the region. 5 · Estimates 2011 6 · In most FSU countries there is a distinction between university-based and research-linked, due to the history of R&D and education system that separate education (universities) and R&D (institutes) in these countries. Although addressed, the system still applies in most FSU countries.) 7 · Finding from parallel infoDev Access to Finance pilot activities in Kazakhstan and Belarus in 2012, focusing on the 18 development of angel investor/ private capital networks. Furthermore, there is a need to build trust and startups and early-stage businesses with high-growth efficient linkages between private and public sector potential. Seven of these have been established within entities involved in early-stage financing, where the the last ten years, and two (Kalisz Innovation Center in supply of private capital is still at a nascent stage Poland and Technology Park Mogilev in Belarus) were and its potential complementarity to public sector established in the second half of the 1990s. financing is not yet well understood. The role of business incubators in attracting financing for clients They all share a common mission: the and supporting international market exposure and commercialization of business ideas in specific product or service validation in new markets could be industries and the promotion of entrepreneurship, instrumental. innovation, and business and job creation at the sub- regional and regional levels. The business incubators assessed for the purposes of this study are located in Armenia, Belarus, Kazakhstan, Poland, Romania, the Russian Federation, Serbia, and Turkey8. All incubators are focused on innovative 8 · With the exception of Turkey, where the incubator opted to keep its name and data private, all business incubators studied are further discussed as individual case studies in the Appendices. 19 5. SOCIO-ECONOMIC IMPACT OF BUSINESS INCUBATION IN EASTERN EUROPE AND CENTRAL ASIA In practical and policy terms, business incubation can be a valuable tool for stimulating enterprise development and supporting businesses with growth potential. Business incubators provide a safe harbor, As such, these M&E systems fail to capture the true intensive resources and a development environment impact of incubators in the longer term and ultimately where, if effectively managed, enterprises can flourish. their broader impact on socio-economic development. Successful incubators can accelerate the growth and increase the survival rates of their client businesses Furthermore, it is notable that the greatest added as compared to new or small businesses operating value of business incubation comes to fruition only independently. after graduation, as a direct consequence of the inputs received during the incubation process. One As demonstrated in the literature review undertaken of the recommendations included is to maintain a as part of this assignment (Appendix 5), a number of relationship with graduated companies in order to studies have been carried out to investigate the wider track their progress and longer term socio-economic role and added value that business incubators in ECA impact. can play by accelerating the growth and increasing the survival rates of their client businesses. However, One objective of this study, which is structured very few national and regional studies in ECA have around nine quantitative indicators9 identified in looked at incubation’s long-term return on investment. collaboration with infoDev (Appendix 1), is to contribute Monitoring and Evaluation (M&E) systems exist in most to overcoming this M&E gap and to analyze information incubators studied, but often consist of intermittent about incubators’ longer term results and their socio- and irregular performance reviews whose purpose is economic effect in their local and national context. The generally limited to monitoring their progress against following section will reflect on these nine indicators fixed targets and project deliverables as set up in their as part of the business model and operations of the business plans or contracts. nine incubators studied. 5.1 Regional or National Economic Impact of Business Incubation Business incubators have a broader influence on improving the environment for startups and early- stage businesses in the subregion or region – their role is not limited to supporting the growth of incubatees alone. Most of the incubators studied here have a wider service and revenue portfolio beyond their core 9 · The nine quantitative indicators are: (1) Deal-flow of clients, (2) business incubation activities. A further discussion of Jobs created, (3) Survival rates, (4) Innovation and R&D activity, (5) Salary levels, (6) Finance raised, (7) Turnover, (8) General revenues these wider goals follows. and export revenues, and (9) Financial management of the Business Incubator and Return on Investment. Further details about these 20 indicators are outlines in Appendix 1. Quality of jobs created Job creation is a key socio-economic impact of However, when these companies exited the incubator, business incubators. 57 percent of incubatees provided 50 percent of them employed more than 10 people and more than 5 jobs each while their business grew as at the time of the survey, the percentage had increased part of the incubation process, compared to 24 percent to 73. on entry. Being selective about clients and having a graduation The study identified a total of 709 full term employment policy (overall referred to as deal-flow management) (FTE) jobs among the 146 incubatees in the participating allows incubators to focus on incubatees that generate incubators.10 A total of 266 jobs had been created by quality and high-skilled jobs. This is an important the surveyed incubators in the past 12 months. The aspect that can help to reduce so-called brain drain size difference of the incubators needs to be taken into in the countries studied and in the region as a whole. consideration when interpreting these figures. The assumption is that an incubator with larger premises As illustrated below, the staff of a typical incubatee is (i.e., more clients) will generate more jobs than a highly skilled and located in an urban area, and is thus smaller incubator over the same time period. generally better able to seize the opportunities offered by innovation. On average, 89 percent of incubatees The positive impact of business incubation on job and 71 percent of graduated companies state that the creation becomes evident when looking at companies majority of their staff members can be described as that have graduated from incubators. For example, only highly skilled. 9 percent of graduated companies said they employed more than 10 people when they entered the incubator. Location: rural Location: urban Gender: women Gender:men Skills: high-skilled Skills: medium-skilled Skills: low-skilled 0% 20% 40% 60% 80% 100% 120% Source: Self-Complete Questionnaire—Incubatees 10 · Only seven out of nine business incubators replied to the question. 21 Salary levels of course only make sense to report on Furthermore, during the research undertaken here, in terms of Purchasing Power Parity and in relation salary estimates by incubation managers differed from to salary levels from other equivalent jobs in the figures given by incubatees themselves: quantitative given economic context. Interpreting figures based data collected from managers indicate an average on staff salaries at innovative startups and early- salary of $600–900 a month, while figures obtained stage businesses can therefore be misleading, as the from incubatees provides a different and more varied socioeconomic context and enabling environment vary perspective, as shown below: highly in the different countries surveyed. Per month salary levels USD1.500 USD1.200-1.500 USD900-1.200 USD600-900 USD300-600 USD300 Percentage of incubatees 0% 5% 10% 15% 20% 25% 30% 35% 40% Source: Self-Complete Questionnaire—Incubatees Two-thirds of graduates (61 percent) indicate that their average monthly salary is greater than $600, compared to 39 percent among incubatees. According to incubator managers, incubatee and graduates’ staff and management salaries are competitive with salaries of the same sector in the marketplace. Compared with salaries in general11, the nature of high-quality jobs in mainly technology- related sectors leads to an overall higher income level for incubatee staff. 11 · Institute for the Study of Labor (2008), Wage Differentials across Sectors in Europe: An East-West Comparison, 22 http://ftp.iza.org/dp3830.pdf Development of innovative products and services Among incubator graduates, only 5 percent state that The majority of incubators studied mentioned their they have applied for or owned more than one patent role as catalysts for innovation activity. As such, they during the previous year, and the same percentage say made appropriate support available and created an that they have applied for trademarks or copyrights. environment where incubatees could best manage and Some 50 percent of graduates indicate that they have exploit their innovations. developed more than one innovative product during the last year, compared to 28 percent of incubatees. Interestingly, although all of the incubators have links with higher education institutions (HEIs), only The number of patents registered by clients of ICT four provide access to R&D or product development incubators is low. ICT incubator managers stated that support: ZNTC (Russian Federation), BASTAU R&D was more often seen in new product development, (Kazakhstan), Technology Park Mogilev (Belarus), and such as software development, than with outsourcing BTI Belgrade (Serbia). These four have an established services for international clients. At UBIT Timisoara, deal-flow of IP commercialization opportunities with for example, only one out of eleven incubatees the universities and R&D institutions with which they produced their software products in 2008: the majority have ties. of incubatees focused solely on software outsourcing. By 2011, the number of incubatees producing and Innovation activity was measured by the number of marketing their own software products had increased patents, trademarks, copyrights, innovative products, to three. According to UBIT management, new and R&D collaboration generated. 75 percent of the software product development is at the very core of the incubators had generated more than one innovative incubator’s mission. product and more than one R&D collaboration in the past year. A quarter of the incubators serve clients Incubatees may also need a particular infrastructure who had applied or owned more than one patent in to manage and exploit their innovations in specific the past year. One had helped clients apply for more industries. Incubatees of ZNTC in Moscow (Russian than one copyright application during the previous Federation) noted that the nanotechnology lab at the business year. As might be expected, this type of incubator is a key infrastructural benefit received activity is highest among sector-focused academic from ZNTC. Among the five incubators with a strong and scientific incubators, and lowest among mixed- academic and scientific background, ZNTC is the only use local economic development incubators. organization offering in-house laboratory services. 12 · Innovations versus Outsourcing: The region is a major destination for IT, mainly software development outsourcing. Among ICT business incubators in the region, outsourcing is a major activity for incubatees. According to the incubators interviewed, outsourcing is still the major revenue source for clients but the share of new product development is steadily increasing. In this context, the share of new IT products exported by incubatees is also increasing. 23 Technology Park Mogilev, Belarus The incubator facilitates expert advice to its clients (both incubatees and graduates), supports recruitment through its network with HEIs, and provides advice on the commercialization of innovative products offered by the partner universities. Among its key partners, the local Institute of Technology of Metals is home to knowledge-based innovative ideas, and helps its undergraduate and graduate students become more innovative by conducting a great deal of fundamental and applied research in the field of technology of materials. Bastau Ust-Kamenogorsk, Kazakhstan The incubator is run by the East-Kazakhstan Technological University (EKTU) as part of its innovation activities, which also include an annual innovation competition, cooperation with the National Innovation Fund, and a technology park program (since 2003), which is a network of student design bureaus, university laboratories, University Science and Technology Council, Science Fund Parasat, and the Ministry of Science. The main idea behind the creation of the incubator was to teach students how to create jobs and to promote innovations. It would be fair to say that the incubator achieves this goal. However, there still is a challenge in commercializing the innovative products developed by the incubatees. With limited government support in this sector, such a challenge could only be addressed by developing international networks and information exchange, developing cooperation with funding agencies and venture funds — this is going to be the incubator’s and university’s goal for the future. — BASTAU stakeholder Technology Park Mogilev, Belarus The Zelenograd Innovation and Technology Center (ZITC) was founded in 1998 to assist scientific and industrial activity in the field of microelectronics, electronics, and IT. This is an innovation initiative of the Moscow Institute of Electronic Technology (MIET), a university in the Russian electronics sector. One of its key stakeholders is the Union of Innovation Technology Centers of Russia (UNITC), which provides opportunities for incubatees to promote their ideas and products through industry-specific events, technology audit services for pre-BI clients, and support in accessing the foreign markets and investments (for post-BI). 24 Financial returns from incubator activities The relatively short time span of two to four years in A key determinant of financial management and return order to break even indicates that investments in on investment into business incubators would be in incubators in the region can have a quick impact on measuring the impact and additionality of non-facility the development of innovation and entrepreneurship services. Overall, it is strongly recommended that there activities. Based on results from incubatees and is a need for incubators in ECA to better measure and stakeholders, the study demonstrates that incubators communicate the value of non-facility services that are are not just facilities, but that the intangible innovation often provided on an informal basis, free of charge. network created and provided by incubators is of equal if not higher value. 5.2 Ecosystem-Level Impact of Business Incubation Gateway function The majority of the incubators’ end users (incubatees and graduate companies) participating in the study perceive incubators as gateways for enterprises – a place where all actors in the entrepreneurship and innovation ecosystem can meet and exchange views and information. Incubatees and graduates often cited the feeling of being part of a community. They also mentioned the incubator’s role as a trigger for entrepreneurial activities and ICT cluster development, particularly those where support for SMEs was inefficient or inexistent. 25 AKE- LE RS FO R SE CTOR DE VE LO PMENT: PERCEPTIONS OF ST INCUBATORS AS ENAB , AN D/ OR MAIN DELIVERY PARTNE RS) MB ER S, FO UN DE RS HOLDERS (BOARD ME UBIT Software Incubator Timisoara, Romania Over its seven-year existence, UBIT has not limited its activities to supporting startups and early-stage businesses within its premises. UBIT’s Director has developed and operated a number of activities, with the objective of fostering an entrepreneurial spirit within the area as well as generating client deal-flow (lack of demand for business incubation is an issue in Timisoara). UBIT has also been instrumental in the development and operation of the ICT cluster in Timisoara. Data collected during this study demonstrates that over the years UBIT has worked with more than 300 individuals outside incubation, in a context where the structure to support startups and early-stage businesses and government support are limited and entrepreneurial spirit is just emerging. “The incubator plays an important role as a gateway for the enterprise, but resources (human and financial) are limited. In a country where support for SMEs and startups is very limited, more initiatives like this are needed. This incubator is an example of a sustainable program funded by regional bodies (not the government). …The business model itself (as a tool for regional economic development) is very well perceived and evidence exists of its impact: the incubator is at the center of -and drives the ICT cluster in the area. The business incubator therefore needs to be integrated further to clustering activities because this is where the money currently is.”- UBIT Board Member “It is very difficult for a business to get visibility in the marketplace, as there is no real structure in place for supporting startups and SMEs. The incubator manages just that. Networking and exposure are key assets of the program.”—Incubatee “The main reason for moving in was the low-cost rental system, but I now realize that the work by the business incubation director to expose my business to the ICT and business community of the area has been key in the development of my business.”—Graduate Enterprise Incubation Foundation Yerevan, Armenia EIF has been not only a business incubator but also a business development agency for the past nine years. In fact, incubatees represent only about four percent of the total client base, while the majority of other businesses served receive support other than incubation. Since the start of operations, EIF has been instrumental in the development and operation of the national ICT cluster, and now enjoys an established reputation. Additionally, EIF serves as a gateway to Armenia for transnational companies including Microsoft, Cisco, Intel, HP, Sun Microsystems, and National Instruments, which receive specific incubation services and have become cornerstones of the Armenian IT market. EIF facilitates networking activities with the Armenian diaspora worldwide. For instance, it has helped create sales offices in Canada and Austria to help its clients promote ICT services in other countries. The incubator also organizes matchmaking events targeted at addressing the specific needs of its clients. Given that EIF hosts companies working in the same industry sector, the incubatees cooperate with each other closely in outsourcing various services that are add-ons to their main product, and help reduce project completion time. This has a positive effect on the companies’ image and revenues. In fact, the incubatees’ community has been called a “mini- Silicon Valley” by end users consulted as part of the study. 26 Incubators in this study are often involved in “upstream” stronger presence within the locality and region, as and “downstream” activities, which contribute to the well as a natural pipeline for new clients (i.e., deal- creation and development of business communities flow). Depending on the nature of an incubator and and broader innovation ecosystems. These activities its specialization, those taking part in upstream and generally take place pre- and post-incubation and are downstream activities may include individuals from categorized as follows: the local community, students, graduated companies, higher education institutions, industry clusters, local • Upstream activities target business ideas (i.e., and regional authorities, and others. pre-startup) and occur prior to client entry into the incubator environment, through means such as business plan competitions and thematic community gatherings. • Downstream activities generally involve incubator graduates and established companies (including those operating independently outside the incubator) and occur after their period of incubation, • Business plan competitions through means such as mentoring networks and alumni associations. • Innovation camps and summer schools for young entrepreneurs Such activities support the incubator’s mission to commercialize business ideas and research in specific • Investment pitches industries and the promotion and development of entrepreneurship, innovation, and job creation at • Clustering (e.g., ICT) and sector-promotion local and national levels. Upstream and downstream activities activities contribute to fostering entrepreneurship and innovation within the community and as part of an • Facilitation of outsourcing activities between innovation ecosystem. incubatees and graduated companies Support of upstream and downstream activities • Involvement of graduated companies on the helps promote the incubator, serves as a pipeline for incubator’s selection panel deal-flow, allows the incubator to keep in touch with companies post-graduation, and helps strengthen the local business community. Through these activities, the ECA incubators studied here meet their objectives of fostering the entrepreneurial spirit within their business communities and of stimulating demand for business incubation. These activities outside of the business incubation process itself contribute to the perception of ECA incubators as gateways for enterprises, stimulating entrepreneurship and innovation and, in some cases, playing a key role in the development of local industry clusters. They directly foster the flow of startups to the incubation environment and create the business networks the incubatees need for growth. At the same time, non-incubation activities allow incubators in ECA to cross-finance their incubation work. Indeed, the incubator studies report that on average, incubation activities contribute only 18 percent of their total revenue. Non-incubation activities give incubators a clearer and 27 5.3 Firm-Level Impact of Business Incubation Survival rates All incubators studied provided figures on the survival Firm survival rates five years after graduation are rates of their client; however, one incubator has not yet more relevant in terms of quantifying longer term graduated a firm so this data covers eight incubators socio-economic impact. Using the same logic model altogether. Compared to survival rates of companies above, a firm five years after graduation would typically operating independently outside an incubator13, the be about eight years old. Where about 30 percent of figures reported by these incubators are encouraging. independently operating firms fail within their first Again, with a small sample size and a lack of control ten years, four incubators estimate that more than 80 group this data cannot necessarily be extrapolated to percent of their firms have survived five years after the ECA region as a whole, but it provides anecdotal graduation, and two incubators estimate that between evidence regarding firm survival through incubation. 49-80 percent of firms have survived five years after graduation. These are strong figures and speak to both Firm survival rates 12 months after graduation show the impact that business incubation has on growing that in six incubator cases, survival rates of incubated companies that can sustain itself in the market and to companies are at more than 80 percent. In two cases, the importance of maintaining contact with graduates the survival rate is below 32 percent. This would to better track this impact. typically mean that the firm has been incubated for a period of two to three years and is on average three years old. It is generally understood that about 50 percent of new firms fail within the first five years, so this data point around 80 is encouraging. Bridging the financing gap Financing is perceived as a challenge for incubatees in • Micro-loans environments where the business and financial support • Collaboration and match-making with Business structure for startups and early-stage businesses is Angels (UBIT) not well developed.14 More than half of the incubators • Access to state and donor funds in the study directly assist their incubatees in securing finance through support such as: This kind of support is relatively uncommon in more developed countries, where financial support is • Equity or royalties in incubatees generally signposted or delivered via external providers. • Seed capital initiatives 13 · Other studies also come to the general conclusion that survival rates within incubators are higher, for example: Meredith Erlewine, “Comparing Stats on Firm Survival” in Measuring Your Business Incubator’s Economic Impact: A Toolkit. Athens, Ohio: National Business Incubation Association, 2007. The Centre for Strategy and Evaluation Services (2002) Benchmarking of Business Incubators (Final report). Brussels, European Commission Enterprise Directorate General-survey reveals that “the survival rate of firms reared in an incubator environment was significantly higher than the business success rate amongst the wider SME community, estimated at 30-50% (over a 5 year period)… there was a notable clustering of incubators reporting a survival rate amongst tenant firms of 80-90%, [however] survival rates are one indicator of the performance of incubators, of more importance is the extent to which incubators can contribute to the accelerated development of innovative, high-growth firms and their capacity to create new jobs.” 14 · Incubators taking part in the study that are located in more mature environments—such as Kalisz Innovation Centre 28 (Poland)—may therefore be used as models. Case 1: Zelenograd Nanotechnology Centre, Russian Federation Other than generic financial advice and access to Investment Readiness Program, finance providers (Angel Investment and/or venture capital), and Seed Capital Fund initiatives, ZNTC has developed a policy regarding equity stakes and has the target of holding 25 percent share of the equity (from RUSNANO funds) in the incubatees with the following. This is done through an agreement of holding a 25 percent share in the business for the first 3 years, with the incubatee receiving preferential lease rates over a 3-year business incubation period. In total, incubatees at ZNTC have secured a total of $500,000 in financing, with ZNTC directly supporting half of this amount. Case 2: Kalisz Innovation Center, Poland Operated by a foundation, the incubator has been a loan provider for SMEs and new businesses (including incubatees) through its entrepreneurship development fund. In particular, it has helped the unemployed gain access to financing and advising while guiding and counseling them on the implications of loan funding. It offers rates below those of commercial banks, with interest rates of 5.26–8.26 percent for SMEs (depending on the economic situation of the company, profitability, and the type of guarantee) and 6–8 percent for the unemployed. Since the start of operations in the mid-1990s, the foundation has supported over 306 SMEs and over 263 individuals who would otherwise be unable to access traditional bank financing. This loan provision, alongside its work in enterprise support, highlights the core added value of the foundation and the incubator to the local business community. Case 3: EIF, Armenia Project-based financing is provided directly by EIF or partner funds in the form of equity investment of up to 30 percent, grants (using donor funds, industry specific, and depending on the donor framework) or micro- loans. EIF provides assistance in access to funds, pre-seed financing, and matchmaking, specifically by providing professional advice and support in preparing project proposals for equity financing and VC funding. Case 4: SODBI, Shymkent, Kazakhstan There are three ways the incubator secures finances for its clients: consulting on business planning, partner search, and negotiations with the financial institutions and SME support funds; providing micro-loans to clients through the micro-credit organization SODBI-Finance at an annual rate of up to 36 percent and taking up to a 49 percent equity share in the SME. Case 5: EIF, Armenia According to Radu Ticiu, head of UBIT, the initial investment for software development startups in Timisoara is secured through contracts. Radu Ticiu estimates that UBIT has supported virtually every UBIT incubatee with at least one contract, reaching a total value of more than $100,000 worth of such contracts. 29 Revenue Incubatee revenue provides another indicator of their current annual turnover is below $10,000, while incubatee growth rates. The study finds significant 45 percent say it is in the range of $10,000 to $100,000. revenue growth among participants. Without a 26 percent of incubatees state that their annual control group, this figure is not comparable to the turnover is higher than $100,000. Among graduates, revenue growth of companies operating independently 64 percent had turnover higher than $200,000 and 34 outside an incubator. However, the figures give an percent had turnover over $500,000. understanding of firm performance within the study sample and portray whether the incubator itself is A number of incubatees emerged as high-performers operating well – ultimately, an incubator’s success (high-performers are defined as incubatees with should be judged by the success of its companies. revenue higher than $101,000 and graduates with revenue higher than $250,000). About 12 percent were More than half of the incubator clients (including already at this level then they entered incubation. The those that have graduated) had annual turnover below rate increased to 25 percent during incubation and to $10,000 when they entered an incubator (Table 3). 64 percent after graduation. The percentage is highest Further in the incubation process, turnover increased: among ICT incubatees and graduates. only 29 percent of incubatees state that INCUBATEES GRADUATES Total number Total percent Total number Total percent USD of respondents of respondents USD of respondents of respondents Annual turnover at entry <5K 17 (of 33 respondents) 52 <5K 8 (of 17 respondents) 47 5-10K 1 (of 33) 3 5-10K 3 (of 17) 18 11-30K 6 (of 33) 18 11-30K 1 (of 17) 6 31-70K 3 (of 33) 9 31-70K 4 (of 17) 23 71-100K 2 (of 33) 6 71-100K 1 (of 17) 6 >100K 4 (of 33) 12 >100K 0 (of 17) 0 Current annual turnover <10K 9 (of 31 respondents) 29 <55K 2 (of 17 respondents) 12 10-50K 6 (of 31) 19,5 56-100K 1 (of 17) 6 51-100K 8 (of 31) 26 101-200K 3 (of 17) 18 101-150K 1 (of 31) 3 201-400K 2 (of 17) 12 151-200K 1 (of 31) 3 401-500K 3 (of 17) 18 >200K 6 (of 31) 19,5 >500K 6 (of 17) 34 30 Access to international markets About 65 percent of incubatees indicated that their As shown in Table 4 below, about 80 percent had business activity is domestic, while 57 percent say export revenues below $3,000 in the last 12 months. In that they are active in regional markets and 41 percent three cases (all ICT companies) export revenues were indicate international activity. It is noteworthy that most significantly higher (greater than $40,000). respondents from CIS-based incubators in the sample indicate interest only in other CIS countries, whereas Among graduates, six out of 21 respondents to this target markets for incubatees from the other ECA question had substantial export revenues (greater than regions have greater geographic diversity. EIF Yerevan $85,000), and four of these six had “significantly high” and BITF Belgrade have successfully established ties (greater than $ 500,000) export revenues. to the diaspora of their countries, mainly in the US and in Western Europe. General and Export Revenues Total (number of respondents) Total ( percent of respondents) Incubatees’ average export revenues in the last 12 months (31 responses) <3K 24 77 3-10K 2 6 11-20K 1 3 21-30K 0 0 31-40K 1 3 >40K 3 10 Graduates’ average export revenues in the last 12 months (21 responses) <15K 9 56 16-25K 0 0 26-35K 1 6 36-85K 0 0 >85K 6 38 In more than half of the cases where incubatees In these countries where company growth can often be have entered international markets, they have been constrained by their domestic market size, business supported by their host incubator. However, none of incubators could be in a unique position to support the the respondents had worked with incubators from internationalization of their incubatees. other countries to support their market entry there15. 15 · infoDev has piloted a co-incubation program during 2011-2013 to better understand the extent to which incubators in other countries can serve as “soft landing” platforms for incubatees from partner incubators. Please see infoDev’s “Enabling International Market Linkages: Lessons & Insights” (2014) for further information. 31 6. INSIGHTS ON BUSINESS INCUBATION MODELS IN EASTERN EUROPE & CENTRAL ASIA Research on incubators shows that their success is strongly tied to the outcomes of their incubatees and graduates, and that the investment of funds, time, and • Delivery of the business incubation package expertise by the executive team, as well as external (i.e. structure and design of its operation and support, are expected to yield a return over time. All management) incubators responded favorably to the importance of • Incubator staff and governing body the following elements for their work: • Contextual factors. • Integration of the incubator into the local or The study found that incubator managers and regional economic development framework stakeholders stressed the need to effectively link • Client selection and exit policies government support for incubators with incubator impact and performance measurement. However, the indicators and methodology used by incubators in the region often fail to capture and record their true financial benefit. 6.1 Mission and Strategy All incubators in the sample were set up with financial and / or in-kind support from the public sector (city, Missions and strategic objectives county, or regional councils, or another government entity) in an effort to improve the local and regional socio-economic environment through encouraging The missions and strategic objectives detailed in entrepreneurship and innovation. In addition, hthe incubators’ business plans and other strategic incubators located at universities or those that have documents generally relate to local and regional strong links with academia aim to commercialize SME development, job creation, the retention and research and ideas. Thus, government and university exploitation of specific sector know-how, or to benefit representatives often sit on incubator boards and play from the presence of global players in a local area. a role in developing their mission and objectives. Examples of missions and objectives—as highlighted by the incubators and stakeholders in the study—are Another common factor in incubator missions is the listed in the text box below. These examples show how desire to develop a fledgling industry. Three of the nine incubators have been integrated with local or regional incubators in this study were created with the goal of policy landscapes. fostering development in a specific industrial sector. 32 EXAMPLES OF MISSION AND OBJECTIVES FOR INCUBATORS EIF The incubator serves as a bridge between the IT sector, the government, and the international community. It catalyzes the creation of small ICT-enterprises, in close cooperation with giants of the IT industry. UBIT The incubator was conceived with the objective of retaining and exploiting local know-how in the software industry, and to take advantage of global players from the IT and software industry in the area. Technology Park Mogilev The incubator is incorporated into the science park. It supports startups and new entrepreneurs in developing their innovative R&D projects into marketable products. SODBI The mission of the incubator is to promote SME development in the region, and to support the development of production, processing, and service companies at the startup and development stages. The previous approach of the incubator was to deliver business advisory and training services and to coach the incubatees. However, the crisis period has proved that in addition to these services, financial support (access to finance, equity share, partner search or other) is also required. Kalisz Innovation Centre The current and longer term vision for the incubator is to become a technology incubator where “science, industry, and entrepreneurship meet,” and to be a link between science, education, and the local economy. This vision is included within the innovative development strategy for the area, with plans to incubate new industrial technologies (e.g., energy efficiency, low carbon technologies), develop socioeconomic science, create a new seed capital fund, and extend cooperation with European and international partners, particularly through engagement in European programs and funds. In line with best practice, objectives are generally and the initial strategic objectives. The reasons for revised on a regular basis by the executive team in tension can be contextual (e.g., low demand for consultation with the board and other stakeholders. business incubation services), and/ or it can relate Sometimes tensions arise between the need for the to a lack of understanding of the business incubation incubator to become or remain financially sustainable process by key partners and funders. 33 Technology Park Mogilev “We enjoy advice from the incubator manager and the experience shared by some of the incubatees/graduates working in the same industry sector. There is a community that includes the incubator residents and graduates, where people get to know each other through public and visibility events organized by the incubator. This allows for direct contacts and outsourcing from the peer companies.” (Incubatee) We kept in touch with the incubator because we enjoy the outsourcing opportunities from the current incubatees: it’s easy to find professionals in the IT sector in one building. (Graduate) UBIT “The main reason for moving in was the low-cost rental system, but I now realize that the work undertaken by the BI Director to expose my business to the ICT and business community of the area has been key in the development of my business.” (Graduate) 34 35 6.2 Incubation Services Business development services (non-facility services) Business development services are provided by either Study respondents most commonly provide the the executive team or external providers. Services are following business development services: provided in various ways and on different terms: in a number of cases, incubator managers have set up • General business advice and coaching their own network of external providers with whom they • Training, seminars, and/or workshops have established commercial agreements (possibly on • Access to technical and/or business expertise a pro-bono basis). Three of the nine incubators studied • General accounting and/or financial management have policies related to equity stakes and/or royalty advice and service agreements. Equity services are provided indirectly • Opportunities for networking, including international via key partners (ZNTC, EIF, Technology Park Mogilev) linkages or directly by the incubator itself (SODBI, EIF). SODBI, • Marketing and sales EIF, and Kalisz Innovation Centre also provide short- • Access to finance, including grants, seed capital, and term micro-loans and other business loans aimed at fundraising support resident startup incubatees and ad hoc businesses. The share of incubation services provided on an as a revenue-generating mechanism for the incubator, informal basis, such as market access support, is high. as well as a means to better understand how resources Although incubatees perceive these types of services (time) are being spent during the incubation process. as key benefits of incubation, almost no records have been kept for these services. As one incubator Incubators provide various forms of financial support for manager said and others confirmed, the reasons these incubatees. In addition to equity or royalty agreements services are not recorded is that they are delivered with incubatees, half of the incubators studied provide free of charge and therefore not formally tracked. As access to investment readiness programs. Most also discussed under recommendations, incubators should provide access to finance providers, angel investors, or better track such services offered and consider these venture capital funds, as well as access to seed capital 36 funds. Seven of nine incubators have secured a total of Significant differences between the types of incubators $1.285M in financing for their incubatees. (Table 2) and their main service portfolios generally could not be observed. Exceptions are access to About 40 percent of incubatees taking part in the laboratories and research equipment, and access study include foreign countries as part of their to R&D and technology transfer support, which is customer market and almost all were interested in higher among academic and scientific incubators. For internationalization activities: they are predominantly ICT incubators, appropriate information technology interested in former Soviet Union countries, but and safety technology are crucial elements of the also in the European Union, U.S.A., and Canada. infrastructure provided to clients (see also Facilities Incubatees were interested in general expansion, and Shared Admin Services later in this chapter). corporate partnerships and access to growth funding, Not surprisingly, interviews conducted with incubator among other business development opportunities. managers indicated that sector-focused incubators (in To a lesser extent, incubatees also look at joint the sample, mainly ICT-focused incubators) offer the venture opportunities, mentoring, and technology advantage of specific sector knowledge and national transfer. However, none of the respondents said that and international contacts. incubators from other countries had supported their internationalization activities. Half of those who were A trend that is gaining momentum in ECA is a move to internationally active stated that their host incubator new business incubation models, including business provided internationalization support. accelerators, local innovation communities linked to global initiatives (e.g., Startup Weekend), venture EIF Yerevan (Armenia) and BITF Belgrade (Serbia) acceleration networks and grassroots initiatives linked have successfully established ties to vheir countries’ to private investment communities (e.g., BAVIN virtual diaspora, mainly in the US and in Western Europe. In incubator Belarus). These new models are not non- fact, EIF has become a strategic hub for Armenia’s profit organizations in most cases, but are initiated and ICT internationalization strategy. According to EIF managed by private sector players. Incubation services management, the share of incubatees developing are often approached as pre- or post-financing and internationalizing their own products, rather activities aiming to increase investment readiness than providing outsourcing services such as software and to shorten the startup and incubation phases programming to foreign companies, has steadily of a company. Services are often provided through increased. mentoring networks. The box below discusses BAVIN in more detail. Timisoara Software Business incubator (UBIT) In the Timisoara area, about 12,000 people are employed in the software industry, working for around 500 ICT companies. Branches of multinational players, including companies such as Siemens, Alcatel­ Lucent, Continental, Berg Computers, and Haufe-Lexware, are major employers, mainly in the software outsourcing industry. A major objective of the incubator is to provide jobs and growth opportunities for young entrepreneurs with the ambition to start their own businesses in the software industry. In 2008, 10 of 11 incubatees of UBIT provided outsourcing services only, but now three incubatees are bringing their own products to (mainly international) markets. According to Radu Ticiu, manager of UBIT, this share has been slowly but steadily rising. More details on these three companies can be found here: http://123contactform.com, http://www.reflectionmedia.ro, and http://www. nextroot.com. “Investment needs during the startup stage are not as high as in other sectors,” says Mr. Ticiu. “What is needed primarily is a contract, allowing the company to start working and to hire staff.” The incubator does not track these contracts as part of the M&E system. According to Mr. Ticiu, virtually each incubatee was supported by UBIT in order to get at least one contract for starting up. The overall value of the contracts that were facilitated by UBIT exceeds $100,000. “Even though we could track this information, nobody in our region is really interested in this data at the moment. For key policy makers, the main objective is to attract foreign investors to the region, and we are considered to be a small niche only.” 37 FIGURE 5: INCUBATEES’ CUSTOMERS AND MARKETS High-income Medium-income Low-income Rural market Urban market International market Regional market Source: Domestic market Self-Complete Questionnaire—Incubatees 0% 20% 40% 60% 80% 100% CASE: ANGEL INVESTMENTS AND MENTORING BAVIN Business angels and venture investors network / Minsk / Belarus BAVINCUBE is a virtual incubator and business accelerator operated by a business angel association in Minsk. BAVINCUBE’s goal is to foster access to finance for innovative startups by providing a virtual hub for business incubators and other entrepreneurship support organizations as well as business angels and private sector investors in Belarus—in other words, a “virtual incubation network and match-making platform.” The founder of BAVINCUBE is the Business Angels and Venture Investors Network (BAVIN), a for-profit angel association and business accelerator, which brings together the venture capital and business expertise of angel investors with entrepreneurs, their new business ideas, and startup companies. Unique in Belarus, BAVIN was founded in November 2010 by a number of pioneer Belarus Business Angels. By joining BAVINCUBE, entrepreneurs will have opportunities to meet online and face-to-face with successful Belarusian entrepreneurs and business angels, pitch and win investments, participate in master classes online, and to receive mentoring, thus accelerating startup and new business development in Belarus. In August 2012, 203 companies with business plans applied to the a BAVIN network. BAVIN incubatees include 34 selected companies in pre-incubation, five in incubation, and four graduates. Several projects have received business-angel support through mentoring but without financing. A total of 930 projects applied to enter BAVIN in August 2012. Art hostel “Traveler” Minsk is one case of a successful a BAVIN incubatee. The 36-bed hostel is the first of its kind in Belarus. Started by Kseniya Kurus, a Belarusian student who secured a BAVIN angel investment of $50,000, the hostel reached its break-even point after one month of operation. According to Mr. Kurus, the BAVIN angel has not only contributed with investment but also provided frequent business advice. “Oftentimes he uses his personal business network contacts to help with our business development,” says Mr. Kurus. Following the success of the Traveler hostel, plans to expand the network are under way. 38 Facilities and shared administrative services With the exception of BASTAU Ust-Kamenogorsk Facilities at reduced rental rates and shared (Kazakhstan), all incubators provide office space. The administrative support often are the initial reasons for size of the office and workspace provided ranges from incubatees to move in. In some cases, rental fees are 600 to 5,400 square meters. BASTAU, a university- only half the market price. Incubatees also say that based incubator focusing on pre-incubation services, being in an incubator brings credibility and visibility to offers flexible hot-desking units (shared workspace). their enterprises (see box below). All of the incubators in the sample offer meeting and conference facilities. Five of the nine incubators also Sector-focused incubators in this study underlined offer production space. One incubator environment the need for reliable, state-of-the-art technology (ZNTC) provides access to in-house laboratories infrastructure (connectivity and safety in the case of and research equipment. The other academic and ICT incubators; laboratories and equipment in the scientific incubators in the study provide access to labs case of ZNTC). and research equipment through partners and host universities. G BUSINESS INCUBATION, ANGEL INVESTMENTS, AND MENTORIN Example 1: “Initially, the main reason for us to apply for business incubation services was the low-cost rental space. Almost half as expensive as the market rate, the incubation fee is based on a stepped rent.” (incubatee) Example 2: “The incubator consists of a decent facility (including equipped office) with a competitive price…The location of a business can tell the client a lot about its character—I wish to be treated as a serious partner for businesses, so the incubator, with its facility and reputation, are contributing to my company’s image.” (incubatee) Example 3: “I was attracted by the cheap rent (the rent is 30–40% cheaper than any commercial facility) as well as the contacts and exchange opportunities with counterparts at the incubator.” (incubatee) Incubator managers said they offered a number of facilities and administrative services, including: • Meeting rooms and conference facilities • Communal areas for networking • Parking • Security system • Broadband connections • Telephone, network, and hardware • Reception area • Office equipment 39 6.3 Financial Management Annual operating costs for incubators in the study covered by rent, which demonstrates the importance vary, depending on an incubator’s type, size, scope, of an incubator facility for the financial sustainability of and objectives, among other factors. Due to the the organization. Other sources of operating revenue financial monitoring and evaluation practices of the include: organizations in this sample, financial data could only be collected on a total organization-level, rather than • Consulting and outside work: 9.9 percent activity-level (where, on average, incubation activities • Other service fees: 7.7 percent contribute only 18 percent of total revenue). As • Investment (royalties/ equity): 4.4 percent described in Appendix 16, incubation-related revenues are not the primary income source for incubators, and Three incubators in the study have developed success- incubation activities have in fact been cross-subsidized sharing business models, taking in equity or royalties through other activities (such as project work). from incubatees. Five of the nine incubators in the study rely on grants, The share of incubation services provided on an either directly in the form of subsidies for operations, informal basis, such as market access support, is high. or indirectly through subsidized projects managed by Although incubatees perceive these types of services the incubator. On average, grant funding makes up as key benefits of incubation, almost no records have more than 40 percent of the incubator’s operating been kept of these services and no direct revenue is costs. More than 30 percent of operating costs are generated by these intangible services. FIGURE 6: SOURCES OF REVENUE 9.9% Rent Service fee 34% Investment (royalties/equity) 36.37% Consultancy and external work Grants 7.7% 4.4% 9.9% Loans Source: Self-Complete Questionnaire—Business Incubation Managers 40 ZNTC ZNTC was founded as a limited company in 2010 at the initiative of National Research University of Electronic Technology (MIET), Zelenograd Innovation Technology Centre (ZITC), and the Russian Corporation of Nanotechnologies (RUSNANO), a government-owned, non-commercial organization created to support nanotechnology development through subsidies and training. In addition to generic financial advice and access to the Investment Readiness Program, finance providers (angel investment and/or venture capital), and seed capital fund initiatives, ZNTC has also developed a policy that aims to hold a 25 percent share of the equity from RUSNANO funds in incubatees. The incubator has secured $250,000 for incubatees so far, while the incubatees themselves have raised $500,000. SODBI SODBI Incubator is a subdivision of the SODBI private fund, an NGO targeted at SME development in the region. The incubator secures finances for its clients in three ways: • Consulting on business planning, partner search and negotiations with the financial institutions, and SME support funds • Providing micro-loans to clients through SODBI-Finance, a micro-credit organization, at an annual rate of up to 36 percent • Taking up to 49 percent of the equity from the client. SODBI’s management is seeking to attract additional investments to the fund as they are required to make it self-sustainable. Enterprise Incubator Foundation (EIF) EIF is focusing on networking and cooperation with donor funds that provide project-based financing aimed at addressing specific industry-related issues. EIF serves as a platform for implementation of donor initiatives in this sector in Armenia. Most of the incubation services are subsidized by donor-funded activities and public- private partnerships. Project-based financing is provided by EIF or by partner funds in form of equity investment (up to 30 percent), grants (using industry-specific donor funds), or micro-loans. Only two of the nine incubators do not have financial The seven incubators aiming to become self- sustainability as a strategic objective. Both are sustaining reached the break-even point17 within two to university-based initiatives whose incubation activities four years of operations. This is well below the length are covered by their host universities. An earlier of time established as good practice, which indicates infoDev survey among members of the Eastern Europe a minimum of seven years for an incubator to break and Central Asia Network of Incubators (ECAbit) even. Again, it is worthwhile to note that the sample indicated that an unstable incubator support policy does not claim to be representative of all incubators in from governments is seen by a majority of incubators the region. The text box below summarizes the findings as the major risk for incubators in the region16. on financial management for six of the incubators in the study, and incorporates their views on achieving viability without public-sector support. 16 · Stefan Schandera, infoDev 2009: “Incubating the Incubators: Lessons learned from Eastern Europe and Central Asia”, presentation at World Bank Knowledge Economy Forum VIII 2009, INSEAD Fontainebleau/France, April 29-May 01, 2009 17 · For the purposes of this study, break-even is considered as the time in which an incubator through its operations or otherwise has been able to recuperate the cost of investment of establishing the incubator. Incubators studied here and those located in the ECA region generally are primarily established through public funding; therefore, the return on investment is considered in broader socio- economic impact terms as a “return” for the government investment. 41 FINANCIAL POSITION REGARDING BREAK-EVEN AND FINANCIA L SUSTAINABILITY EIF The incubator was developed in 2002 and has rented the current building since 2005. Staff salaries are covered by project-based financing from local and international donor funds. It reached break-even by 2006. Technology Park Mogilev The incubator is self-sustainable as it owns the building, its strong team of managers and experts, a large partnership network, and a strong image in the local and regional market. The park was established in 1993 and reached break-even in 2000. SODBI Established in 2000, the incubator reached break-even in 2003. Other nurturing services (such as consulting and training, translation services, centralized accounting, and IT services) have spun out and became self-sustaining. Most incubatees consist of academic or corporate spin outs. UBIT The incubator is a small-scale operation and its running costs are covered by public subsidies, income from rent, and extra activities. Because it relies on public funding, financial sustainability is not one of its objectives. ZNTC The incubator currently provides space free of charge, as is required by one of the key stakeholders. Most of the advisory services are also free. However, management is planning to introduce fee-based services to strengthen the incubator’s sustainability and reduce the risk of failure. Fees would be set based on the incubatee’s development stage and business needs. BITF Belgrade The incubator provides office space, but only to a small number of tenants (the available space is 600 square meters). The main source of revenue (80 percent) is participation in projects (donor or government-funded) that do not directly relate to incubatee activities. A new facility of 2,000 square meters is under construction. BITF partly cross-subsidizes incubatee support with project-related (not incubatee-related) revenues. 42 Technology Park Mogilev SODBI Current support from the public sector is The incubator has been established and runs administrative only, including co-organization of without public funding. It is self-sustainable, public events. Support is not linked to any of the provided that the rent covers the majority of key sustainability factors. current expenses. In addition, SODBI has created a self-sustaining consulting and training unit. UBIT ZNTC Based on the current model, the incubator is not viable without public funding. At present, the incubator is fully dependent on public sector financing. At its early stage of BITF development, the incubator is focused on skill building (technology and consultancy), and To date, BITF has been unable to provide incubation facility enhancement. Given that it is required services without cross-subsidizing them by to provide space for free, ZNTC plans to focus participating in donor- or government-funded on commercializing its intellectual support to projects. incubatees and ad hoc clients by strengthening its market position and knowledge base. 6.4 Selection and Graduation (Exit) Policies Selection and graduation (exit) policies are among the processes that distinguish incubators from general business development services. International good practice indicates that incubators are selective about choosing clients in a particular stage of development and industry sector, so that they can make a positive difference to the small-firm economy in the area and region by starting and maintaining the deal flow of startups moving into the incubator and then graduating. “It should be common sense for incubator clients that once having achieved a certain development milestone you decide to leave the incubator walls to let other businesses at their startup stage enjoy the favorable conditions at the incubator—this is my corporate social responsibility—this is how I can contribute to small business development, in a way... It is not really fair to set up rigid frames for the incubatee to leave the warm nest, but it makes sense limiting the time and space allowed for the company. The business has to be growing and increasing the number of jobs created and space occupied—these are the sustainability indicators that must lead the company to a decision to find a larger facility outside of the incubator… or possess its own facility.”— (incubatee taking part in the study) 43 Selection policy Applicant flow Importantly, the selection policy (criteria and procedure) A constant flow of applicants is crucial to maintaining must to be in line with the strategic objectives set up in a selective client policy. Incubators with a longer track the business plan or strategy document of an incubator. record, such as the Kalisz incubator, have the advantage Equally, a graduation (exit) policy needs to be applied, of excellent local brand awareness. ICT incubators both to encourage incubatees to plan for the future in the sample and non-specialized academic- and and to release resources for the next generation of scientific-based or linked incubators with a strong ICT incubatees. focus often use local business community events (as per the “upstream activitives” outlined in the previous With one exception, all incubators taking part in the section above) to reach their target audience. Highly study have selection policies that match their profiles specialized organizations such as ZNTC scout for and missions. These policies involve a number of new applicants at specific departments of research criteria for an applicant to meet, but most cite the institutes and universities. following: At the same time, the collaboration of these specialized • Ambition to grow the business organizations with other early-stage development • Ability to benefit from business incubation institutions, such as technology commercialization • Strong business plan offices, assures their integration into the overall • Technical expertise early-stage enterprise development value chain. As • Readiness and capacity to pay for incubation services. elsewhere in the incubation world, the network of partners and stakeholders is seen as a key asset of Although no standard procedure could be identified incubators. among the organizations in the sample, they all involve an interview (with members of the executive Graduation policy team and experts when appropriate), during which applicants discuss the business proposal18. In addition A stable churn between those companies moving in to meeting a set of criteria, applicants in most cases and those graduating should be established for true also must provide evidence of innovation management business incubation to be delivered, thus contributing and demonstrate that it contributes to the competitive to the general mission of incubators to generate advantage of the business idea. Two incubators also innovative and successful businesses for the local use a scoring matrix for evaluating business proposals and sub-regional economy. Incubatees whose host as part of the selection procedure. incubators apply a graduation policy are generally made aware of it at inception. Among the most-cited Discussions with incubator managers during the on- incentives for encouraging incubatees to move out are: site visits indicate that a degree of flexibility often operates in practice, especially for incubators that • Stepped rental plans have been recently established or that are located in • Limits on the incubation period areas where entrepreneurship awareness and demand • Revenue and profitability targets for business incubation services are low. • Business development targets Selectivity ratios (the percentage of business proposals In practice, graduation policy is handled in a flexible way selected for business incubation) among the study so that business incubation processes and strategic participants ranges from 100 percent in the newest objectives as set up by the governing body are balanced incubator (ZNTC has hosted five incubatees since being with the need for incubators to generate rental income. created in 2010) to 25 percent. On average, slightly Incubators that did not have a graduation policy gave more than 60 percent of applications are selected different reasons: for business incubation. Best practice indicates that selection becomes stricter as the incubator develops • Demand for business incubation is low due to current and demand increases, but this could only be verified economic climate with this sample on one occasion and within a relatively • Incubators in science parks do not need an exit policy mature socioeconomic environment. since incubatees can be relocated on-site • A graduation strategy is not part of the incubator’s policy. 18 · The interview panel differs from one incubator to another and may involve the executive team as well as members of the board 44 and/or industry experts. In at least one case, former incubatees who have stimulating cooperation initiatives (partnership, graduated are involved with the selection panel supply, and other business opportunities) between or with public events, training, and workshops. incubatees and graduate companies. Graduate companies may provide training or exchange experience with incubatees, as 6.5 Monitoring and Evaluation As highlighted by research on incubation and from • Help incubators understand the patterns of practical discussions and visits to incubators studied development at innovative and growth SMEs, as well here20, monitoring and tracking the performance of as how different early-stage growth patterns can clients is key to effective business incubation. influence later business development • Identify needs and opportunities to help incubatees An effective Monitoring & Evaluation framework can: and graduate businesses • Help incubators assess their effectiveness and • Identify opportunities for collaboration between efficiency, immediately and over a period of time, incubators, and between current and past tenants. against their respective key objectives As part of this study, four types of measures were • Measure the long term impact of an incubator and considered and discussed with business incubation thereby better inform policymakers and stakeholders managers and stakeholders. These are summarized in about the return on investment in incubation Figure 7.21 20 ·”UK Incubators: Identifying good practice”, UKBI. 2001. 21 · A number of indicators and ‘expected’ results were identified that are further analyzed in the remainder of this report. 45 FIGURE 7: MONITORING AND TRACKING: INDICATORS USED FOR PERFORMANCE AND RESULTS ASSESSMENTS QUALITATIVE METRICS 1. EFFICIENCY AND EFFECTIVENESS FOR ASSESSMENT OF OF THE BUSINESS INCUBATION BES PRACTICE BUSI- PROCESS NESS INCUBATION 2. PROFILE OF INCUBATEES AND TRENDS QUANTITATIVER METRICS FOR ASSESSMENT OF 3. PROFILE OF GRADUATE COMPANIES RESULTS (AND ALSO OF OTHER FIRMS ASSISTED) AND TRENDS 4. PERFORMANCE OF THE INCUBATOR ITSELF AS A GOING CONCERN Nearly all incubators in the region indicate that they keep some records related to most of the above quantitative indicators regarding the effectiveness and efficiency of the business incubation process. However, figures related to financial viability and the financial benefit gained from incubators were provided by only half of respondents. Most also have more detailed records related to their incubatees’ performance, i.e.: job creation, survival rates, There is formal semi-annual monitoring innovation and R&D activity, and salary levels. However, targeted at identifying gaps in enterprise the information is rarely collected formally. As monitoring development and supporting the occurs, it is logically linked to coaching provided to elimination of such gaps. Besides the incubatees. The data collected from monitoring is formal procedures, coaching is provided discussed in the coaching sessions. In addition, the data to incubatees upon request. Results from collected in most cases looks at the overall organization, the semi-annual monitoring activity are rather than specifically at the core incubation process . considered at TPM’s board meetings when analyzing and reviewing the incubator’s Information about graduate firms is much less commonly objectives and priorities. collected, and is normally confined to the minority of graduates with which each incubator remains involved. Financial figures of incubators were tracked in most cases but not always provided for this study, due to their confidentiality.22 22 · The issue was addressed in this research by asking respondents to provide indications of their turnover, revenue 46 etc. rather than exact figures. 47 47 6.6 Executive Team and Governing Body More than the incubator’s team, the manager him/ herself is perceived as the incubator’s key asset, along with the contacts and access to networks and markets he/she is able to provide. Executive team Furthermore, being located among peers encourages The operations of the incubators studied are generally collaboration and mutual assistance within an industry, outlined in business plans and strategic documents, which in turn contributes to the development of the and are in line with missions and objectives. The enterprise. Sector-focused incubators participating in quality and attitude of the executive team is key to the this study stressed the need for good ICT infrastructure incubatees’ assessment of incubator performance and (connectivity and safety) and the importance of access value. to laboratory and research equipment. The role of the incubation manager was cited as crucial Governing body by the majority of incubatees. Although incubatees are often initially attracted to below market-average rent The composition of a strong, committed, representative, or greater visibility in the marketplace, the business and credible governing body is perceived as a valuable community within the incubator is judged a key asset a and necessary resource for an incubator to operate posteriori. Incubator managers who are well connected successfully. to or have direct experience in the private sector, and who are regarded champions in their communities, will Based on discussions with managers and stakeholders, bring the most value to incubatees. Government-driven each incubator’s board is expected to provide credibility, incubator programs should be guided by this principle leadership, strategic direction, networks of contacts, when appointing or selecting incubator managers. and support for the executive team. However, in some cases, it was felt that the board did not fully understand Although it was not discussed in depth, there appears the holistic approach of business incubation (as opposed to be a relationship between the time the team spent to managed workspace) and the true value of business with incubatees and the incubatees’ appreciation incubation as a regional economic development tool. of the assistance they received. Managers differ in In one case, this gap was filled by the presence on the the proportion of working time they spent directly board of a business incubation “champion,” i.e., a well- with incubatees (the minimum was 10 percent; the known, respected individual who was committed to the maximum, 40 percent). On average, managers spent success of the incubator and undertook much of the 25 percent of their time working with incubatees. external promotion work. Again, this figure should be interpreted with caution, given that in many cases incubation plays a minor role Asked to identify the major risk for incubator in the overall activity portfolio of organizations studied. sustainability from a management perspective, the majority of incubator managers indicated that In most cases, the executive team provided support withdrawal, instability, or reduction of public support informally when it was requested by incubatees. was the highest risk. 48 Kalisz Innovation Center The incubator foundation is governed by a council (Board of Trustees) comprised of five members from the local industrial and educational sectors appointed by the Mayor of Kalisz. The foundation council has an oversight role in the development and management of the incubator deciding on the projects and programs that the incubator will pursue, with an annual plan presented and discussed in January each year and with a minimum of four meetings held per annum. The Board of Directors consists of two members, including the president, Piotr Sadowski, who has day-to-day operational responsibility for the foundation and the incubator. Alongside Board Member Kazimierz Mochalski, they have responsibility for the line management of 14 staff members who deliver the business loan fund, provide enterprise support services, e.g., Enterprise Europe Network, and provide administration for the incubator. The foundation staff includes technical personnel, loan officers, and innovation and technology specialists who deliver the day-to-day activities of the foundation. Mr. Sadowski has extensive experience in business incubation, having managed the Kalisz incubator since its inception in 1994 and been involved in its planning, financing, and development in his previous role working with the Kalisz local authority. The development of the incubator, as a result of loan funding through the World Bank TOR-10 program, included support through a training program directed at establishing a network of Polish incubators in which Mr. Sadowski was a participant. In addition, Mr. Sadowski has been a consultant for the Polish Agency for Enterprise Development and has been involved in numerous projects focused on SME development and enterprise. 49 7. CONCLUSIONS & RECOMMENDATIONS This study aims to capture the results of incubation on the growth of the incubated companies, and more widely on entrepreneurship and innovation in the local community. The following conclusions Supporting incubators to develop business models and recommendations apply to a broad range of that combine investment-based incubation with the stakeholders—governments, development agencies, diversification of revenues and the implementation investors, partners, governing bodies, and executive of non-incubation activities could be seen as key teams—as well as to infoDev. in enabling business incubator sustainability and maximizing incubation impact. For clients, the biggest impact of incubation is that it accelerates their startup phase by providing ready A good incubator manager is a networker with strong access to knowledge, networks, and infrastructure. ties to the business community, according to the study. There is no single model for successful business A strong, committed, representative, and credible incubation in ECA: synergy between an incubator’s governing body is another necessary resource for a internal processes, its management team, and the successful incubator. Incubatees rate the quality of local community produces an optimal outcome. incubator managers more highly in direct proportion to the amount of work time those managers spent Another effect of incubation in spurring client growth with incubatees. An incubator’s board should include (and the consequent creation of quality jobs), was business incubation champions, consisting of experts in also confirmed by the study’s participants. This was the industry or representatives of graduate companies achieved by creating a nurturing environment in who can promote and lobby on behalf of incubators. addition to providing business support, which gave clients visibility and credibility in the marketplace and The impact of incubators in ECA reaches beyond access to markets and networks, which accelerated the incubation process itself. Although they are growth. not part of the business incubation package, the downstream and upstream activities undertaken by The incubators had different business models the majority of incubators have a significant impact depending on their strategic objectives (initial and on entrepreneurship and innovation activities in their current), their sources of funding, and the context local ecosystem. Through these activities, the ECA in which they evolved. More than 30 percent of the incubators surveyed meet their objectives of fostering operating costs of incubators covered by this study are the entrepreneurial spirit within their business covered by rent, which demonstrates the importance communities and of stimulating demand for business of an incubator facility for the financial sustainability incubation. h of the organization. A number of initiatives were using success-sharing financial models based on Activities other than business incubation contribute equity shares in incubatees, a practice that is still to the perception of ECA’s incubators as gateways only moderately used in incubators elsewhere, for for enterprises, stimulating entrepreneurship and instance in Western Europe. Participating in activities innovation and, in some cases, playing a key role in the other than incubation to assure sustainability was a development of local industry clusters. They directly major commonality of incubators in the ECA region. foster the flow of startups to the incubation environment At the same time, business incubators would require and create the business networks the incubatees need continued support for the development of their for growth. At the same time, these non-incubation sustainable and revenue-generating services business activities allow incubators in ECA to cross-finance their model. incubation work (e.g., those activities directly related to incubatees). 50 The major socio-economic impact of incubators may The results of the study and the impact that these be the creation of high-quality jobs. The creation of selected business incubators have on socio-economic such jobs was spurred by two factors: the focus on development and enterprise growth speak to the incubatees operating in technology-related fields in opportunity to scale and replicate successful business most of the incubators studied, and the fact that being incubation activities in the ECA region. Incubation in incubated helped them attract and develop highly ECA demonstrates good value for public investment skilled staff. and should be supported. Despite the limitations of the current M&E systems, there are clear indications Business incubation managers and stakeholders that ECA incubators have been cost-effective, usually have stressed the need for an effective link between generating more tax revenue than they cost to government support for business incubation and establish, and creating high-quality jobs. the impact and performance measurement of the incubator. In this regard, more mature incubators in Particular recommendations that emerged as a result the study could serve as role models. of this study include: 7.1 Improving Monitoring & Evaluation There is tremendous potential to develop a sound At the same time, developing the scope of this study and methodology for assessing and regularly monitoring replicating it in the future would provide incubators, the performance and impact of incubators in ECA, on practitioners, and stakeholders with longitudinal both an individual and regional basis. Improving and evidence of the value of this support. extending the research methodology of this report could result in a more comprehensive picture of the It is also recommended that corporate and private real return on investments made on incubators. investors’ incubators be included in future studies. 51 The study indicates a strong need to better measure frameworks include: the value of non-facility services that are often provided on an informal basis, free of charge. • Standardize methodology with M&E framework Impact and performance assessments focusing on Develop a standard methodology for incubators in the core incubation process as well as on upstream the ECA region to use as part of their monitoring and downstream activities may help incubators performance assessment activity. This methodology demonstrate their value not only for incubatees but should analyze the separate components and value also for incubator stakeholders, and can enhance the propositions of the incubation package and ideally overall sustainability of incubators by exploring new be conducted by sector. Such a framework could be sources of revenue and new service models. developed by infoDev, provided for free to incubators, and rolled out globally to aggregate international M&E Existing benchmarking exercises and good M&E data into a real-time research laboratory. practice in the ECA region should be consulted to improve the measures of incubator success and to • Analyze the value of intangible services strengthen formal monitoring procedures within the Impact and performance assessments can help incubator. Given the trust-based relationship that incubators show the total value of all services they generally exists between incubatees and incubator deliver to incubatees and stakeholders by quantifying managers, data should be collected internally with the benefit that incubatees get from an incubator- results reported to the relevant national authorities enabled innovation network and turning this into new and other supporting organizations, such as infoDev. sources of revenue for the business incubator. It is likewise highly recommended that incubators • Have clients complete a performance indicator maintain relationships with their graduates and with dashboard other entrepreneurs in the region. The greatest added The M&E exercise should encourage incubatees value of business incubation comes to fruition only to regularly (i.e., quarterly) complete a dashboard after graduation, as a direct consequence of the inputs during their incubation period and (i.e., annually) after received during the incubation process. graduation. Data should be stored online for easy Some specific recommendations for improving M&E access. 7.2 Increasing early-stage financing opportunities Access to early-stage finance is a critical constraint region. Furthermore, there is a need to build trust and for growth-oriented enterprises in the region, yet efficient linkages between private and public sector early-stage innovation financing remains a key entities involved in early-stage financing, where the weakness of innovation ecosystems of the Eastern supply of private capital is still at a nascent stage European and Central Asian region23 . Public funding and its potential complementarity to public sector for innovation mainly addresses later development financing is not yet well understood. The role of stages of the enterprises, leaving a gap from seed business incubators in attracting financing for clients financing to early stage innovation. On the other hand, and supporting international market exposure and private sector financing still focuses on traditional product or service validation in new markets could be industry sectors such as real estate, retail, and instrumental. commodities. Market exposure for public innovation promotion mechanisms including business incubators Several of the business incubators are piloting and technology parks is considered as a key success innovative schemes at a small scale. With proper M&E, criteria of these instruments, and remains a major an attempt could be made to scale up these models challenge for public programs throughout the to extend the benefits to a larger population of early- stage growth-oriented entrepreneurs. 23 · Source from parallel infoDev Access to Finance pilot activities in Kazakhstan and Belarus in 2012, focusing on the 52 development of angel investor/ private capital networks. 7.3 Increasing International Market Access for Incubatees As evidenced by infoDev’s recent internationalization Most incubatees in this study are interested in pilots, business incubators can play a key part in expanding to international markets in the short-term facilitating access to international markets for their and medium-term and most of those regarded as high- incubatees. In ECA, a shared legacy of transition growth incubatees in this study are indeed growing due economies on one hand, and cultural commonalities to export and internationalization activities supported such as language as well as intraregional trade by the incubator. infoDev has supported access to agreements (such as the Customs Union of Belarus, international markets for high-growth enterprises Russia, and Kazakhstan) on the other hand, are factors through a number of pilot activities24 and could that drive opportunities for internationalization of translate this experience into developing such services SMEs in the region, and often at the startup stage. The in ECA and tailoring them to particular incubator opportunity to facilitate internationalization is however needs. Services could include: co-incubation or soft- not fully exploited by incubators in the region. landing services between and among incubators in the region or in other global markets; the development of a Business incubators can play a key part in facilitating specialized internationalization service at the incubator access to international markets for their incubatees, itself with adequate capacity and skills development as companies in these markets do not necessarily to implement this; development of industry expert and have access to more traditional trade or export target market databases; as well as awareness-raising promotion agencies’ services found elsewhere in the among incubation practitioners and stakeholders to world. By linking companies to the necessary go- foster collaboration and communicate market trends to-market support structure, successful expansion and opportunities. into international markets can mean revenue growth for the enterprise, job creation in home and in new markets, and together with a spillover effect into industry competitiveness. 24 · See infoDev report (2014) “Enabling International Market Linkages: Lessons & Insights” 53 7.4 Enabling Peer-learning Amongst Incubators An oft-repeated observation from the organizations seeking to invest in business incubation), their participating in the study is the strong need their engagement in overall business incubator activities, clients expressed for market access, networking, and regular reporting on progress and potential and peer -learning, and the high value they placed opportunities to scale successful activities and attract on incubation for providing such access, networking, additional partners. This can be done on a regional and learning. There does not seem to be a systematic level, through grassroots innovation communities, platform in place for such services on a regional level, and/or by individual and well-regarded champions in beyond for example, an existing network of incubators the field. (ECAbit), which provides services on an informal basis and free of charge. Furthermore, best practice among incubators can be shared in formal training environments that aim to Well-performing incubators (identified through a increase the overall capacity of business incubator shared monitoring & evaluation framework, for staff to manage their operations. All of the incubator example) should be seen as role models, embodying managers involved in this study have been exposed the values of early-stage enterprise support and best to or taken part in infoDev’s Business Incubation practice in their business models. Leading examples Management Training Program25 , which is specifically of both functions should be identified throughout the aimed at incubator staff as well as stakeholders ECA region and each industry. in emerging markets and ranges from general incubator operations to specialized services. Training A number of the incubators that took part in this study incorporates a number of best practice cases that are could be role models and their experience should be dissected and discussed among participants, providing effectively communicated to like-minded peers across tools to replicate these practices into the participant’s the region. This can be done through the identification own incubator and socio-economic context. of stakeholders and peers (including the local public sector, donors and international development agencies 25 · See www.infodev.org/training for additional details about infoDev’s Business Incubation Management Training 54 Program. An Evaluation and Impact Assessment of Business Incubation Models in Eastern Europe and Central Asia Appendices 1 55 Appendix 0: Approach and Methodology Quantitative and Qualitative Data The analysis is based on a combination of empirical The methodology to capture added value of and qualitative data. Qualitative data was captured incubators is based on a cross-sectional analysis through standardized questionnaires from involving both quantitative and qualitative incubator managers and executives, incubatees, approaches. and graduates. In addition, individual face-to-face interviews and focus group discussions were held with incubator managers, clients, and stakeholders. Table 1 provides an overview of the sample and Cross-sectional Analysis participants. The added value of business incubation is not limited to the businesses incubated, but also With one exception, incubators for this study were occurs over the long term. Data was captured members of the infoDev-supported Eastern Europe from: and Central Asia Network of Business Incubators and Technology Parks (ECAbit). Selection criteria • The incubator’s executive team (management) included regional affiliation (across ECA sub- • Incubator stakeholders (board members, regions: Central Asia, Eastern Europe, Central founders, and main delivery partners) Europe, Southern Caucasus, South-east Europe, and Turkey), type of incubator, and history of • Incubatees success, either general or in a particular field. • Graduates (companies that had completed the incubator program). TABLE 1: Overview of Sample and Participants Planned number of Actual number of Recipient Tools used responses responses Business incubation Profile of incubators 9 9 managers Self-completed 9 (1 per incubator) 9 questionnaire Face-to-face interview 9 (1 per incubator) 9 (based on standardized questionnaires) Incubatees and graduates Self-completed 57 (29 incubatees + 28 58 (37 incubatees + 21 questionnaire graduate companies) graduate companies) Group discussion 9 (1 per incubator) 9 (31 participants) Stakeholders Group discussion 9 (1 per incubator) 9 (28 participants) NOTE: The quantitative and qualitative indicators used for the study are listed in appendix 1. Quantitative data summaries collected from busi- ness incubation managers are in appendix 2; and from incubatees, in appendix 3. Qualitative data is also summarized in the individual reports produced as part of this study (appendixes 6–13). 2 56 PLACEHOLDER Photo: Credit The objective was to identify a group of case Methodological Challenges studies representing different regions and types of incubators in ECA. Empirically established results Exploring preconditions and challenges for were not an objective. Table 2 provides an overview incubation in the ECA region was a major objective on types of incubators that participated in the study and a key result of this assessment project. and regions of origin (adopted from Scott-Kemmis, et However, the research for this study had its own al. 2004). challenges: The UK Business Incubation (UKBI) team visited • Lack of control group data to compare eight incubators between August and October development of incubatees against start-ups 2011. infoDev visited an additional incubator in July and enterprises that had not benefited from 2012 and conducted additional interviews in 2013. incubation. Data for the study was collected in September • Lack of data on graduates to more and November 2011, with the exception of BITF comprehensively measure incubators’ impact Belgrade (July/August 2012). infoDev interviewed on clients. six of the nine participating incubator managers in • Inadequate data on incubatee performances July/August 2012. Three questions were discussed due to reluctance to provide company with incubator managers: 1) the share of business performance data, hampering incubator incubation activities compared to overall activities or effectiveness estimates. service portfolios of their organizations; 2) business models of incubators within the overall business • Lack of specific data on some incubators, models of their organizations; and 3) monitoring particularly when differentiating from non- and evaluation of incubator activities in the context incubation services, where data was aggregated of overall activities of their organizations. with the overall operations and development of incubation environments. Limitations of research results are highlighted throughout the report wherever appropriate. TABLE 2: Types and Incubators and Regions of Origin Private Local economic Academic and scientific Corporate investors’ Type development incubators incubators incubators incubators Goal Non-profit For profit Main activity Mixed-use Sector- Mixed Sector- focused focused Participants 2 2 (all ICT) 3 1 0 0 in the study Hybrid (non-academic or non–scientific but with strong academic and scientific focus and links) 1 Region Central Asia South-eastern Central Asia Eastern 0 0 (1), Europe and (1), Europe (1) Central Turkey (1), South-eastern Europe (1) Southern Europe and Caucasus (1) Turkey (2) Hybrid: Eastern Europe (1) 3 57 Appendix 1: Summary of Indicators Used and Expected Results TABLE 1: Qualitative Indicators for Assessment of Best Practice Business Incubation (Process) Indicator Criteria (output) Expected result 1 Selection 1. Selection criteria and procedure - The business incubator has a formal selection policy 2. Degree of innovation management by process applicants - Businesses in the business incubator operate predominantly within the business incubator’s target market—ICT and significantly ICT-enabled - Process, service, technology, or business model innovation is an important criteria in selection, associated with developing a competitive advantage 2 Exit policy 3. Exit process - The business incubator has a formal graduation 4. Deal flow process and criteria 5. Links with graduate ventures (post- - The graduation criteria involves achievement of incubation) business milestones - Graduates are involved in helping incubatees 3 Strategy and Broad components of a comprehensive business - The strategy and delivery are detailed through delivery incubation package: a business plan (strategy document) which is written, regularly updated, and circulated within 6. Updated business incubation strategy the core management team 7. Coaching - Evidence will be requested for all indicators 8. Monitoring 9. Client networking 10. Business support and development services 11. Financial support 12. Seed fund activities 13. Advisory board 14. Facilities and shared admin support 15. Financial management 16. Institutional and industry link 4 Skilled 17. Governance of the business incubator - The business incubator has a committed and management 18. Management team effective board team and - The board consists of a multi-stakeholder governance public-private partnership and involves entrepreneurs - The board meets regularly - Major stakeholders, board, and management is agreed on the purpose, promises, and vision of the business incubator - There is an effective working relationship between the board and the business incubation manager - The business incubation program has a well- constructed and articulated strategic plan that reflects its purpose, promises, and vision 4 58 PLACEHOLDER Photo: Credit TABLE 2: Quantitative Indicators for Assessment of Results Indicator Criteria Expected result (outcome) 1 Deal-flow of - Number of applicants in the past year - Selectivity ratios (yearly and over time): clients - Number of applicants in the last five years number of applicants accepted compared - Number of applicants accepted in the past year to number of applications - Number of applicants accepted in the past five years - Proportion of client companies of the business incubators that are not incubatees (ad hoc companies) - Proportion of total revenue that support to ad hoc companies represents 2 Jobs created - Number of full time equivalent (FTE) jobs at entry - Average increase in incubatee staff - Number of FTE jobs at exit - Number of FTE jobs within business - Current number of FTE jobs incubator (BI) at any one time - Number of FTE jobs created in the last 12 months - Gross new FTE job created (per year - Number of FTE jobs created to date and to date) by incubatees and graduate - Number of companies graduated to date companies - Number of graduations in the last 12 months - Average increase in staff per company - Number of jobs created by companies that since graduation graduated in the last 12 months 3 Survival rates - Survival rates of companies 12 months after - Survival rate among graduate companies graduation versus survival rate of three-year old - Survival rates of companies five years after their businesses from the same industry graduation sector in the sub-region - Survival rate among graduate companies versus survival rate of three-year old businesses from the same industry sector in the sub-region 4 Innovation and - Number of patents applied for and owned in the - Insight on innovation activity generated research and past 12 months, and since start of activity by the BI in the area/sub region development - Number of trademarks applied for and owned in (R&D) activity the past 12 months, and since start of activity - Number of copyrights applied for and owned in the past 12 months, and since start of activity - Number of innovative products developed in the past 12 months, and since start of activity - Number of collaborative projects with knowledge- based organizations (such as R&D organizations, research institutions, higher education (HE) and formal education (FE) institutions) in the past 12 months, and since start of activity 5 Salaries - Average salary among incubatees - Quality of companies (incubatees and - Average salary among graduate companies graduate companies) and their growth 6 Finance raised - Number of incubatees assisted by the BI in - Investment raised by BI for incubatees to securing finance date - Number of incubatees that have secured finance - Investment raised by graduate - Total finance secured by the BI companies - Total finance secured by incubatees - Finance secured by the BI for incubatees - Amounts (and sources) of finance secured to date (graduate companies) (continued) 5 59 Indicator Criteria Expected result (outcome) 7 Turnover - Annual turnover at entry - Average turnover increase during - Annual turnover at exit incubation period - Current turnover - Annual turnover generated by - Current turnover (all incubatees) incubatees in each BI 8 General - General revenues in the last 12 months - Average revenue per graduate company revenues - Export revenues in the last 12 months - Percentage of total revenue that is based and export - Taxes paid in the last 12 months on exports revenues 9 Financial - BI income in the past 12 months - Total tax contribution by incubatees in management - BI income since start of activity the last 12 months of the BI and - BI running costs in the past 12 months - Average tax contribution per incubatee return on - BI running costs since start of activity (total tax contribution divided by number investment - Seed capital in the past 12 months of incubatees) - Seed capital since start of activity - Estimated total tax contribution (average - Amount (and sources) of public funding received tax contribution multiplied by number of to date incubatees to date) - General revenues in the last 12 months (all - ROI 1: Total tax contribution from incubatees) incubatees to date divided by total - Export revenues in the last 12 months (all amount of initial funding from the BI incubatees) multiplied by 100 - Taxes paid in the last 12 months Or - Taxes paid to date (all incubatees) - ROI 2: Total number of FTE jobs created in the past 12 months against incubator expenses in the past 12 months 6 60 Appendix 2: Summary of Self-completed Questionnaires with Nine Business Incubation Managers1 All data and information contained in the study was collected in September and November 2011, with the exception of BITF Belgrade (July/August 2012). Response rate Total Minimum Maximum Average Deal-flow of clients Number of applicants in the past year 66.7 percent 74 4 25 12.5 Number of applicants in the last five years 66.7 percent 318 5 120 53 7 year Number of applicants accepted in the past 77.8 percent 49 2 16 7 Number of applicants accepted in the past 77.8 percent 293 5 61 28 five years Selectivity ratio in the past year (percentage 66.7 percent 25 100 61 of applications selected) Selectivity ratio in the past five years 66.7 percent 20 100 62 How many individuals/ businesses do you 100 percent 718 6 250 103 work with other than through the BI? Current number of incubatees 100 percent 129 5 33 16 Number of incubatees to date 100 percent 394 5 91 49 Proportion of clients that are incubatees 88.9 percent 4 percent 50 percent 18 percent Proportion of total revenues supporting ad 88.9 percent 315 0 percent 100 percent 53 percent hoc companies IP and R&D Business incubators that have established 100 percent a deal-flow of intellectual property (IP) commercialization opportunities with higher education institutions (HEI) Business incubators providing access to R&D 100 percent and/or product development support Salaries (monthly) Average salaries of incubatees (response by 100 percent BI manager): <$300 1 (12.5 percent) $300–$600 2 (25 percent) $600–$900 4 (50 percent) 1 Empty boxes = not appropriate 8 61 PLACEHOLDER Photo: Credit Response rate Total Minimum Maximum Average $900–$1,200 0 (0 percent) $1,200–$1,500 1 (12.5 percent) >$1,500 0 (0 percent) Average salaries of graduate companies 88.9 percent (responses by BI managers): <$300 0 (0 percent) $300–$600 0 (0 percent) $600–$900 2 (28.6 percent) $900–$1,200 3 (42.9 percent) $1,200–$1,500 0 (0 percent) >$1,500 1 (14.3 percent) Job creation and survival rates Current number of FTE jobs in all incubatees 88.9 percent 709 34 225 89 FTE jobs created within the last 12 months 88.9 percent by incubatees: <10 2 11–20 0 21–30 2 31–40 1 41+ 3 FTE jobs created to date via business 100 percent incubators: <10 0 (0.0 percent) 11-20 0 (0.0 percent) 21–30 0 (0.0 percent) 31–40 2 (25 percent) 41+ 6 (75 percent) (continued) 9 62 Response rate Total Minimum Maximum Average Number of graduations in the last 12 88.9 percent months: 0 1 (12.5 percent) 1–7 (median: 4) 6 (87.5 percent) 8–14 (median: 11) 0 (0.0 percent) 14–20 (median: 17) 0 (0.0 percent) 21+ (median: 11) 0 (0.0 percent) N/A 0 (0.0 percent) Number of graduations to date: 100 percent 0 1 (11.1 percent) 1–7 (median: 4) 1 (11.1 percent) 8–14 (median: 11) 1 (11.1 percent) 14–20 (median: 17) 2 (22.2 percent) 21+ (median: 11) 4 (44.5 percent) N/A 0 Number of jobs created by companies that 77.8 percent have graduated in the last 12 months: <10 2 (28.6 percent) 11–20 0 (0.0 percent) 21–30 2 (28.6 percent) 31–40 0 (0.0 percent) 41+ 2 (28.6 percent) DK 1 (14.3 percent) 10 63 Response rate Total Minimum Maximum Average Survival rates of companies 12 months after 100 percent graduation: <16 percent 1 (11.1 percent) 16 percent—32 percent 1 (11.1 percent) 33 percent—48 percent 0 (0.0 percent) 49 percent—80 percent 0 (0.0 percent) 81+ percent 6 (77.8 percent) No company has yet graduated (N/A) 1 (11.1 percent) Survival rates of companies five years after 100 percent graduation (estimated): <16 percent 0 (0.0 percent) 16 percent—32 percent 1 (12.5 percent) 33 percent—48 percent 0 (0.0 percent) 49 percent—80 percent 2 (25 percent) 81+ percent 4 (50 percent) No company has graduated and is operating 2 (12.5 five years or longer outside the incubator percent) Finance raised Number of incubatees assisted by BI to 88.9 percent 89 0 38 10 secure finance Finance secured by the BI for the incubatees 77.8 percent $1,285,000 0 $615,000 $142,780 Finance secured to date by incubatees 77.8 percent $2,915,000 0 $1,500,000 $323,888 General and export revenues (incubatees) Average general revenues in the last 12 66.7 percent months (responses by business incubator): $10,000 1 1 $10,000–$25,000 1 1 $26,000–$50,000 0 0 $51,000–$75,000 2 2 $76,000–$150,000 0 0 >$150,000 1 1 Export revenues in the last 12 months (all $1,300,717 $75,000 $1,000,000 $216,786 incubatees) (continued) 11 64 Response Rate Total Minimum Maximum Average Business incubator: Financial management BI income in the past 12 months 55.5 percent $3,064,053 $904,800 $612,800 BI running costs in the past 12 months 55.5 percent $2,359,107 $882,000 $471,800 Public funding received to date 55.5 percent $3,929,000 $3,100,000 $785,800 What part of running costs are covered 88.9 percent by different sources of revenues: Rent 70 percent 32 percent Service fees 30 percent 6 percent Investment (royalties/ equity) 25 percent 4 percent Consultancy and external work 40 percent 8 percent Grants 100 percent 41 percent Loans 0 percent 0 percent Other (public subsidies) 64 percent 9 percent Selection policy Do you operate a selection policy? YES 100 percent 8 (88.9 percent) Do you operate a selection policy? NO 100 percent 1 (11.1 percent) Criteria used as part of the selection 88.9 percent procedure? Ambition for growth 6 (85.7 percent) Ability to benefit from incubation 6 (85.7 percent) Overall fit with BI objectives and other 6 (85.7 percent) incubatees Strong business plan 6 (85.7 percent) Willing to take advice 5 (71.4 percent) Technical expertise 4 (57.1 percent) Business experience of the applicant 2 (28.6 percent) Capacity to pay for services 6 (85.7 percent) Exit/graduation policy Do you operate a graduation policy? YES 100 percent 6 (66.7 percent) Do you operate a graduation policy? NO 100 percent 3 (33.3 percent) Milestones and targets used for exit: 100 percent Maximum time limit 3 (37.5 percent) Stepped rents 2 (25 percent) Incentives 0 (0.0 percent) Removal of subsidy 1 (12.5 percent) Business targets 4 (50 percent) Revenue and/or profitability targets 3 (37.5 percent) Governing body and executive team Do you have a committed and effective 100 percent 7 (77.8 percent) governing body (board)? YES Is there an effective working 100 percent 6 (66.7 percent) relationship between the governing body and the management team? YES 12 65 Response Rate Total Minimum Maximum Average Has the management team got the 100 percent 9 (100 percent) necessary skills and experience to help incubatees grow? YES Is the performance of the management 100 percent 6 (66.7 percent) team regularly reviewed? YES Time spent with incubatees (average 100 percent 10 percent 40 percent 25 percent) Business development resources General business advice 9 (100 percent) Training, seminars, and/or workshops 8 (88.9 percent) Marketing and sales services 6 (66.7 percent) Help find grow-on space 7 (77.8 percent) Access to specialist advice 8 (88.9 percent) Access to management training 8 (88.9 percent) Access to R&D and technology transfer support 6 (66.7 percent) Internationalization services 6 (66.7 percent) General accounting and/or financial management advice 8 (88.9 percent) Opportunities to network with finance providers 7 (77.8 percent) Access to investment readiness programs 5 (55.5 percent) Access to finance providers, angel Investment, and/or venture capital 6 (66.7 percent) Access to seed capital fund initiatives 5 (55.5 percent) Access to an advisory board 4 (44.4 percent) Facilities and admin services available Hot-desking 3 (33.3 percent) Meeting rooms and/or conference facilities 9 (100 percent) Reception area/reception facility 5 (55.5 percent) Networking/communal areas 8 (88.9 percent) Broadband connections 8 (88.9 percent) Office equipment 7 (77.8 percent) Telephone network and hardware 7 (77,8 percent) Car park 9 (100 percent) Security services 9 (100 percent) 13 66 Appendix 3: Summary of Self-completed Questionnaires for Incubatees2 All data and information contained in the study was collected in September and November 2011, with the exception of BITF Belgrade (July/August 2012). Total (percent) Response rate (absolute) Maximum Minimum (percent) Average Median Total Market and client base (of incubatees) Extent of market: domestic 100 24 65 1 1 Extent of market: regional 100 21 57 1 1 Extent of market: international 100 15 41 0 0 Location of market: urban 100 34 92 1 1 Location of market: rural 100 11 30 0 0 Number of customers 77.8 1,285 0 700 64 13 Customer income level: low income 97 10 27 0 0 Customer income level: medium income 97 28 78 1 1 Customer income level: high income 97 12 61 1 1 FTE jobs at entry 0–5 100 28 76 1 1 6–10 100 4 11 0 0 11–20 100 1 3 0 0 21–30 100 2 5 0 0 >30 100 2 5 0 0 Current number of FTE jobs 0–5 100 16 43 1 1 6–10 100 10 27 0 0 11–20 100 4 11 0 0 21–30 100 2 5 0 0 >30 100 5 14 0 0 FTE jobs created within the last 12 months (incubatees) 0–5 100 30 81 1 1 6–10 100 4 11 0 0 11–20 100 3 8 0 0 2 Empty boxes = not applicable 14 67 PLACEHOLDER Photo: Credit Total (percent) Response rate (absolute) Maximum Minimum (percent) Average Median Total 21–30 100 0 0 0 0 >30 100 0 0 0 0 Staff (also see job creation, above) Skills: low-skilled 95 1 3 0 0 Skills: medium-skilled 95 9 26 0 0 Skills: high-skilled 95 31 89 1 1 Gender: men 95 27 77 1 1 Gender: women 95 12 34 0 0 Location: urban 95 35 100 1 1 Location rural 95 1 3 0 0 Internationalization: What type of development opportunities are you looking for in other countries or markets? Funding 97 13 36 Corporate partnership 97 p 15 42 Regional expansion 97 16 44 Technology transfer 97 8 22 Joint ventures 97 10 28 Recruitment 97 3 8 Mentoring 97 7 19 Internationalization services Have you contacted any 97 1 3 0 0 international incubator or any other service? YES Have you contacted any 97 35 97 1 1 international incubator or any other service? NO Has your BI assisted you with any 92 19 56 0 0 international opportunities? YES Has your BI assisted you with any 92 15 44 0 0 international opportunities? NO Financial assistance Has the BI assisted you in securing 97 15 42 0 0 finance? YES Has the BI assisted you in securing 97 21 58 1 1 finance? NO If YES how much? 403,100 On 32,000 100,000 62,683 64,750 average 50,388 (continued) 15 68 Total (percent) Response rate (absolute) Maximum Minimum (percent) Average Median Total Average salaries (responses by incubatees) <$300 97 9 25 0 0 $300–$600 97 13 36 0 0 $600–$900 97 6 17 0 0 $900–$1,200 97 3 8 0 0 $1,200–$1,500 97 3 8 0 0 >$1,500 97 2 6 0 0 Annual turnover at entry <$5,000 89 17 52 1 1 $5,000–$10,000 89 1 3 0 0 $11,000–$30,000 89 6 18 0 0 $31,000–$70,000 89 3 9 0 0 $71,000–$100,000 89 2 6 0 0 >$100,000 89 4 12 0 0 Current annual turnover <$10,000 84 9 29 0 0 $10,000–$50,000 84 6 19 0 0 $51,000–$100,000 84 8 26 0 0 $101,000—$150,000 84 1 3 0 0 $151,000—$200,000 84 1 3 0 0 >$200,000 84 6 19 0 0 Average general revenues in the last 12 months (response by incubatees) <$10,000 73 10 37 1 1 $10,000–$25,000 73 6 22 0 0 $26,000–$50,000 73 2 7 0 0 $51,000–$75,000 73 2 7 0 0 $76,000–$150,000 73 3 11 0 0 >$150,000 73 3 11 0 0 Average exports revenues in the last 12 months (responses by BI) <$3,000 84 24 77 1 1 $3,000–$10,000 84 2 6 0 0 $11,000–$20,000 84 1 3 0 0 $21,000–$30,000 84 0 0 0 0 $31,000–$40,000 84 1 3 0 0 >$40,000 84 3 10 0 0 Taxes paid by incubatees Taxes paid by your company in the 52 $83,800,00 $6,446 on 0 $28,400 $4,741 $3,000 last 12 months average per incubator 16 69 70 Appendix 4: Summary of Financial Returns on Investment All data and information contained in the study was collected in September and November 2011, with the exception of BITF Belgrade (July/August 2012). incubator did not want to be named nor its data made public) Confidential (one BASTAU Mogilev SODBI Kalisz ZNTC UBIT BITF EIF Year established 2003 1994 2010 2008 2000 1998 2002 2007 No public data available Number of FTE 10 80 35 25 10 41 No data 25 No public jobs created data available in the last 12 months Average turnover 7,500 no data 50,000 No data 40,000 10,000 0.00 25,000 No public of incubatees at data available entry ($) Average turnover 52,000 no data no data 100,000 47,000 250,000 250,000 150,000 No public of incubatees data available at exit or after three years ($) Taxes paid by all 80,000 81,996 17,000 10,000 33,000 1,100,000 No data 134,000 No public incubatees in the data available last 12 months ($, estimated) Taxes paid by 520,000 860,961 17,000 30,000 300,000 No data No data 795.000 No public all incubatees data available to date ($, estimated) Average 7,000 3, 279 3,400 5,000 1,100 61,111 No data 9.144,00 No public taxes paid by data available incubatees in the last 12 months ($, estimated) Average 40,000 34,438 3,400 15,000 No data No data No data 13.062,00 No public taxes paid by data available incubatees to date ($, estimated) Initial funding 59,400 5,882 0 20,000 400,000 1,200,000 1,400,000 260.000 No public (capital) to set up data available the BI 18 71 PLACEHOLDER Photo: Credit incubator did not want to be named nor its data made public) Confidential (one BASTAU Mogilev SODBI Kalisz ZNTC UBIT BITF EIF Initial funding 190,000 0 3,000,000 400,000 0 3,600,000 91.000 No public (revenue) to set data available up the BI Total initial 249,400 5,882 3,000,000 20,000 800,000 1,200,000 5,000,000 351.000 No public funding to set up data available the BI Running costs of 85,000 517,787 730,000 4,320 180,000 160,000 882,000 100.000 No public BI for the last 12 data available months ($) Estimated income 85,000 601,253 770,000 0 240,000 200,000 904,800 264.000 No public of the business data available incubator for the last 12 months ($) Estimated 585,000 No data 730,000 32,960 1,640,000 2,200,000 5,021,172 410.000 No public running costs data available of the business incubator since start of activity ($) Estimated income 546,000 No data 770,000 0 2,200,000 2,500,000 9,301,471 1.637.000 No public of the business data available incubator since start of activity ($) Return on 2.09 146.36 0.01 0.75 2.66 No data No data 2,26 No public investment, data available method 1 (total tax contributions from incubatees to date: total amount of initial funding from the BI) Return on 8,500.00 6,472.34 20,857.14 172.80 18,000 3,902.44 No data 4.000 No public investment, data available method 2: cost per job created (annual BI running costs divided by number of new FTE jobs created in the past 12 months) 19 72 Appendix 5: Measuring Performance of Business Incubators and Impact of Business Incubation: Overview of the Literature Review and Methodology funding. The purpose is not so much to evaluate the impact of business incubators against best practice but to monitor their progress against fixed targets and project deliverables as set up in business plans/contracts. While benchmarks 1. Introduction have been established, collection of data is at one point in time across a wide sample of business In practical and policy terms, business incubation incubators (cross-sectional analysis). This makes is an invaluable tool to stimulate enterprise evaluation of the impact of business incubation and develop businesses with growth potential. over time difficult (longitudinal analysis). Studies by academia and others (such as UK Business Incubation, National Business Incubation This section contains a chronological and thematic Association, European Business and Innovation overview of existing business incubation literature. Center Network, and infoDev) have highlighted It discusses challenges affecting performance the wider role that business incubators can play of business incubators and results of business in accelerating growth and increasing survival incubation. rates of client businesses. However, very little is known at national and regional levels about the long-term return on (public) investment in business incubation. Though evaluative research 2. Overview of Incubator- on business incubation exists, it very often consists Incubation Literature of intermittent or regular “performance reviews,” No single model exists to define business based on key performance indicators (KPIs) limited incubation. The proliferation of business incubation to public service agreements (PSAs). In other activities over the last thirty years has led to words, quantitative data that relies heavily on variety in terminology used and type of incubation requirements and remits of initial sources of activities offered. Key themes have been identified by Hackett and Dilts (2004), which are detailed in table 1. 20 73 PLACEHOLDER Photo: Credit TABLE 1: Overview of Incubator-Incubation Literature Incubator- Studies Incubator Incubator Incubator incubation theorizing Research development configuration development impact incubator- streams studies studies studies studies incubation Research 1987–1990 1987–1990 1987–1988 1990–1999 1996–2000 periods Main topics Definitions Conceptual New venture Levels and units Explicit and frameworks development of analysis implicit use Taxonomies of theories Incubatee Impact of Outcomes and (transaction Policy selection planning on measures of cost, economics, prescriptions development success network theory, entrepreneurship, economic development through entrepreneurship) Research What is an What are the What is the Does incubation What is the questions incubator? critical success process of achieve what significance of factors for new venture stakeholders relationships How do we develop incubator- development assert they do? and how do an incubator? incubation? in an incubator they influence context? How can entrepreneurship? What life cycle How does the business model can incubator- What is the incubation What are the be extracted incubation impact of program critical connection from analysis concept work in planning and outcomes be factors to of business practice? the role of evaluated? success? For incubators? the business example, settings, How do incubator Have business networks, founder incubators select manager? incubators characteristics, incubatees? impacted new group venture survival membership, rates, job co-production creation rates, value, creation and industrial process innovation rates? What constitutes a What are the model for a virtual economic and incubator? fiscal impacts of an incubator? Is the network the location of the incubation process? Source: Hackett and Dilts (2004) 21 74 In addition to research questions about incubator- exclusively relies on some form of public funding. incubation impact studies,3 the following questions Evidence of performance and results of business were considered for this study: incubators will help policy makers and practitioners to allocate and access appropriate funding. This was • What results does business incubation produce highlighted by infoDev in a study focusing on ICT when implemented effectively? incubators in sub-Saharan Africa: • What is the cost effectiveness of business incubation in the region? “More than in other environments, sustainable, replicable ICT incubators in Africa will require • What are the critical success factors to make some path forward for those companies that grow business incubation a cost-effective tool to to a point requiring graduation or which seek promote start up and growth of innovative SMEs graduation for other reasons. Their progress in the ECA region?4 must be tracked in order to develop the level of public support that will be required to sustain the program.” (infoDev, 2009) 3. Factors to Consider Differences Between Performance Reviews and Multiple Stakeholder Analysis/Sources of Impact Assessment Studies Information Generally, impact assessment is a process that Methodologies and indicators of performance determines if planned goals and objectives were reviews and impact assessments in existing actually achieved/will be achieved. Going further, literature are wide and varied. However, there is the World Bank, for example, states that: general agreement that a “360 degree” perspective is necessary to assess the added value of business “An impact evaluation assesses changes in incubation over time so that data collected from the well-being of individuals, households, different sources can be verified. The review of communities or companies that can be attributed literature indicates that different stakeholders to a particular project, program or policy.” 5 participated in impact studies at different times. These stakeholders may include: For business incubators, performance reviews till now have focused only on monitoring. While • The business incubator (management team) performance reviews of a business incubator are • Business incubator stakeholders/founders necessary, they do not evaluate its real long-term (board members, founders, and other investors added value. Business incubation is not cheap, when appropriate) and sustainability of business incubators almost • The incubatees • “Ad hoc” client businesses (businesses 3 Do incubators achieve what their stakeholders assert supported by the business incubator, but not they do? through business incubation services) - How can business incubation program outcomes be evaluated? • Local and regional business communities. - Have business incubators impacted new venture survival rates, job creation rates, and industrial A “360 degree” perspective should, for instance, innovation rates? involve views of the business incubator manager to - What are the economic and fiscal impacts of a business be verified by incubatees. incubator? (Hackett and Dilts. 2004) According to the Regional Economic Studies Institute (RESI), in 2001, a common criticism of 4 For example, is there a unique entrepreneurial culture— or a unique way of doing business—in the region that business incubation impact studies is that the requires a different model of incubation from elsewhere in methodologies fail to consider a control group of the world? That is, in terms of what types of services are businesses that would allow a comparative study delivered? How governance, management, and ownership between companies of similar characteristics, one issues are handled? And how the business incubator is financed? within the business incubator and the other outside. It was felt that finding a suitable control group was 5 Source: http://web.worldbank.org/WBSITE/EXTERNAL/ difficult as small businesses lacked data on start TOPICS/EXTPOVERTY/EXTISPMA/0,,menuPK:384339~pag ePK:162100~piPK:159310~theSitePK:384329,00.html dates and performances. Other sources question 22 75 this. While agreeing that relying on empirical Classification According to Client Base quantitative data from a control group is very Sponsors and sources of funding influence the difficult over time, they point out that collecting of goals and modus operandi of a business incubator data via, for instance, focus groups is possible. (Lalkaka and Bishop 1996; UKBI 2001; UKBI 2003). Further, it can be argued that: The mission, objectives, and business targets therefore need to be considered when reviewing • The real results (or added value) of business the results of business incubators. Equally, findings incubation comes after graduation as a direct from the literature review suggest that some form consequence of inputs received during the of classification is necessary to interpret findings. business incubation process. The impact assessment study in Maryland (RESI 2001), for instance, states (not surprisingly) that • The on-going relationship with and utilization business incubators aimed at empowering or of entrepreneur/business incubation graduate revitalizing neighborhoods will have far different resources—in particular for tracking their impacts on local economies than for-profit, growth—is where the true and unique (added) technology incubators. Different classifications value of business incubation lies. exist and Albert and Gaynor (2001), for instance, Monitoring Companies after Graduation have demonstrated that business incubators were initially classified—and in many cases still are— Empirical evidence on post-graduation from according to their legal status (private/public). business incubators is limited, in part due to a lack Classifications have since broadened and can of systematically recorded data (Schwartz 2009). include location, objectives, configuration, business Monitoring the activity of the business incubator model, lead sponsors, and type of client businesses. is considered useful by its management team and Most classifications consider the following: stakeholders. But, it can also become cumbersome and erode the ability of the environment to perform • Strategy to its maximum capacity. Rice (2002) said business • Client base (sector focus) incubation managers were less effective when distracted from core activities by excess monitoring • Sponsors/funders or the need to secure funds. Alternative approaches do exist; such as an online assessment tool Additionally, the stage of development of client developed by Innovationsbron in Sweden. The tool businesses at entry should be considered for three is used by business incubators to monitor their main reasons: own performances, and also enables centralized • Business needs vary according to the stage data collection for review by public bodies and, as a of development of the business (pre start-up, consequence, provides a regional/national “picture” start-up, early stage). of progress and success. • Business support evolves during the business While it is easy to criticize, in practice it is difficult incubation period with consequences on to isolate the impact of business incubation on business incubator operations. incubatees. For the reasons mentioned above, • Interpretation of findings based on similar few studies explore the performance of graduate indicators (job creation, for instance), will vary companies (post-incubator), even though according to whether the business incubator “graduation is easy, post-graduation survival may targets only start-ups or includes established not be.” (Schwartz 2010) businesses (where jobs have been created Different Types of Effects before it joined the incubator). In this case, only incremental growth in jobs should be Business incubation has both direct and indirect measured. effects (Sternberg 1994; SOFIREM 2004). These effects could be positive or negative, expected or unexpected, and not always quantifiable. This has consequences in the methodology (measure, source of information) to be adopted for the assessment. 23 76 5. Stage of Development of the 6. Challenges Business Incubators The previous section highlighted the essential factors to be considered when assessing business Research suggests that it takes five to ten years for incubators for interpretation of data to be valid: a business incubator to develop to the point when classification of business incubators, mission and it can make a real and measurable impact (UKBI, objectives, minimum age, and contextual factors. 2001). In the UK, for example, it could take five to It identified potential stakeholders to be involved in seven years for business incubators to establish the assessment: core management team, tenants, themselves and become self-sustainable (UKBI stakeholders (members of the board and founders), and Rowe 2003). public and private investors, policy makers, Enabling Environment business support providers, professionals, and entrepreneurs. A review of existing literature and As mentioned earlier, the added value of business findings from questionnaires identified a number incubation includes both direct and indirect effects. of shortfalls/gaps in previous impact assessment It also involves the three main stakeholders of studies (Lalkaka and Bishop 1996; UKBI 2001; business incubation: the management team, the RESI 2001; Albert and Gaynor 2001; SOFIREM clients, and the local community: 2004) such as: “An incubator will be just one component of • Lack of control groups the overall economic development required to maintain a strong business community.” (Meeder • Failure to identify a financial model that 1993, cited in UK Incubation Impact Assessment calculates/evaluates the financial and social Study, UKBI 2001) return via an accepted and commonly used methodology Equally, business incubators during their life cycle • Failure to identify a method to assess the rely highly on their surrounding economic and impact of the business incubator on its social environment (the ecosystem), which, by surrounding environment nature, is constantly evolving and varies from one region/country to another. • Failure to define a single methodology that encompasses different types of business All research highlights the importance of the incubators. enabling environment, which defines the business culture and the approach to support and accelerate business growth. A study by infoDev (2009) identifies a list of factors that affect the ecosystem (see table 2). TABLE 2: Contextual Factors Factor Details Technological forces Emergence of trends, devices, events that influence, etc. Includes elements such as Internet bandwidth and telecom access, growth of mobile phone access and services. Legal and regulatory forces Laws governing ICT; national tax systems with respect to investment; regulatory environment; deregulation and liberalization of fixed line and wireless; trend towards a free market view of business. Economic factors High unemployment; limited access to social services; impact of industry; use of microfinance; trend towards collaboration between businesses. Political forces Dynamic political environment that varies by location. Social and demographic factors Birth rates; poverty levels; low life expectancy; support for free markets. Raw materials and resources required Trained labor force; equipment for access to networks; test equipment, etc. Competitive entities and forces Displacement of fixed-line services by mobile services. (External) stakeholders Includes banks; large companies; academia; equipment and service providers. Source: infoDev (2009) 24 77 To overcome the gaps identified above, the groups during which areas and indicators are methodology used for this study was based on a investigated (table 3). Face-to-face interviews multi-stakeholder perspective and consisted of a with business incubation managers and small cross-sectional approach. In addition, secondary businesses (incubatees and, ideally, graduate research looked at the local economic context companies) are conducted to discuss quantitative (statistics, secondary quantitative data, and analysis findings further and to collect qualitative of regional economic strategies). Partly quantitative, statements of the value of the business this methodology included a qualitative approach: incubators. face to face questionnaires with business incubation managers and group discussions with incubatees 8. Lessons Learned from the and business incubation stakeholders to assess best business incubation processes and tease “soft” Assessments aspects that quantitative data could not capture. While the indicators and methodology identified were appropriate to the objectives of this study, a number of challenges prevented the research 7. Approach team from obtaining the planned amount of data, The methodology to capture the added value of as indicated in table 3. Some of these challenges business incubators is based on a cross-sectional are listed here: analysis involving quantitative as well as qualitative I. The number of replies from graduate approaches: companies through the self-completed • Cross-sectional: the added value of business questionnaire (SCQ) was very low, as was incubation is not limited just to the businesses their participation in the group discussions. A incubated, but is long term. Data should be number of reasons were given for this: captured from: a. Business incubation managers do not − Business incubation executive team generally keep in touch with graduate (management) companies − Business incubation stakeholders (board, b. Access to graduate companies was made founders and/or main delivery partners) through business incubation managers, who did not always have the time to chase them − Incubatees c. With no direct benefit or incentive to them, − Graduated companies. graduate companies were reluctant to spend • Quantitative and qualitative data: Analysis of time on a SCQ requested by a consultant the added value of business incubators is based they did not know, or take part in group on data from questionnaires and from focus discussions. TABLE 3: Data Collected Planned number of Actual number of Recipient Tool used responses responses Business incubation Profile of business 9 9 managers incubators Self-completed 9 (1 per business incubator) 9 questionnaire Face-to-face interview 9 (1 per business incubator) 9 (based on standardized questionnaires) Incubatees and graduates Self-completed 57 (29 incubatees + 28 37 (25 incubatees + 12 questionnaire graduate companies) graduate companies) Group discussion 9 (1 per business incubator) 9 (31 participants) Stakeholders Group discussion 9 (1 per business incubator) 9 (28 participants) 25 78 II. While the rate of replies from incubatees was V. Tight schedules for collection of data and much better, the same patterns occurred in language barriers were also important some cases: challenges. a. Access to incubatees was made through the business incubation managers who did not always have the time to follow up and confirm 9. Recommendations to b. With no perceived direct benefit or incentive Improve the Methodology to them, incubatees were sometimes I. Develop a standard methodology for business reluctant to spend time on a self-completed incubators in the ECA region to use as part of questionnaire requested by a consultant monitoring and performance assessment. they did not know or take part in a group II. The monitoring exercise should encourage discussion. incubatees to regularly (for example, quarterly) III. Incubatees and graduate companies were also fill a “dashboard” during their period of reluctant, in a number of cases, to give any data incubation and then annually after graduation. related to their financial performance, finance III. Storage of data should involve an online received, etc. platform for the monitoring to be easily IV. Monitoring activities recording the development accessible. of businesses in the period of business IV. Although part of the assessment can be incubation (and post-incubation) is not formally done online, an on-site visit will allow a more undertaken by business incubation managers. complete evaluation of the business incubator. When “formal” and regular monitoring takes place with incubatees, it is generally limited to V. The assessment should take the broader local key performance indicators from the funding socio-economic environment of the business source (such as job creation, survival rates, incubator into consideration (for instance, and occupancy rates) and therefore provides average local salaries and survival rates in the information that is limited and/or not suitable given industry). for the study. 26 79 80 Appendix 6: Individual Report: Enterprise Incubator Foundation (EIF) Armenia assistance to start-ups and small and medium- sized enterprises (SMEs), including business development services, networking, and finance advice. Typically, the business incubator focus is All data and information contained in the study was on building an information environment for ICT collected in September and November 2011, with business development through a series of donor- the exception of BITF Belgrade (July/August 2012). supported projects including research, information dissemination, consultancy, and training. Its premises (1,200 square meter gross area) include Overview 1,000 square meters divided into 40 business units, one workshop, and one laboratory. Hot-desking Located in Yerevan, the Enterprise Incubator facilities are not provided. Foundation (EIF) was established in 2002 under an initiative of the Government of Armenia and within the framework of the World Bank’s “Enterprise Incubator” project to support the development of Assessment of Business the information technology sector in the country. Incubator Practices and Mission and objectives. EIF’s mission is to Processes support the development of the information Selection Policy and communication technology sector through creating a productive environment for innovation, EIF does not have a formal selection policy. It technological advancement, and company accepts all applicants involved in ICT-related growth. Key objectives include the development industries. Space, however, is limited. Applicants of an effective ICT infrastructure to enhance selected for tenancy at EIF operate predominately transition to a knowledge economy, promotion in the ICT sector. They must demonstrate the of Armenian enterprises in the global markets, competitive advantage of their business idea and encourage foreign direct investment (FDI) flow into provide evidence of innovation. Products/services Armenia, foster formation of start-ups and their developed by EIF incubatees include: further development, develop a managerial and • Design, development, installation, and professional workforce, and foster productivity maintenance of information systems and improvement in Armenian companies. customized software. Background information. Over the years, EIF • Integrated development environment to interface has become the national flagship for ICT- with measurement and control hardware, related industries and serves as a bridge analyze data, publish results, and distribute between the ICT sector, the Government of systems using a graphical programming Armenia, and the international community. It approach catalyzes creation of small ICT-enterprises in • Modular and easy-to-use solutions for a wide close cooperation with global IT giants such as variety of applications, ranging from simple Microsoft, Cisco Systems, National Instruments, data logging to high-performance automated HP, Intel, and Sun Microsystems. In addition to testing, industrial control, and embedded business incubation services, EIF also provides design. 28 81 PLACEHOLDER Photo: Credit EIF’s mIssIon Is to support thE • Comprehensive repository of historical and dEvElopmEnt oF thE InFormatIon and pricing data for the global equities markets. communIcatIon tEchnology sEctor Since EIF is recognized within the country for its In armEnIa through crEatIng a innovation and ICT related activities, demand for incubation is not a problem. Sources of deal-flow productIvE EnvIronmEnt For InnovatIon, include: tEchnologIcal advancEmEnt and • Universities, enterprises/industry channels company growth. • Word-of-mouth • EIF promo events, including various market development activities, publications (survey Operations are not limited to business incubation reports and guides) as EIF also operates as an ICT-related business • Direct contacts with the executive team development agency, providing services to individuals and businesses other than incubatees. • Website. EIF also serves as a model incubator for Exit Policy national incubation development programs. It coordinates activities related to the creation of EIF does not have a formal graduation process as a business incubators in other regions of Armenia. large number of incubatees are not located within EIF’s business model focuses on networking the building. and cooperation; with donor funds that provide Strategy and Delivery project-based finance aimed at specific industry- related issues. EIF serves as a platform for Strategy. EIF’s operations are based on a business implementation of donor initiatives in the ICT plan that is regularly updated by the executive sector. Most business incubation services and team and approved by the board, which includes staff salaries are subsidized through donor-funds representatives of: and public-private partnerships. EIF reached break even in 2006. The table below provides • Ministry of Economy general financial figures, sources of revenues, • Ministry of Finance and their contribution towards running costs. • Union of Information Technology Enterprises • Educational institutions • Donor community. General financial figures Initial capital funding received to set up the business incubator $1,400,000 Initial revenue funding received to set up the business incubator $3,600,000 Estimated running costs of the business incubator in the last 12 months $882,000 Estimated income of the business incubator in the last 12 months $904,800 Estimated running costs since start of activity $5,021,172 Estimated income since start of activity $9,301,471 Percentage of Sources of revenue running costs covered Rent 24 Grants 76 29 82 Delivery. EIF provides business and financial issues), thus acting as a signposting agent, a support services internally and/or externally key role of the executive team according to best through the executive team’s network of contacts. practice business incubation. The business Its services include: incubator also has a team of professional trainers and advisers available to clients. Communication • General business advice and exchange are initiated from both sides. • Training, seminars and/or workshops Besides specific research exercises undertaken by EIF, incubatees approach the executive team • Marketing and sales services for advice on business-specific issues, that is • Access to specialist advice business or strategy planning, human resources • Access to management training management and contact-making (the last is the most popular request). Incubatees usually receive • Internationalization services the full range of services required to resolve their • General accounting and/or financial issues. management advice Monitoring. EIF cooperates with several • Opportunities to network with finance providers donor organizations and Armenia’s Ministry of • Access to seed capital funds Economics, which funds the annual ‘state of • Access to an advisory board. industry’ reports generated through a detailed survey of Armenian ICT-related enterprises. For The following facilities and shared admin services this, EIF obtains data from incubatees regularly, are also available at EIF: although there is no dedicated procedure to monitor the incubatees. The reports are published • Meeting rooms and/or conference facilities online and in print. Specific issues are also • Reception area/reception facility communicated on a case-by-case basis through coaching activities. • Networking/communal areas • Broadband connections Networking. EIF facilitates networking with the Armenian diaspora worldwide. It has, for instance, • Telephone network and hardware set up of sales offices in Canada and Austria to • Car park promote ICT services in other countries. EIF also • Security services. organizes matchmaking events targeted at specific client needs. Since EIF hosts companies in the EIF’s business culture and IT-focus (reflected in same industry sector, incubatees cooperate closely the infrastructure and image of the premises) while outsourcing services that add-on to their was valued by end-users as part of this study. main products. This reduces time taken to execute Infrastructure accessibility was valued highly for projects and has a positive effect on incubatee three participating companies as their services are image and revenues. In fact, end-users likened the delivered to overseas customers. Incubatees noted incubatee community to a “mini-Silicon Valley.” the professional attitude of the executive team and easy inter-communication on specific issues with Financial support to incubatees. EIF provides other incubatees and residents. financial support to incubatees in several ways: Coaching. Coaching within the business incubator • EIF and/or funding partners provide project- is provided by an external provider and delivered based financing in the form of equity (up to 30 on request from clients (both physical and virtual percent), grants (using donor funds) or micro- incubatees). The service is described as responsive loans to immediate needs of the incubatees. Depending • EIF also provides access to funds, pre-seed on type of support required, the executive team financing and provides professional advice and facilitate contacts with external organizations on support in preparing project proposals for equity specific issues (for instance, technology-related and VC funding, as well as project financing (such as government and donor programs/tenders). 30 83 Management Team Skills and business incubators taking part in the study, EIF facilitates and encourages innovation and R&D, Governance rather than provide incubatees with direct support. EIF’s dedicated executive team’s ICT know-how Labor skills and salary levels. The typical and know-who was cited as a critical factor in incubatee staff-member at EIF is described as a making it cost-effective. The executive team’s highly skilled, male employee living in an urban skills, as described by the business incubation area. Salaries among incubatees are between manager, include: $600 to 900 per month, according to the business • Business development incubator manager. • Training and skills-building Finance raised. No data on finance raised for • Marketing incubatees was provided, although financial support is provided as part of EIF’s services as • Productivity improvement management detailed elsewhere in this individual report. • PPP creation. General revenues and export revenues. Again, The executive team spends an average of 30 no data was provided regarding general or export percent of their working time directly supporting revenues, but internationalization services are in incubatees. The board is also very active; providing place and it is assumed that export is encouraged support in lobbying, networking, and promotion. and facilitated. Financial return on investment. The financial Analysis of Quantitative Data details for the incubator are provided here: Deal-flow of clients. Any data on deal-flow of • Initial capital funding received to set up the clients is limited, as EIF does not have a formal business incubator: $1.4 million selection or exit policy. Quantitative data shows • Initial revenue funding received to set up the that incubatees are only a minor segment of business incubator: $3.6 million EIF’s client base. EIF currently provides services to six incubatees but, at the same time, works • Estimated running costs of the business with approximately 150 other businesses. This incubator in the last 12 months: $882,000 highlights EIF role as a key player in supporting • Estimated income of the business incubator in the ICT-related industry nationally. the last 12 months: $904,800 Survival rates. Based on data collected, survival • Estimated running costs since start of activity: rates of companies 12 months after their graduation $5.02 million (over 81 percent) is typical, given EIF’s good • Estimated income since start of activity: $9.3 practices. But, the number of graduated companies million since 2002 has remained low: between 8 and 14 since start of activities. The rate of survival for these However, not enough data was obtained to businesses five years after graduation is very high. calculate EIF’s financial returns according to the two methods identified by UKBI and infoDev.6 Innovation and R&D activity. No quantitative data was provided by EIF or its incubatees on patents, copyrights, and trademarks owned. Anecdotal 6 Method 1: Total tax contribution from incubatees to date: evidence provided by incubatees and the business Total amount of initial funding for the BI incubator manager however demonstrated EIF’s key role in innovation and R&D. Like other Method 2: Total number of FTE jobs created in the past 12 months: Incubator expenses in the past 12 months 31 84 Conclusion Additionally, EIF serves as a gateway to Armenia for transnational companies that receive specific Since it was set up in 2002, EIF supports ICT- services from incubatees. related incubatees on its premises, and also acts as a business development agency. Incubatees Based on a success sharing business model, EIF represent only around 4 percent of its total client provides project-based financing support in the base (number of incubatees in the last 12 months: form of equity (up to 30 percent), grants (using 6; number of businesses supported other than donor funds) or micro-loans as well as access through business incubation: 150). to funds and pre-seed financing. It provides professional advice and support in preparing EIF has been involved in developing and project proposals for equity financing and VC operating Armenia’s ICT cluster and now enjoys funding, thus filling a crucial gap for growing a well-established reputation in the sector. businesses. TABLE 1: Summary of Quantitative Data Indicators Quantity FTE jobs 100 FTE jobs created to date via business incubation 41+ Graduations to date 8–14 Survival rates of companies 12 months after graduation 81 percent+ Survival rates of companies 5 years after graduation 81 percent+ Average salary among incubatees $600–900/month Average salary among graduates $900–1,200/month Average turnover of incubatees at entry N/A Average turnover of incubatees at exit or after 3 years 0–$500,000 Taxes paid by all incubatees in the last 12 months (estimated) N/A Taxes paid by all incubatees to date N/A Average taxes paid by incubatees in the last 12 months N/A Average taxes paid by incubatees to date N/A Initial capital funding received to set up the business incubator $1.4 million Initial revenue funding received to set up the business incubator $3.6 million Estimated running costs of the business incubator for the last 12 months $882,000 Estimated income of the business incubator for the last 12 months $904,800 Estimate running costs since start of activity $5.02 million Estimated income since start of activity $9.3 million 32 85 86 Appendix 7: Individual Report: Technology Park Mogilev (TPM) Belarus related industries, as well as other sectors such as advanced engineering, chemistry, health care and medicine, fiberglass products, optical devices, and environment. Incubatees mainly come from the local community or from the university (spin-outs). All data and information contained in the study was collected in September and November 2011, with The technology park premises covers 3,439 square the exception of BITF Belgrade (July/August 2012). meters divided into 64 business units, three workshop units, and ten laboratory units. Hot desking is not provided. Overview The executive team (12 employees) benefits from Created in 1998, Technology Park Mogilev (TPM) strategic direction given by the board: formal is a private sector initiative operating as a joint reporting meetings are held annually. In addition, stock company. Historically, the idea of TPM was informal meetings were recently initiated with articulated by the local community of knowledge- members of the board to stimulate discussions based organizations and higher education and buy-in from the executive team on business institutions (HEIs). incubation strategy and activities. Mission and objectives. Designated by the government as an example of best practice, TPM’s mission is to support and offer small innovation Assessment of Business businesses the full range of instruments to translate creative human potential into Incubator Practices and innovative development of the region. Objectives Processes of the technology park include promotion and Selection Policy encouragement of entrepreneurship and job creation, as well as support to commercialization TPM operates a formal selection policy that of research. includes the following criteria: Background information. The idea of developing • Ambition for growth a technology park was supported by the local • Ability to benefit from incubation government. The regional executive council • Overall fit with the BI’s objectives and other provided the building in downtown Mogilev as well incubatees as seed-funding for the launch of the business incubator/technology park. TPM is recognized as • Strong business idea/plan the first business incubator (1998) and as the first • Willing to take advice technology park (1999) in the country. Created • Technical expertise of the applicant with the support of the Belarus government and TRANSFORM, a German technical assistance • Capacity to pay for services. program, TPM’s key partners include Mogilev State University, the Institute for Technology of Metals of A business idea is first assessed through a face- the National Science Academy of Belarus, Mogilev to-face interview with the business incubation City Council, and Mogilev Regional Executive manager. The key admission criterion is evidence Council. of innovativeness of the business idea/product/ service. The applicant must demonstrate that The technology park is targeted at start-ups, early market research was undertaken to identify stage, and established businesses from ICT- competitive advantages and niche markets for the 34 87 PLACEHOLDER Photo: Credit dEsIgnatEd by thE govErnmEnt as business idea. The application is also submitted an ExamplE oF bEst practIcE, tpm’s to a selection panel, comprising representatives of the executive team. A team with expertise on mIssIon Is to support and oFFEr subjects such as physics, engineering, sciences, small InnovatIon busInEssEs thE Full economics, and entrepreneurship will weigh in if appropriate. These experts can be academics, rangE oF InstrumEnts to translatE from graduated companies (former incubatees), thE crEatIvE human potEntIal Into and/or representatives of the government. InnovatIvE dEvElopmEnt oF thE rEgIon. Exit Policy TPM previously applied a time-based graduation policy, with an incubation period limited to four Referrals account for the largest number of years. This model was proven to be inefficient for applicants (up to 70 percent). Also, public most incubated businesses, depending on their awareness is created through regular events nature, scale, and focus. The terms were therefore conducted in cooperation with local government revised. Currently, TPM does not have a formal and the business community. The most popular exit policy. However, due to the limited size of the events are innovation competitions and exhibitions. business units, priority is given to new companies. Importantly, graduated companies are used as a Incubatees that have grown in size can possibly source of deal-flow (referrals) but, as mentioned relocate elsewhere in the technology park. The above, they are also involved in selection of new government of Belarus has set a time limit of generations of incubatees (as advised by business three years for business incubation. Extensions incubation best practice). Graduated companies are allowed since TPM is both a business incubator also take part in events conducted by the business and technology park. Movement of companies in incubator and workshops where they provide and out is stable. training to incubatees or exchange experiences. Since incubatees can remain on-site after All incubatees and graduate companies said they graduation, it must help the executive team to keep were asked in the beginning by the executive in touch with them. team if they would be ready to leave the business incubator in three to four years. However, that Strategy and Delivery was not set as a goal or a condition on which the Strategy. TPM’s operations are defined in a applicant was accepted. All incubatees are growth document (The TPM strategy) produced by the oriented and hope to own a private facility in the incubation manager, with buy-in from the rest future. of the team and from the board. The purpose, promises, and vision are articulated and agreed The main sources of deal-flow at TPM include: to by all board members and the executive team. Reporting and planning processes are • Referrals from partners, stakeholders, standardized, thus facilitating communications incubatees or graduates at various levels. The TPM charter describes the • Publicity events (innovation competition, functions of both management and board, with workshops, trainings, seminars, exhibitions) its operations strictly regulated by government • Word-of-mouth decree. The board is involved mainly in strategic management, but sometimes in delivery of • Website. support, directly or indirectly. Examples include: 35 88 • The regional executive council, for instance, is This is underlined through numerous events not directly involved in working with incubatees. co-organized by TPM and its stakeholders. With its However, it indirectly provides financial and highly experienced and qualified team of managers administrative support in arranging marketing keen on entrepreneurship development, TPM has a and publicity events that are attended by good number of ad hoc clients that provide stable incubatees and graduates. It also provides revenues. Financially, the business incubator is funding to winners of annual innovation self-sustainable as owner of the premises, and as competitions initiated by the local government. a professional organization with a strong team of • The Institute of Technology of Metals directly managers and experts, large partnership network, cooperates with some incubatees/graduates and strong image in local and regional markets. on student internships. Some incubatees are TPM broke even in 2000. Support from the graduates of the institute. public sector is administrative only (for instance, co-organization of public events). The table below TPM is considered a model of best practices in provides general financial figures, sources of Belarus. Its positioning is its focus on innovation. revenues and their contribution to running costs: General financial figures Initial capital funding received to set up the business incubator $1.2 million Initial revenue funding received to set up the business incubator 0 Estimated running costs of the business incubator for the last 12 months $160,000 Estimated income of the business incubator for the last 12 months $200,000 Estimated running costs since start of activity $2.2 million Estimated income since start of activity $2.5 million Percentage of running Sources of revenue costs covered Rent 45 Service fees 15 Investment (royalties/equity) 0 Consultancy and external work 40 Grants 0 Loans 0 Delivery. Business and financial support services • Access to investment readiness programs are provided internally and/or externally via the • Access to finance providers, angel investment executive team’s network of contacts. These and/or venture capital services include: • Access to seed capital fund initiatives • General business advice • Access to an advisory board. • Training, seminars and/or workshops In addition to business units, the following facilities • Marketing and sales services and shared admin services are available: • Help in finding grow-on space • Meeting rooms and/or conference facilities • Access to specialist advice • Reception area/reception facility • Access to management training • Networking/communal areas • Access to R&D and technology transfer support • Broadband connections • Internationalization services • Office equipment • General accounting and/or financial management advice • Telephone network and hardware • Opportunities to network with finance providers • Car park • Security services. 36 89 Coaching. Coaching within the business incubator “‘business-incubation” employees. The executive is provided internally by the executive team team spends around average 40 percent of its (enterprise general management, business working time directly supporting incubatees. In planning, marketing, etc.) and by external addition to daily informal contacts, meetings with companies for specific issues raised by incubatees the executive team take place monthly over various (legal, technological, etc.). There is a formal business-related issues (as part of coaching). The procedure for semi-annual monitoring to identify board is also active with its members providing gaps in enterprise development, and provide support in lobbying, networking, and promotion. support to eliminate these gaps. Coaching is also provided to incubatees on request. Coaching, as described by the business incubation manager, is Analysis of Quantitative Data responsive to the immediate needs of incubatees. Deal-flow of clients. In the last five years, TPM Monitoring. TPM regularly collects data from its received 27 applications for business incubation, incubatees. The executive team has developed of which 13 (48 percent) were accepted. This ratio a distance learning tool available online to help aligns with business incubation good practice. start-ups plan business revenues and expenditure. TPM currently deals with 250 individuals and The tool is available for free on TPM’s website businesses, in addition to its 24 incubatees, www.technopark.by. which is 8.7 percent of its clients. Clearly, TPM is now a key national player in the SME field and in Networking. TPM organizes and/or co-organizes innovation development. public events, has initiated a CEO club (an informal cooperation platform), and conducts Survival rates. Based on data collected, survival educational programs involving graduate rates of companies 12 months after graduation companies as speakers and co-trainers. (81+ percent) is typical for good practice. At TPM also shares first-hand information on 81+ percent, the rate of survival five years after government-supported programs aimed at SME their graduation is also very good. Although not development. Anecdotal evidence by incubatees explored further in this study, relocation into indicates that TPM has provided incubatees with bigger units within TPM and the resulting support opportunities to participate in industrial exhibitions from and relationships with graduate companies to build awareness and extend contacts. could be reasons for this. Internationalization services have allowed incubatees to make international contacts with Innovation and R&D activity. Being located Latvia, Germany, and Russia. within a technology park could considerably help incubatees in innovation and R&D. Over Financial support to incubatees. TPM supports eight innovative products were developed by the enterprises in preparing documentation and 24 incubatees in the last 12 months. Equally, business plan to apply for bank loans, to access over eight joint projects were initiated between loans and subsidies for job creation (as part of incubatees and knowledge-based organizations local and national government), R&D subsidies (such as R&D organizations, research institutions, (regional government subsidizes knowledge-based HE and FE institutions) in the past 12 months. companies). Interest rates vary depending on the types of banks and availability of co-subsidized (by TPM benefits from the HEIs within its network of the government) loans. contacts. The board has established a deal-flow of IP commercialization opportunities with HEIs. Like other business incubators in the study, TPM’s role Skilled Management Team is to facilitate and encourage innovation and R&D and Governance activity, rather than provide direct support. The 12 members of the executive team have professional backgrounds in technical fields, Labor skills and salary levels. TPM’s staff- economics, and humanities. The team also has members are described as typically highly skilled practical business experience, knowledge of male employees living in urban areas. Salaries self-development approaches, experience in amongst incubatees are between $300 and $600 knowledge-based organizations, international per month. Salaries among graduate companies studies (study-tours, internships), and are trained are between $600 and $900 per month. 37 90 Finance raised for incubatees. This indicator Conclusion has not been tracked by the business incubator, although financial support is provided as part of its Created in 1998, TPM is a successful private sector services. initiative operating as a joint stock company. More than just providing support to its incubatees, TPM General revenues and export revenues. Data on is recognized as the first business incubator (1998) general and export revenues indicate the following: and as the first technology park (1999) in the country. It is considered a trigger for enterprise • General revenues in the last 12 months: and innovation by end-users and as a model $.6.3 million of best practices by many. Although core to its • Export revenues in the last 12 months: activity, incubatees represent only 8.7 percent of $1 million its total client base, demonstrating TPM’s wider impact over the SME community in Belarus. The This is a general pattern among business data identifies a strong job creation profile with incubators. Export activities are limited, but extremely good survival rates and a good level internationalization services are in place at TPM to of R&D activity. TPM provides efficient business encourage and assist expansion of incubatees in and financial advice to incubatees, including foreign markets. investment readiness programs and access to finance providers and different sources of Financial return on investment. The following financing. Internationalization services are also financial information was collected during the available. Finally, the business incubator benefits survey: from a proactive governing body that actively takes • Taxes paid in the last 12 months (all part in operations. incubatees): $1.1 million • Taxes paid to date (all incubatees): Data not provided • Average taxes paid by incubatees in the last 12 months: $61,111 • Average taxes paid by incubatees to date (estimated): Data not provided • Initial capital funding received to set up the business incubator: $1.2 million 38 91 TABLE 1: Summary of Quantitative Data Indicators Quantity Applicants in the past year 6 Applicants in the last five years 27 Applicants accepted in the past year 4 Applicants accepted in the past five years 13 FTE jobs at entry 2.5 FTE jobs at exit 30+ Current FTE jobs (amongst incubatees) 225 FTE jobs created in the last 12 months via business incubation 41+ FTE jobs created to date via business incubation 41+ Graduations in the last 12 months 3.5 Graduations to date 21+ Jobs created by companies graduating in the last 12 months 41+ Survival rates of companies 12 months after graduation 81 percent+ Survival rates of companies 5 years after graduation 81 percent+ Patents applied for and owned in the past 12 months <2 Trademarks applied for and owned in the past 12 months <2 Copyrights applied for and owned in the past 12 months <2 Innovative products developed in the past 12 months 8+ Collaborative projects with knowledge-based organizations (such as R&D organizations, 8+ research institutions, HE and FE institutions) in the past 12 months Incubatees assisted in securing finance 5 Average salary among incubatees $300 to $600 Incubatees that have secured finance Data not provided Total finance secured by the BI Data not provided Finance secured by the BI for the incubatees Data not provided Finance secured to date by incubatees and graduated companies Data not provided Annual turnover at entry (average) <$10,000 Annual turnover at exit (average) $250,000 General revenues in the last 12 months $6.3 million Export revenues in the last 12 months $1 million BI income for the past 12 months $200,000 BI running costs for the past 12 months $160,000 BI income to date $2.5 million BI running costs to date $2.2 million Seed capital raised in the past 12 months N/A Seed capital raised to date NA Public funding received to date $100,000 Taxes paid in the last 12 months (all incubatees) $1.1 million Taxes paid to date (all incubatees) Data not provided Average taxes paid by each incubatee in the last 12 months (estimated) $61,111 Average taxes paid by each incubatee to date (estimated) Data not provided Initial capital funding received to set up the business incubator $1.2 million Initial revenue funding received to set up the business incubator 0 39 92 Appendix 8: Individual Report: SODBI Kazakhstan ten workshop units, and two laboratory units. It also provides one shared work station and an information center with access to business literature (library) and the Internet. The business All data and information contained in the study was incubator is seen as a business setting with a pool collected in September and November 2011. of organizations delivering advisory, training, and financial support to SMEs, while providing facilities that meet their needs. This positioning attracts a steady stream of companies entering the business Overview incubator. However, financial sustainability is Set up in 2000, SODBI business incubator is a dependent on market conditions, specifically subdivision of the SODBI private fund, an NGO surrounding competition in the business space targeting SME development in the region. SODBI’s leasing market, rather than business nurturing activities include providing educational services to services. Spinning out SME support services SMEs and start-ups and the delivery of business makes these services self-sustainable, but not incubation services. subsidized. Mission statement and objectives. SODBI’s SODBI was set up without any financial support mission is to promote SME development in the from the public sector—other than infoDev—and region, and to support development of production, reached break even in 2003. It is not dependent on processing, and service companies at start-up and any grant or subsidies. SODBI is self-sustainable development stages. Its main objective is to assist to the extent that rent covers current expenses. start-ups and young innovative entrepreneurs SODBI’s operations were revised in 2009 because by stimulating and fostering entrepreneurial of the economic crisis. SODBI is looking at activities, promoting competitiveness, and helping providing financial services (such as micro- them adapt to the local economic environment. loans and equity funds), which is still at an early development stage. Additional funds are required Background information. SODBI Private Fund so that financial services too can become self- provides the business incubator with space and sustainable. SODBI’s management is working funding. Additionally, stakeholders include two on attracting additional investments required to entrepreneurs involved in delivery of services achieve this. (training and consultancy). A majority of incubatees at entry are start-ups and early stage businesses (new ventures, possibly seeking first round of finance, or trying to make a first sale). Although Assessment of Business targeted at knowledge-based businesses, SODBI Incubator Practices and does not focus on a specific industry sector; most incubatees are academic or corporate spin-outs. Processes Previously, SODBI’s approach was limited to Selection Policy delivery of business advisory and training services A board and selection panel were in operation until to incubatees. Currently, the economic crisis 2009, when SODBI’s management structure and has shown that financial support—in the form of functions were reviewed, including its selection access to finance, equity, and partner searches—is and exit policies. Although still in operation in also required.SODBI’s premises consist of 3,362 practice, the selection policy is not identified as square meters of rentable area (gross area: 4,000 part of the business incubation process anymore. square meters) divided into 39 business units, 40 93 PLACEHOLDER Photo: Credit sodbI prIvatE Fund provIdEs thE SODBI does not focus on any specific sector, busInEss Incubator wIth spacE and although the following eligibility criteria have been set out: FundIng, and stakEholdErs IncludE two EntrEprEnEurs InvolvEd In thE dElIvEry • Ambition for growth • Ability to benefit from incubation oF sErvIcEs (traInIng and consultancy). • Overall fit with business incubator objectives and other incubatees • Strong business idea/plan The movement of incubatees in and out of SODBI • Willing to take advice is described as stable, reinforcing the perception • Capacity to pay for services of a strong demand for business incubation. A • Ability to benefit from cooperation with other stable deal-flow is also evidence of the business incubatees. incubator having a strong and established reputation. The common sources of deal-flow With a strong selection ratio (2.5 incubatees identified by the executive team include: for every 7.5 applicants), demand for business incubation services remains strong. Applicants • Public awareness must be start-ups or small businesses involved • Word-of-mouth in the production, processing, or services sector. • Recommendations from incubatees and Priority is given to innovative enterprises; the graduates current client base is represented mainly by ICT- related companies. Applicants are interviewed • Website. by the business incubation manager to ensure Strategy and Delivery that they meet basic admission criteria and the “internal non-competitiveness” principle to ensure Strategy. SODBI’s mission is to promote favorable business climate and cooperation among SME development in the region and support incubatees. Applicants do not have to provide development of production, processing, and evidence of innovation at entry. service companies at start up and development stages. The core objectives are the same now as Exit Policy they were at its early development stage. This is SODBI does not have a formal application process, despite changes in delivery (outsourcing), after the although incubatees could sign equity/royalty global economic downfall in 2007–2009, aimed at agreements with it. Incubatees and graduate maintaining financial sustainability. As stated by companies highlighted its advantages: a growth the business incubation manager, it had failed to strategy was discussed at inception, adequate remain sustainable over those three years. The support leading to steady development was revised strategy, focusing on financial services planned, and SODBI’s share in the business was for its clients, was started in late 2010. While acquired by the company at a certain maturity the previous approach was limited to delivery of stage. The growth of businesses was monitored, business advisory, training services, and coaching and exit discussed three months before the actual to incubatees, the new strategy is based on current graduation. needs of the clientele (most start-ups have no or limited access to finance, and lack market knowledge). 41 94 The crisis period showed that financial support percent. The fund is working on increasing its loan was required, apart from traditional business portfolio to meet the needs of incubatees. The incubation services. SODBI now provides short- table below provides general financial figures as term micro-loans to incubatees and SMEs beyond well as sources of revenues and their contribution the business incubator at the monthly rate of 2.5 in covering running costs. General financial figures Initial capital funding received to set up the business incubator $400,000 Initial revenue funding received to set up the business incubator $400,000 Estimated running costs of the business incubator in the last 12 months $180,000 Estimated income of the business incubator in the last 12 months $240,000 Estimate running costs since start of activity $1.64 million Estimated income since start of activity $2.2 million Percentage of running Sources of revenue costs covered Rent 65 Service fees 5 Investment (royalties/ equity) 5 Consultancy and external work 25 Grants 0 Loans 0 Delivery. Most services, including marketing, IT, • Meeting rooms and/or conference facilities and training, are outsourced and delivered on • Reception area/reception facility request. Business and financial services include: • Networking/communal areas • General business advice • Broadband connections • Training, seminars and/or workshops • Office equipment • Access to management training • Telephone network and hardware • Access to technology transfer support • Car park • General accounting and/or financial • Security services. management advice Coaching. Coaching is provided internally • Access to finance providers, angel Investment to incubatees on an informal basis to meet and/or venture capital. their immediate needs. Most companies (both SODBI’s original objectives included incubatees and graduates) ask for business internationalization services and focus on advice concerning smaller issues involving legal, innovation. Due to the market situation in the accounting, marketing, or for contacts. These are region, there was and still is low demand for resolved promptly. internationalization. The local business and Monitoring. Formal monitoring procedures were environment, including lack of R&D in the region, cancelled after a review of operations in 2009. and lack of government incentives does not create Progress reports of incubatees that have signed a good climate for innovation. As a result SODBI equity agreements with SODBI are still updated. expanded its services. The added value for these incubatees is access SODBI also offers the following facilities and to finance, not rent, as it was earlier. Companies shared admin services: that have received financial support from or share equity with the BI provide performance data on request. 42 95 Networking. Networking between incubatees Analysis of Quantitative Data is strongly encouraged and a “no-competition” policy is in operation among them. However, Deal-flow of clients. No quantitative data was since there is no real industry focus on the provided to allow an analysis of client deal-flow. premises, incubatees do not see opportunities Qualitative data collected during the on-site visit for professional cooperation. Networking was however indicated strong demand for tenancy identified by end-users as an area that needed despite the absence of formal selection and exit to improve. Some of them, however, appreciate policies. SODBI provides support to 33 incubatees that SODBI has facilitated business-to-business (it has supported a total of 71 incubatees since (B2B) linkages among companies incubated at start of activity in 2000), which is approximately SODBI, thereby supporting the development and 21 percent of its total client base. SODBI also deployment of their services/products. Being works with 136 businesses located outside its within SODBI did not help incubatees and graduate business incubation program. Like other business companies link up with other trade and business incubators in the study, SODBI is perceived networks. as a key organization in the development of entrepreneurship and innovation in the area. Financial support to incubatees. Based on self- completed questionnaires and qualitative data Survival rates. Based on data collected, survival collected during the on-site visit, financial support rates of companies 12 months after graduation is one of the main strengths of this business (90 percent) is slightly higher than defined by incubator. There are three ways that the BI secures good practice. At an 85 percent survival rate, the finances for its clients: situation after 5 years of graduation is also very good. • Consulting on business planning, partner search, and negotiations with financial Innovation and R&D activity. As already institutions and SME support funds mentioned, evidence of innovativeness of the business idea is a criteria for selection. However, • Providing micro-loans to clients through the the business incubator has not established deal- micro-credit organization, SODBI Finance, at flows involving IP commercialization with higher annual interest rates of up to 36 percent education institutions. The reasons for this are— • Taking up to 49 percent of equity shares. according to the business incubation manager—a general lack of R&D in the region and lack of However, these financial services are at an early government incentives that does not create a good stage and require additional funds to become climate for innovation. This was highlighted by the self-sustainable. SODBI’s management is working quantitative data related to innovation in the last 12 to attract additional investments to make it self- months. sustainable. Labor skills and salary levels. The typical incubatee staff-member at SODBI is described Management Team Skills and as a highly skilled person living in an urban area. Interestingly, all three incubatees in the study Governance were women entrepreneurs. Salaries in incubatees As explained previously in the report, SODBI’s range between $300 and $600 per month, while management was recently restructured and the salaries in graduate companies are between $600 board stopped operating. Currently, the SODBI’s and $900 per month. management is delivered by the director, who also Finance raised for incubatees. Quantitative data provides weekly feedback to stakeholders. collected indicate that at least 38 incubatees have The director spends approximately 10 percent of received some form of financial support from the his working time directly supporting incubatees. business incubator. A total of $70,000 was secured This is done monthly or on request and is an by the business incubator for incubatees. It is opportunity for incubatees to get advice on assumed that this was from 2009 onwards, when a accounting, taxation, and contacts, or general policy regarding equity and other forms of shares business advice. 43 96 was implemented. In addition, SODBI has raised a Conclusion total of $150,000 seed capital fund since start of its activities. Established in 2000, SODBI business incubator is a subdivision of the SODBI private fund, an NGO Financial return on investment. The financial targeting SME development in the region. SODBI’s details for the incubator are provided here: activities include providing educational services to SMEs and start-ups and delivering business • Taxes paid in the last 12 months (all incubation services. SODBI was set up without incubatees): $33,000 (except anchor tenants) any support from the public sector and reached • Taxes paid to date (all incubatees): $300,000 break even in 2003. It is not dependent on grants or subsidies. SODBI is self-sustainable as the rent • Average taxes paid by incubatees in the last 12 covers all expenses. SODBI’s operations were months: $1,100 revised in 2009, following the economic crisis. • Average taxes paid by incubatees to date: Data While its main source of income was (and still not provided is) rent of space, SODBI is developing a success • Initial capital funding received to set up the sharing model involving shares and equities in business incubator: $400,000 incubatees. These financial services are at an early development stage, and require additional funds • Initial revenue funding received to set up the to become self-sustainable. SODBI does not have business incubator: $400,000 selection or exit policies and support services are mainly outsourced. SODBI’s management is working to attract additional investments to make the fund self-sustainable. 44 97 TABLE 1: Summary of Quantitative Data Indicators Quantity FTE jobs created in the last 12 months via business incubation 10 FTE jobs created to date via business incubation 250+ Graduations in the last 12 months 2 Graduations to date 31 Survival rates of companies 12 months after graduation 90 percent Survival rates of companies 5 years after graduation 85 percent Number of patents applied for and owned in the past 12 months <2 Number of trademarks applied for and owned in the past 12 months <2 Number of copyrights applied for and owned in the past 12 months <2 Number of innovative products developed in the past 12 months <2 Collaborative projects with knowledge-based organizations (such as R&D organizations, <2 research institutions, HE and FE institutions) in the past 12 months Incubatees assisted by the BI in securing finance 34 Average salary among incubatees $300 to $600/month Incubatees that have secured finance 28 Total finance secured by the BI $70,000 Finance secured by the BI for incubatees $70,000 Annual turnover at entry (average) $40,000 Annual turnover at exit (average) $47,000 BI income in the past 12 months $240,000 BI running costs in the past 12 months $180,000 BI income to date $2.22 million BI running costs to date $1.64 million Seed capital raised in the past 12 months $80,000 Seed capital raised to date $150,000 Taxes paid in the last 12 months (by all incubatees) $33,000 Taxes paid to date (by all incubatees) $330,000 Average taxes paid by incubatees in the last 12 months (estimated) $1,100 Average taxes paid by incubatees to date (estimated) Initial capital funding received to set up the business incubator $400,000 Initial revenue funding received to set up the business incubator $400,000 45 98 Appendix 9: Individual Report: BASTAU STBI Student Technological Business Incubator (BASTAU STBI) Kazakhstan it provides a special curriculum based on a set of workshops with an emphasis on enterprise management. Activities at the incubator are steered by a governing body whose members All data and information contained in the study was include university directors, representatives of collected in September and November 2011. Technology Park Altai, and representatives from the National Innovations Fund, and the Science and Technology Council. Overview BASTAU Student Technological Business Incubator (BASTAU STBI) was created in 2007 as part of Assessment of Business the framework of the National Innovations Fund to establish innovative business incubators in Incubator Practices and Kazakhstan. It is a part of the East Kazakhstan Processes State University complex. Selection Policy Mission and objectives. BASTAU STBI’s objective With access limited to students and research is to promote and teach entrepreneurship and staff, BASTAU STBI operates a formal selection job creation to students, add on to the existing policy based on innovation competitions Technology Park Altai (where it is located), and conducted in October-November. Members of the help develop knowledge-based businesses through business incubator’s governing body are directly support to R&D. Its larger mission is to help create involved in the selection of applicants through supporting businesses for large corporates in the the competitions. Winners also go through an local market (mainly large industrial companies in interview with the business incubation director. the metallurgy sector). Criteria for selection include: Background information. The university and • Ambition for growth Technology Park Altai are the main stakeholders • Ability to benefit from incubation of the initiative. The university provided the initial investment, the 150 square meter premises, • Overall fit with BI objectives and other and manages the business incubation program incubatees (including support to incubatees). Technology • Strong business idea/plan Park Altai is involved in services delivery (product commercialization). The business incubator • Willing to take advice. is based on an open plan with potential for up Applicants must give evidence of the to 20 hot-desking units. Targeted at pre start- innovativeness of their business idea/product/ ups (product testing, pre sales, business plan service. Applicants must also demonstrate that development), the incubator does not provide market research work was undertaken to identify business units to incubatees. Managed by staff the competitive advantage of and niche market for (teachers and researchers) from the university, the business idea. 46 99 PLACEHOLDER Photo: Credit bastau stbI’s objEctIvE Is to Exit Policy promotE and tEach EntrEprEnEurshIp BASTAU STBI operates a formal exit policy which, and job crEatIon to studEnts, to add on like the selection policy, is detailed in its business plan. The exit strategy is linked to objectives as tEchnology park altaI, to thE ExIstIng set up in the business plan and is discussed with and hElp dEvElop knowlEdgE-basEd applicants at the outset. The policy is based on busInEssEs through support to r&d. business targets to be achieved. There are time limits, removal of subsidies or other disincentives. The movement of companies in and out of the incubator is not steady or stable. This is probably because of its narrow client base (students articulated and agreed to by all board members from the university) and fact that the business and the executive team. The reporting and incubator has been in operation for just five planning processes are standardized, facilitating years. Being part of the university, deal-flow and communication at various levels. The board is financial sustainability are not part of its strategic involved in strategic management of the business objectives. Nevertheless, the business incubator incubator, but is also involved at the operational has incubated 38 projects since it started activities. level. It participates in the innovation competition Incubatees represent 50 percent of its clients; it selection panels, thus selecting potential currently works with six incubatees and six ad hoc incubatees every year. It also provides support to clients. Main sources of deal-flow include: incubatees (idea working groups) by way of access to laboratories, facilitating contacts, conducting • University website classes for students participating in the working groups, and providing financial incentives to • Faculty (teachers, professors) teaching staff supporting the working groups. • Newsletters produced by the university The main idea behind creating a business • Word-of-mouth. incubator was to teach job creation to students and Companies graduating from the business to promote innovation. According to the director incubation program can move into business of the incubator, while BASTAU STBI achieves this units within the technology park. They are not goal there still is the challenge of commercializing generally involved in assisting new generations innovative products developed by incubatees. of incubatees. In practice, there is the feeling With limited government support, this challenge that the business incubator mission has not been could be addressed by developing international fully fulfilled. In three years of operation, only one networks, information exchange, and cooperation company has been created. Other incubatees/ideas with funding agencies and venture funds. These have not been commercialized. will be goals for the future. Strategy and Delivery BASTAU STBI’s core objectives do not (in any way) depend on its financial sustainability, as it Strategy. BASTAU STBI’s operations are defined is a part of the East Kazakhstan Technological in a document produced by the incubation University. The incubator is fully funded by the manager. The purpose, promises, and vision are university (it provides space, the director’s salary, 47 100 and incentives to lecturers and students for The table below provides general financial figures, participating in innovative projects). The long-term sources of revenues and their contribution to vision of the university management is to make it a running costs: profit center as a business incubator. General financial figures Initial capital funding received to set up the business incubator $20,000 Initial revenue funding received to set up the business incubator No data provided Estimated running costs of the business incubator in the last 12 months $4,320 Estimated income of the business incubator in the last 12 months The BI does not generate any income Estimate running costs since start of activity $32,960 Estimated income since start of activity The BI does not generate any income Percentage of running Sources of revenue costs covered Rent 0 Service fees 0 Investment (royalties/ equity) 0 Consultancy and external work 0 Grants 100 Loans 0 Delivery. Business and financial support services In addition to hot-desking units, the following at BASTAU STBI are mainly provided internally. facilities and shared admin services are available: External support is available from Technology Park Altai (product commercialization) and/or via • Meeting rooms and/or conference facilities the network of contacts of the business incubator. • Networking/communal areas Business and financial services offered include: • Broadband connections • General business advice • Office equipment • Marketing and sales services • Telephone network and hardware • Help to find grow-on space • Car park • Access to specialist advice • Security services. • Access to R&D and technology transfer support Coaching. Coaching within the business incubator • General accounting and/or financial is provided internally by the executive team on management advice an informal basis. When a project (business idea) • Opportunities to network with finance providers begins, BASTAU STBI creates a working group consisting of experts at the university. The working • Access to investment readiness programs group agrees on the format of work, a work plan, • Access to finance providers, angel Investment, and business targets. The regularity of coaching and/or venture capital depends on the type of activity carried out by the • Access to seed capital fund initiatives group. In most cases, groups contain experts in specific fields, but lack business skills and • Access to an advisory board. knowledge. The business incubator’s executive 48 101 team fills these gaps by helping incubatees The business incubator does not have an equity/ prepare documentation for submission to funders/ royalty policy. investors. The business incubation director monitors the project and provides guidance. Coaching is responsive to the immediate needs of incubatees. Management Team Skills and Governance Monitoring. Monitoring is carried out by the The executive team of the business incubator business incubator director who monitors and comprises the business incubator director, reports progress of clients based on coaching. The marketing manager, client relationship manager, executive team then discusses projects and issues adviser on intellectual property rights, records and provides necessary advice or coordinates management adviser, and directors of the five consultations with experts, shares contacts, student design bureaux. Staff-members spend etc. The university staff involved in the business approximately 30 percent of their working time incubation program has developed a monitoring directly supporting incubatees and combine and assessment methodology that helps evaluate their functions within the business incubator the potential of the ideas submitted during the with teaching and research. The executive innovation competitions. The university has team’s performance is reviewed regularly, but its created a working group to adapt this methodology relationship with the governing body is limited to to regularly monitor incubatees. writing and providing progress reports on request. Networking. BASTAU STBI is well positioned Although best practice recommends tight links within the university environment. It is part of the between the executive team and the governing innovation promotion chain maintained by the body and regular contact, the situation at BASTAU university (Student Design Bureaus > Innovation STBI is typical for initiatives where financial Competition > Business Incubation Program sustainability is not part of the prime strategic > National Innovation Fund and/or Technology objectives. This is often to the detriment of their Park). One of the top development goals is corporate image. international outreach and promoting innovations to market. Internally, the executive management monitors current project flows and facilitates Analysis of Quantitative Data relationships and networking among the different Deal-flow of clients. Quantitative data on deal- project teams (incubatees). Project teams also flow of clients is limited and difficult to analyze. benefit from the university’s network of contacts. Evidence collected during the on-site visit Finally, the university’s knowledge pool serves as however indicates that there is no stable churn a basis for innovative ideas and permanent and of companies moving in and out as demand is comprehensive support for idea-groups during low. As explained elsewhere in this individual their business planning processes. report, deal-flow—as well as building up the Financial support to incubatees. BASTAU STBI business incubator’s identity—is often an issue for does not provide direct financial support but university-based business incubators. assists incubatees in securing finance. Part of the Survival rates. The incubator has been developing business incubation program is to complete an 38 business ideas since its inception in 2007, but application package for funding from the National only one business has so far successfully exited Innovation Fund. The business incubator plays an to become a viable business. Quantitative analysis important role as a sign-poster for access to the of survivals rates of graduates is therefore not following services: possible. Based on data collected, survival rates • Access to investment readiness programs of companies 12 months after graduation is very poor, only 16 percent. • Access to finance providers, angel investment, and/or venture capital Innovation and R&D activity. Innovation and R&D • Access to seed capital fund initiatives. activity at BASTAU STBI is high as all business ideas selected for business incubation are R&D- focused collaborative projects with knowledge- 49 102 based organizations (R&D organizations, research • Taxes paid to date (all incubatees): $30,000 institutions, HE and FE institutions). BASTAU • Average taxes paid by incubatees in the last 12 STBI benefits from the presence of HEIs within months: $5,000 its network of contacts and has established a deal-flow of IP commercialization opportunities • Average taxes paid by incubatees to date with them. Unlike other business incubators in (estimated): $15,000 the study, the executive team here is a lot more • Initial capital funding received to set up the involved in supporting incubatees with R&D business incubator: $20,000 activities. • Initial revenue funding received to set up the Labor skills and salary levels. Despite being business incubator: Data not provided highly skilled, salaries among incubatees remain low with an average of $300 per month. However, given the client base (pre start-ups by students Conclusion and/or university lecturers), salaries are related to BASTAU STBI has developed a unique business incomes from their main activities (teaching at the model targeted at spin-outs and pre start-ups university). Most students do not have an income, (business ideas) by university staff and students. and have not yet commercialized their products. The model is based on collaborative projects with Finance raised for incubatees. No data was knowledge-based organizations. provided regarding finance raised for incubatees. The business incubation program is structured, Financial support is provided as part of the and a rigid selection process based on annual services on offer, as detailed elsewhere in this innovation competitions is applied. An experienced individual report. executive team provides incubatees with General revenues and export revenues. No appropriate business and financial support based data was provided regarding general and export on coaching and monitoring. revenues. Both stakeholders and the executive While its role within the university as a catalyst team confirmed their willingness to develop to promote innovation and entrepreneurship internationalization services to encourage and is clear to both stakeholders and end-users, assist expansion of incubatees into foreign commercialization of business ideas remains markets. limited and demand for business incubation Financial return on investment. The financial services remains low. However, the business details for the incubator are provided here: incubator has been in operation for just under five years; its reputation and identity still require • Taxes paid in the last 12 months (all further development for its strategic objectives and incubatees): $10,000 mission to be fulfilled. 50 103 TABLE 1: Summary of Quantitative Data Indicators Quantity Applicants accepted in the past year 8 Applicants accepted in the past five years 38 FTE jobs created in the last 12 months via business incubation 21–30 FTE jobs created to date via business incubation 31–40 Graduations in the last 12 months 1 Graduations to date 1 Jobs created by companies graduating in the last 12 months <10 Survival rates of companies 12 months after graduation <16 percent Survival rates of companies five years after graduation 49–80 percent Patents applied for and owned in the past 12 months 4–5 Trademarks applied for and owned in the past 12 months 1 Copyrights applied for and owned in the past 12 months 1 Innovative products developed in the past 12 months 1 Collaborative projects with knowledge-based organizations (such as R&D 8+ organizations, research institutions, HE and FE institutions) in the past 12 months Incubatees assisted by the BI in securing finance 38 Average salary among incubatees <$300 Incubatees that have secured finance 3 Annual turnover at entry (average) 0 Annual turnover at exit (average) $100,000 BI income in the past 12 months The business incubator does not have an income BI running costs in the past 12 months $4,320 BI income to date The business incubator does not have an income BI running costs to date $32,960 Seed capital raised in the past 12 months N/A Seed capital raised to date N/A Taxes paid in the last 12 months (all incubatees) $10,000 Taxes paid to date (all incubatees) $30,000 Average taxes paid by incubatees in the last 12 months (estimated) $5,000 Average taxes paid by incubatees to date (estimated) $15,000 Initial capital funding received to set up the business incubator $20,000 51 104 Appendix 10: Individual Report: Kalisz Innovation Center Poland broadband infrastructure and offers telephony services, car parking, in-house security, a library, a computer training suite, and access to free meeting rooms. The business incubator offers rooms on rent, charging 10 to 20 percent lower All data and information contained in the study was than similar commercial environments in Kalisz. collected in September and November 2011. A conference center with a 200-seat conference room and a smaller room for 40 delegates is available. Overview This business incubator was founded in September 1994 as part of a larger foundation and non- Assessment of Business governmental organization that includes an entrepreneurship development fund and small Incubator Practices and business assistance center. Processes Mission and objectives. The incubator supports Selection Policy development of entrepreneurship in the Kalisz Selection of tenants is based on an interview city and the region, aiding entrepreneurs and with the president of the board (director) of the the unemployed who wish to start their own business incubator and three incubator staff- companies. members. The incubator seeks technology-based and innovative businesses. Selection is based on Background information. The incubator ambition for growth, the ability to benefit from the was funded initially under the World Bank incubator, the willingness of the tenant to take “Employment Promotion and Services Project” advice, the capacity to pay for services, and the and its “small business development” project expertise of the entrepreneur. component, which supported the establishment of 24 incubators across Poland. The Kalisz business Exit Policy incubator received $230,000 in addition to the The incubator previously had an exit policy donation of the building from the Kalisz local of graduation in three years for office-based authority on a 20-year lease. Further investments companies and five years for production-based of $270,000 were secured from local funds in 2002- companies. This is now flexible and based on 2003 to extend the incubator to a second floor, factors such as job creation, business growth, incorporating a new conference center and training and the availability of business units within the facility. Overall, incubator has received funding of incubator. The average period per business is $950,000 to support its development and activities 4.5 years, based on 24 current tenants and 76 over a 17-year period. Now, the foundation is a businesses over 17 years. self-financing non-profit organization. Strategy and Delivery The business incubator has been in existence since 1994 and is located in the center of Kalisz. Strategy. Historically, the incubator’s mission was The town is located centrally between the to develop a “strong sector of small and medium- larger centers of Wroclaw, Lodz, and Poznan. sized enterprises that would contribute to the Starting with 4,700 square meters of space, it development of the middle class in Poland and was expanded to cover 5,408 square meters, the continuation of democratic development.” In of which 3,375 square meters is available for delivery, the incubator has focused on supporting business incubation. The business incubator is regional economic development through its divided into offices and production facilities, with support for entrepreneurship, access to finance, a small number of offices having their own ‘front access to lower cost premises, and business door’ access into the building. The building has counselling and training. 52 105 PLACEHOLDER Photo: Credit thE busInEss Incubator supports thE The center has 24 tenant businesses in various dEvElopmEnt oF EntrEprEnEurshIp sectors: media, accountancy, a regional chamber of commerce, catering, textiles, fire protection, In kalIsz and thE rEgIon, aIdIng security, education, travel, furniture production, EntrEprEnEurs and thE unEmployEd and design. Sector specialization is not part of the strategy. While there is a focus on businesses with who wIsh to start thEIr own companIEs. innovation potential, this is balanced against the need to maintain occupancy levels, recognizing the wider economic profile of Kalisz, and local this. Linkages to external networks through the demand for business space. This localization of the incubator are limited to the Enterprise Europe business incubator is evident from the fact that the Network. Graduation from the business incubator tenants interviewed for this study had all moved was not an option for two of the companies in from other locations in Kalisz. While several of interviewed as they were relatively new tenants. these companies had been created outside of the In line with the policy and findings outlined in incubator environment, the incubator helped them section 2.2 of this report, a mature tenant (10 develop new products and services and enhance years) said he did not want to leave, while a business growth during their period there. They graduated company had left after six years to build cited the central location of the incubator, access its own premises, incorporating a showroom and to central services and facilities, free legal production premises. advice, incubator profile, access to national and international networks, and the low rent as the key Apart from providing space, the incubator through reasons for them to move into the incubator. its foundation provides loans for SMEs and start- ups, training courses, seminars and conferences, Delivery. The most valuable services provided start-up information, and access to technology by the incubator, according to the tenants transfer and partnership development through the interviewed, were the access to legal services, Enterprise Europe Network. business support including networking, access to business loans, and access to conference and Since 1994, the incubator provided loans to SMEs seminar rooms. Cooperation with international and new businesses through its entrepreneurship companies was highlighted as a key future development fund. In particular, it has supported requirement, with 50 percent of tenant companies the unemployed with gaining access to finance, accessing services of the Enterprise Europe advising, guiding, and counselling them on the Network. Business support and monitoring is implications of loan funding. The foundation offers undertaken on a needs basis with regular monthly loans at rates below those of commercial banks business breakfasts providing the main forum and with interest rates of 5.26 to 8.26 percent to for engagement between the management team SMEs (depending on the company, profitability, and and tenant businesses. When business needs the type of guarantee) and 6 to 8 percent for the are identified, they are addressed promptly and unemployed. The foundation has supported (2011 efficiently by the incubator management team. data) 306 SMEs and 263 individuals who would otherwise be ineligible for traditional bank finance. Given the diverse range of businesses within the incubator, opportunities for networking and joint The incubator also provides support for small development of products and services are limited. business development including training in Internal collaboration and support is based on management, marketing, finance, law and traditional customer-supplier relationships with business. the accountancy and marketing companies within the incubator receiving the most benefit from 53 106 Transnational cooperation, particularly within the they manage the 14-member staff. The foundation European Union, has been a strong differentiator staff includes technical personnel, loan officers, and one of its core components. In 1999, it and innovation and technology specialists who became one of 13 ‘Euro Info Centers’ in Poland conduct day-to-day activities. and part of a network of 320 centers across Europe, supported by the European Commission. The President, Mr. Piotr Sadowski, is experienced Subsequently in 2008, it became the local node for in business incubation, having managed the south Wielkopolska Voivodeship (Greater Poland Kalisz incubator since its inception in 1994 and Province) in the Enterprise Europe network, which having been involved in its planning, financing, encompasses over 40 countries and 600 partners. and development in his previous role working Through Enterprise Europe, the incubator provides with the Kalisz local authority. The development information on EU legislation, business funding of the incubator with loan funding through opportunities, and access to grant programs such the World Bank TOR-10 program, included as structural funds, European Commission research training in establishing a network of Polish funding, and support for the application of new business incubators in which Mr. Sadowski was technology. a participant. In addition, Mr. Sadowski was a consultant for the Polish Agency for Enterprise The current and longer-term vision for Kalisz Development and has been involved in numerous is to become a technology incubator where projects focused on SME development. “science, industry, and entrepreneurship meet” and to be a link between science, education, and the local economy. This vision is included within the innovative development strategy for Analysis of Quantitative Data Wielkopolska with plans to incubate new industrial The business incubator in Kalisz has helped technologies (such as energy efficiency, low carbon nearly 80 companies through the incubation technologies), develop socioeconomic science, processes and supported the wider business and create a new seed capital fund, and extend city community through loans, access to training, cooperation with European and international information, advice, and guidance. The incubator partners through European-funded programs and has provided over 306 loans to SMEs (at different funds. interest rates each year) and over 263 loans for unemployed people (also at different interest rates each year) since its inception. With its financing and support to businesses, the incubator is an Management Team Skills and integral part of the Kalisz business community. Governance The incubator was uniquely positioned in Kalisz as The foundation is governed by a council (board of a business support organization with partnerships trustees) of five members from the local industrial with 23 local authority councils. However, and educational sectors appointed by the Mayor increased competition in the business support of Kalisz. The council has an oversight role in the market place, not only in Kalisz but across Poland, development and management of the business from business and technical consultants has incubator, deciding on the projects and programs created a situation where there is limited access that the incubator will pursue. An annual plan is to public funding. This has created a complex presented and discussed in January each year and situation in which organizations appear on the a minimum of four meetings is held in a year. support landscape and then disappear when funding has ceased. The board of directors has two members, including the president, Mr. Piotr Sadowski, who Sustainability of an incubator is therefore of critical is responsible for day-to-day operations of the importance and this business incubator has foundation and the business incubator. With him, is managed to survive and grow. This sustainability board member Mr. Kazimierz Mochalski. Together has been managed without the need for direct 54 107 public funding, since support services are funded flexible and is based on the development of the through local, national, and European programs. A incubator business, including job creation, business key dimension has been the establishment of the growth, and the availability of business units within incubator within the framework of a foundation the incubator. The average incubation period per and as a non-governmental organization making business is 4.5 years, based on 24 current tenants it non-political and able to provide a range of and 76 businesses over 17 years. essential services. Jobs created. Based on data provided, 760 jobs A meeting with the Kalisz local authority highlighted have been created by the incubator over 17 years. the high opinion with which the incubator is This represents a job creation rate average of held, in particular because of its support for 50 per year over the lifetime of the incubator. entrepreneurship promotion, enterprise support, Considering that the center has 24 incubator units, and economic development. In the Kalisz context, this represents a significant return on investment. the incubator is a critical organization, given the focus on the delivery of key services. The image of Survival rates. Based on the data provided, the the incubator has been enhanced through the role identified business incubation survival rates are of the president who has been with the incubator for in excess of 80 percent, in line with established 17 years and through its financial model in which business incubation best practice. pre-accession funds have been used to develop the Innovation and R&D activity. Innovation and incubator, but with the council retaining ownership R&D activity in the incubator is relatively strong of the building. Its strong history combined with its with a good number of patents, trademarks, linkages to regional authorities, access to European and copyrights applied for and awarded since its networks, and funding knowledge and expertise inception. Over the last 12-month period, more gives it a strong presence in the regional economy. than eight innovative products were developed The center provides an environment in which by its 16 incubatees. Five are from collaborative business realities are communicated to projects with knowledge-based organizations. This entrepreneurs and business owners, particularly is despite the incubator having no sector focus. issues involved with taking loans and its potential Financial return on investment. The financial impact on the recipients and their families. This details for the center are provided here: is particularly important; since 2012, business support is no longer provided free of charge. • Taxes paid in the last 12 months (all incubatees): $82,000 Deal-flow of clients. The incubator is seeking technology-based and innovative businesses. • Taxes paid to date (all incubatees): $861,00 Selection of tenants is based on ambition for • Average taxes paid by incubatees in the last 12 growth, the ability to benefit from the incubator, months:$3,275 the willingness to take advice, the capacity to pay for services and expertise of the entrepreneur. Only • Average taxes paid by incubatees to date one in four businesses that applied during the last (estimated):$34,500 year were chosen, while over a five-year period this • Initial capital funding received to set up the is closer to one in five. It can be argued that there is business incubator: $5,800 unmet demand for space in the business incubator, • Initial revenue funding received to set up the which has to be balanced with the graduation business incubator: N/A policy. As highlighted earlier, the exit policy is now 55 108 Conclusion The companies in the incubator are mature and deliver services beyond what is expected from The business incubator in Kalisz is a strong case companies within an incubation environment. study on sustainability, having been in operation While there is good practice in access to legal without direct public funding since 1994. The data services, breakfast workshops, and the provision provided identifies a strong job creation profile, of ad hoc support, the overall level of expected high survival rates, and a good level of R&D. Given business incubation support is limited. This is its geographical location between three larger reflected in the diversity of the businesses in cities, this is a good achievement. This incubator the incubator and the period they stay there. also has a strong profile in providing loans to SMEs However, an incubator must exist within a local and in providing international technology transfer context, support entrepreneurial development, and trade support through the Euro Info Centre and be sustainable. The business incubator in and the Enterprise Europe Network. Kalisz has shown that it supports local economic development and growth within the city in a sustainable way. 56 109 TABLE 1: Summary of Quantitative Data Indicators Quantity Applicants in the past year 24 Applicants in the last five years 120 Applicants accepted in the past year 6 Applicants accepted in the past five years 25 FTE jobs at entry FTE jobs at exit Current FTE jobs (among incubatees) 211 FTE jobs created in the last 12 months via business incubation 80 FTE jobs created to date via business incubation 760 Graduations in the last 12 months 3 Graduations to date 53 Jobs created by companies graduating in the last 12 months 50 Survival rates of companies 12 months after graduation 81 percent+ Survival rates of companies 5 years after graduation 81 percent+ Patents applied for and owned in the past 12 months 1 Trademarks applied for and owned in the past 12 months 4 Copyrights applied for and owned in the past 12 months 2 Innovative products developed in the past 12 months 8 Collaborative projects with knowledge-based organizations (for example, R&D 5 organizations, research institutions, HE and FE institutions) in the past 12 months Incubatees assisted by the BI in securing finance Data not provided Average salary among incubatees $600–$900 Incubatees that have secured finance Data not provided Total finance secured by the BI Data not provided Finance secured by the BI for incubatees Data not provided Finance secured to date by incubatees and graduated companies Data not provided Annual turnover at entry (average) Data not provided Annual turnover at exit (average) Data not provided General revenues in the last 12 months $750,000 Export revenues in the last 12 months $80,000 BI income in the past 12 months $600,000 BI running costs in the past 12 months $520,000 BI income to date Data not provided BI running costs to date Data not provided Seed capital raised in the past 12 months N/A Seed capital raised to date N/A Public funding received to date Data not provided Taxes paid in the last 12 months (all incubatees) $82,000 Taxes paid to date (all incubatees) $861,000 Average taxes paid by incubatees in the last 12 months (estimated) $3,275 Average taxes paid by incubatees to date (estimated) $34,500 Initial capital funding received to set up the business incubator $5,800 Amount of initial revenue funding received to set up the business incubator 0.00 57 110 Appendix 11: Individual Report: Timisoara Software Business incubator — UBIT Romania All data and information contained in the study was collected in September and November 2011. UBIT has played a catalytic role in the emergence and development of the local and regional tech entrepreneurship ecosystem. However, following research for this study, the Timisoara Software Business Incubator, UBIT as it was known during the research period, closed in July 2012. The initial partnership that had established the incubator (comprising Timisoara City Council, Timis County Council, and the Polytechnic University of Timisoara) could no longer be sustained due to varying motivations of the three partners: Timisoara City Council opted to establish its own IT-focused incubator while Timis County Council set up a non-specialized/ mixed use incubator. With both councils pulling out, the university was unable to finance UBIT by itself. It however, allowed tenants to remain on former UBIT premises with favourable contractual conditions. The Timisoara Start-up Hub, a privately developed and run start-up support infrastructure for tech and creative industry, was launched in December 2012 and took over the community development functions and initiatives previously run by Timisoara Software Business Incubator. It also offers support services for the Timisoara Software Business Incubator tenants. The overall tech entrepreneurship ecosystem in Timisoara was not disrupted with the closing of the UBIT project. On the contrary, notable achievements were recorded in 2013 (former UBIT clients won the Next Web Romania Start-up Award for the best mobile app, SlickFlick), and the Best Business Angel Investment Award, 123contactform). A Timisoara Start-up Weekend was organized by the Start-up Hub, and various other activities are ongoing in the Timisoara ecosystem. Mission and objectives. UBIT supports Timis county Overview companies that specialize in software development. The Timisoara Software Business Incubator (UBIT) UBIT was developed as part of a strategic concept is located within the “Politehnica” University for the economic and social development of the of Timisoara. It covers an area of 700 square Timisoara area. It aimed to benefit from the arrival meters divided into 17 business units, a training/ of global players such as Siemens and Alcatel in the conference room, and the executive team’s office. area while retaining and exploiting local know-how UBIT is a partnership (limited company) between in the software industry. three shareholders: Timisoara City Council, Timis County Council, and The Polytechnic University of Background. Plans to develop the business Timisoara. incubator were initiated in 1999 by its stakeholders with support and expertise from the German 58 111 PLACEHOLDER Photo: Credit dEvElopEd as part oF thE stratEgIc Society for Technical Cooperation (GTZ). In 2003, concEpt For thE EconomIc and socIal the partnership obtained capital as well as revenue funding for three years. In 2004, the BI was dEvElopmEnt oF thE tImIsoara arEa, thE officially launched with six incubatees. UBIT also bI was concEIvEd wIth thE objEctIvE to hosts the Romanian Association of Software and Electronics on its premises. gaIn bEnEFIt From thE arrIval oF global Applicants to UBIT are start-ups and very playErs such as sIEmEns and alcatEl In early stage businesses primarily related to the thE arEa and to rEtaIn and ExploIt local software, telecoms, and mobile industries. The know-how In thE soFtwarE Industry. executive team is composed of one part-time director and one full-time assistant director. UBIT’s board comprises representatives of the three shareholders. The person involved in the UBIT’s design, a former GTZ employee, is In addition, applicants must: regularly consulted on operational and strategic management issues. • Have a turnover of not more than €10,000 ($13,750) at entry • Have been in operation for a maximum of two Assessment of Business years Incubator Practices and • Have a maximum of seven employees Processes • Provide evidence of innovation management (competitive advantage and niche market Selection Policy identified) The business incubator operates a formal • Be incorporated as a company. selection policy that involves the following criteria: Applicants are scored on the above criteria. In • Ambition for growth practice, the selection policy is quite flexible and • Ability to benefit from incubation the executive team guides applicants to the point when they are ready for incubation. The process • Overall fit with BI objectives and other may involve more than just one interview with the incubatees executive team. The team helps applicants draw up • Strong business idea/plan a three-year business plan and business targets. • Willing to take advice Applicants must provide evidence of innovation either in the process, service, or technology. They • Technical expertise of the applicant must also demonstrate that market research • Business experience of the applicant. work was undertaken to identify their competitive advantage and niche market. When ready for business incubation, the director submits a report to the admission committee. The average duration of the selection process is two months. The selection process is detailed in the business plan and only minor changes were made to it over time. 59 112 Exit Policy Percentage of The incubator has a formal graduation process Sources of revenue running costs covered that is detailed in the business plan and discussed with applicants at the outset. Criteria involve: Rent 26 Consultancy and 6 • Maximum time limit external work • Stepped rents (rent which increases over the Grants 4 period of the lease) Other subsidies 64 • Removal of subsidy Delivery. Most business and financial support • Business targets services at UBIT are provided externally via the • Revenue and/or profitability targets. director’s network of contacts. Business and financial services include: Graduation criteria involve achievement of business milestones. Graduates are involved in • General business advice (internal) helping new generations of incubatees through, for • Training, seminars and/or workshops instance, a network of mentors or by taking part in • Marketing and sales services events, seminars, and other workshops at UBIT. • Help to find grow-on space (internal) Strategy and Delivery • Access to specialist advice Strategy. UBIT’s operations are based on a • Access to management training business plan that was updated twice by the executive team since start of operations in 2004. • Access to R&D and technology transfer support Objectives in the business plan align with the wider • Internationalization services objectives of the stakeholders (financing partners). The document does not take into consideration the • General accounting and/or financial ‘extra work’ by the executive team for downstream management advice and upstream activities (involvement in ICT • Opportunities to network with finance providers cluster development). In addition to the incubation (internal) services described below, UBIT also takes part in • Access to investment readiness programs a number of activities to foster entrepreneurial spirit in and around Timisoara and develop the ICT • Access to finance providers, angel Investment, cluster. Examples of this include: and/or venture capital. • How to Web: http://how-to-web.net/ UBIT charges very low rents, about half the local market price. It also provides the following basic • Mobile Monday Timisoara: http://www. admin and facilities-related services: mobilemonday.ro/chapters-2/timisoara/mobile- monday-timisoara-%E2%80%93-chapter- • Hot-desking opening/ • Meeting rooms and/or conference facilities • Timisoara Mobile Development Group: • Reception area/reception facility http://www.meetup.com/TiMoDev/ • Broadband connections • Geek Meet Timisoara: http://geekmeet.ro/ • Office equipment Fully funded by the public sector, achieving • Car park financial independence is not a strategic objective of the incubator. The business model is largely • Security services. dependent on subsidies and grants and there is no policy regarding equity stake and/or royalty Coaching. Coaching was recently started at UBIT. agreements with incubatees. The table below It is provided on a pro-bono basis by an external gives details of sources of revenues and their provider. Coaching sessions take place every contribution to covering running costs. two weeks, and are based on need assessment exercises during the selection process and periodic reviews by the coach. Incubatees say coaching is responsive to their immediate needs. The BI plans to obtain regular performance data from clients 60 113 and implement an effective feedback mechanism know-who in Timisoara. They spend an average on the quality of coaching. The idea is to make of 30 percent of their working time directly coaching a full part of the program in the near supporting incubatees. The director is perceived future. as a key asset; he performs duties beyond his job description. A lot of his personal time is invested in Monitoring. The incubator requests information developing and maintaining UBIT. While the board from incubatees every six months. The indicators has funded the initiative since start of operations, used for monitoring are defined by incubatees the executive team believes it could be more together with the board. There is the feeling in effective, extend UBIT’s vision, and work towards the executive team that the board’s vision for developing the BI as a solid gateway for enterprise UBIT is limited: UBIT needs to be more than just a in the area. managed workspace, it should act as an economic regeneration and development tool. Links with graduated companies are maintained but their performance is not monitored. Analysis of Quantitative Data Deal-flow of clients. Since 2003, 30 applications Networking. Networking is perhaps the main were received for business incubation, of which strength of the BI, largely due to the director’s 24 were accepted. This applicant-incubatee ratio involvement. This was clearly highlighted during the seems high, but the executive team generally focus group discussion with end-users (incubatees assists applicants to develop their business idea up and graduated companies). In a country where to the point when it is ready for incubation at UBIT support from government to start-ups and SMEs (see section related to selection policy). Despite is very limited, UBIT provides incubatees with the presence of an ICT cluster in Timisoara, visibility and credibility in the market place. UBIT, demand for business incubation and sources of for instance, introduces incubatees to industry deal-flow are a major issue as the entrepreneurial networks and clusters. This is done in two ways: spirit is still lacking in Romania and the structure to support start-ups and SMEs remains limited. • Top down approach championed by the regional The director is leading or is involved in a number development agency of activities to promote and foster innovation and • Bottom up approach championed by the entrepreneurial spirit in the region. Consequently, Romanian Association of Software Industries, the BI is involved in supporting over a hundred located on the premises. individuals, in addition to services provided to incubatees. UBIT is, for instance, currently in UBIT regularly organizes training, seminars, discussion with Doug Richard to develop his and other workshops on the premises and has a ‘School for Start-ups’ concept in Timisoara. It is network of external support it can call on. These clear that UBIT is a gateway for enterprise in the activities are not part of the original business plan ICT industry in the Timisoara region even though or part of the director’s job description. They do not demand for business incubation remains low. generate revenues, but contribute to the reputation of the BI as a key player in cluster development. Survival rates. Survival rates of companies 12 months after graduation (81 percent) and five years Financial support to incubatees. No funding after graduation (49 to 80 percent) is typical for was secured for incubatees and this is an area good practice. that requires investigation. UBIT is currently in discussion with Doug Richard (http:// Innovation and R&D activity. While two or three schoolforstartups.ro/wp/). The plan is to develop innovative products were developed on UBIT’s an investment readiness program that can be premises in the last 12 months, innovation followed by investment pitch sessions and R&D activity remains moderate. This was confirmed by qualitative data collected for the study. While UBIT plays a key role in the Management Team Skills and development of the local and regional ICT cluster, its focus is not on innovation and R&D. Governance UBIT has a management-incubatee ratio of 2:12. Salary levels. Salaries of incubatee staff are Team-members have good ICT know-how and between $600 and $900 a month. The staff are predominately male, urban, and highly skilled. 61 114 Finance raised. It is not part of UBIT’s remit to Conclusion raise funding and no analysis can be done. Data indicates that one incubatee raised $130,000. Since its inception in 2003, UBIT’s activities were not limited to supporting start-ups and early General revenues and export revenues. Figures stage businesses on its premises. A number for only the last 12 months were provided. General of activities have been developed and operated revenues by incubatees are between $51,000 and by UBIT’s director, mainly upstream, to foster $75,000. Total revenues of all 12 UBIT incubatees entrepreneurial spirit within the area and also to in the last 12 months were over $680,000. Export generate client deal-flow (demand for business revenues by incubatees for the last 12 months incubation is an issue in Timisoara). were between $31,000 and $40,000. Total export revenues for all 12 UBIT incubatees in the last 12 UBIT has played an important role in developing months were over $450,000. Unlike most other and operating the ICT cluster in Timisoara. UBIT business incubators in the study, UBIT’s export has, over the years, worked with more than 100 revenues are relatively high. individuals other than through business incubation (over 300 according to the director). Quantitative Financial return on investment. UBIT’s financial data demonstrates that the added value of the details are provided here: business incubator over time is moderate. However, in the Romanian context (where the structure • Taxes paid in the last 12 months (all to support start-ups and early stage businesses incubatees):$80,000 in general and support from government are • Taxes paid to date (all incubatees): $520,000 both limited) entrepreneurial spirit only now emerging, and the limited human and financial • Average taxes paid by incubatees in the last 12 resources available need to be considered. Return months: $7,000 on investment is therefore difficult to evaluate • Average taxes paid by incubatees to date quantitatively. (estimated): $40,000 • Initial capital funding received to set up the business incubator: $59,400 • Initial revenue funding received to set up the business incubator: $190,000 62 115 TABLE 1: Summary of Quantitative Data Indicators Quantity Applicants in the past year 4 Applicants in the last five years 30 Applicants accepted in the past year 2 Applicants accepted in the past 5 years 24 FTE jobs at entry FTE jobs at exit Current FTE jobs (among incubatees) 40 FTE jobs created in the last 12 months via business incubation <10 FTE jobs created to date via business incubation 41+ Graduations in the last 12 months 1–7 Graduation to date 14–20 Jobs created by companies graduating in the last 12 months 21–30 Survival rate of companies 12 months after graduation 81 percent+ Survival rate of companies 5 years after graduation 49–80 percent Patents applied for and owned in the past 12 months <2 Trademarks applied for and owned in the past 12 months <2 Copyrights applied for and owned in the past 12 months <2 Innovative products developed in the past 12 months 2–3 Collaborative projects with knowledge-based organizations (for example, R&D <2 organizations, research institutions, HE and FE institutions) in the past 12 months Incubatees assisted by the BI in securing finance 0 Average salary among incubatees $600–$900 Incubatees that have secured finance N/A Total finance secured by the BI $100,000 Finance secured by incubatees $130,000 Annual turnover at entry (average) $7,500 Annual turnover at exit (average) $52,000 General revenues in the last 12 months $680,000 Export revenues in the last 12 months $450,000 BI income in the past 12 months $85,000 BI running costs in the past 12 months $85,000 BI income to date $546,000 BI running costs to date $585,000 Seed capital raised in the past 12 months 0 Seed capital raised to date 0 Public funding received to date (sources) $303,000 (subsidies) Taxes paid in the last 12 months (all incubatees) $80,000 Taxes paid to date (all incubatees) $520,000 Average taxes paid by incubatees in the last 12 months (estimated) $7,000 Average taxes paid by incubatees to date (estimated) $40,000 Initial capital funding received to set up the business incubator $59,400 Initial revenue funding received to set up the business incubator $190,000 63 116 Appendix 12: Individual Report: Zelenograd Nanotechnology Centre (ZNTC) Russian Federation ZNTC was established with a grant from RUSNANO, won by MIET in an open call for proposals on creation of nanocenters. After signing a grant agreement for seven years, business and All data and information contained in the study was strategic plans were finalized and approved by the collected in September and November 2011. board. Currently, activities are implemented with funds from ZNTC, MIET, and RUSNANO. Overview Business incubation at ZNTC is targeted at start- ups and early stage businesses (new ventures The Zelenograd Nanotechnology Centre (ZNTC) seeking first round of finance, or making first was started in 2010. However, the organization was sales). With 150 square meters dedicated to set up in 2007 and traded until 2010 as Zelenograd business incubation, this is a small-scale project. Innovation Technology Centre (ZITC). After three The rentable space is divided into five office units, years of operations, its overall performance was one workshop unit and five laboratory units. In considered weak and the organization restructured addition, ZNTC will launch an open space with as a limited company under the National Research hot-desking facilities: previous experience has University of Electronic Technology (MIET), ZITC, demonstrated to ZITC that a separate office is not and the Russian Corporation of Nanotechnologies as popular as hot-desking for start-ups due to low cluster (RUSNANO). The last is a government- numbers of employees. This approach, according owned non-commercial organization created to to the executive management, will stimulate support nanotechnology with subsidies and training. networking and joint initiatives among incubatees. Mission and objectives. ZNTC’s mission is to It is also envisaged that production facilities on the become a key element of the national (Russian) premises will be improved. nanotechnology network. ZNTC seeks to Based on a success-sharing business model commercialize nanotechnology, organize involving equity, the incubator provides space production, and become a key player in technology free of charge: one of the basic requirements of transfer through business incubation of start-up RUSNANO. Most of the business and financial companies and licensing technological processes. support is also delivered for free. The introduction Background information. The business incubation of paid services, the executive team feels, will program at MIET was delivered through ZITC improve sustainability and fit in with the business until 2010 when it was transferred to the newly- incubation concept (the fees will be set according established ZNTC. This allowed the incubator to to incubatee development stages and business offer an enhanced package of services, including needs), and reduce risk of failure. Still at an early working space, laboratories, consultancy, stage, the incubator is fully dependent on public and financial support through equity (up to 25 sector financing: the focus is currently on skills percent) from RUSNANO funds. ZNTC’s board building (technology and consultancy), and facility also comprises representatives of organizations enhancement. that contribute to it financially. Thus, the board In 2011, five companies were incubated and four tracks commitment of the business incubator to received investment from RUSNANO. ZNTC also the mission and vision of ZNTC and ensures the became a member of the European Business & careful allocation of funds. Innovation Center Network (EBN BIC) in the same year. 64 117 PLACEHOLDER Photo: Credit zntc sEEks to commErcIalIzE nanotEchnology, organIzE productIon, Assessment of Business and bEcomE a kEy playEr In tEchnology Incubator Practices and transFEr through busInEss IncubatIon Processes oF start-up companIEs and lIcEnsIng Selection Policy tEchnologIcal procEssEs. ZNTC operates a formal selection policy which involves the following criteria: • Overall fit with BI objectives and other • Removal of subsidies incubatees • Business targets • Strong business idea/plan • Revenue and/or profitability targets. • Capacity to pay for services. Because no incubatee has graduated, it is not Applicants to ZNTC submit their business concepts possible to give a value to the selectivity ratio. for review by a selection panel comprising five Equally, client deal-flow cannot be fully analyzed representatives including technical experts, yet as the incubator is still working on building RUSNANO, and members of the executive team. up its reputation outside the university and The panel evaluates project feasibility, the amount stimulating demand for its services. Sources of and type of support required, and eligibility of the deal-flow include: applicant. The executive team helps applicants in preparing their applications to RUSNANO, which • Referrals (MIET) decides whether or not the applicant should be • Public events selected. The application must clearly demonstrate • RUSNANO innovativeness of the business idea and its competitive advantage in the market. • Ad hoc clients • Word-of-mouth. On admission, the executive team continues to work closely with incubatees and assist them in Efforts have been made to further develop its developing their business plans. The business client base by acquiring businesses outside the plans are submitted to RUSNANO or other sources incubator as clients (ad hoc clients as opposed for funding. to incubatees). The business incubator currently works ad hoc with 36 individuals/ businesses. In 2011, five companies were incubated at ZNTC, Incubatees represent 12.5 percent of ZNTC’s with another five planned for entry in 2012. clients. Exit Policy Strategy and Delivery The incubator started operations in 2008 and has Strategy. ZNTC’s operations are defined in a formal exit policy in its business plan, which is a business plan produced by the incubation linked to its strategic and operational objectives. It manager, with buy-in from the rest of the team has not yet been applied in practice. No business and the board. Strong links exist between the has yet graduated. executive team and the board as the business The exit policy involves the following milestones: model is based on a success-sharing element (equity shares). The board functions as an observer • Stepped rents (rents which increase over the but also sets strategic priorities for the incubator, period of business incubation) and reviews its performance against set targets. 65 118 Financially, the incubator is fully dependent on ZNTC is planning to break even in 2013. The table public sector financing and would fail to fulfil its below provides general financial figures as well mission without this. In addition to equity, the as indications on sources of revenues and their executive team is looking at introducing paid- contribution to covering running costs. for services to achieve financial sustainability. General financial figures Initial capital funding received to set up the business incubator 0 Initial revenue funding received to set up the business incubator $3 million Estimated running costs of the business incubator in the last 12 months $730,000 Estimated income of the business incubator in the last 12 months $770,000 Estimated running costs since start of activity $730,000 Estimated income since start of activity $770,000 Percentage of running Sources of revenue costs covered Rent 0 Service fees 0 Investments (royalties/ equity) 25 Consultancy and external work 0 Grants 75 Loans 0 Delivery. Business and financial support services The following facilities and shared admin services at ZNTC are provided internally and/or externally are also available at ZITC: via the executive team’s network of contacts. The following business and financial services are • Meeting rooms and/or conference facilities available: • Networking/communal areas • General business advice • Broadband connections • Training, seminars and/or workshops • Office equipment • Marketing and sales services • Telephone network and hardware • Access to specialist advice • Car park • Access to management training • Security services. • Access to R&D and technology transfer support In addition, high-tech, nanoelectronic systems • Internationalization services equipment, with no equivalent in Russia, provides • General accounting and/or financial incubatees with a clear competitive advantage in management advice their field. • Opportunities to network with finance providers Coaching. Coaching is provided formally and • Access to investment readiness programs internally to support incubatees in preparing business plans for RUSNANO investments. • Access to finance providers, angel Investment, Incubatees work in tight cooperation with ZNTC and/or venture capital managers, and are welcome to seek help on • Access to seed capital fund initiatives. business plan-related or production-related 66 119 issues. Specific technology advice is facilitated taking up equity. The main features of the policy by the executive team and provided through the are: university (MIET). Coaching is responsive to the immediate needs by incubatees. • RUSNANO picks up 25 percent share in the business for the first 3 years Monitoring. While there is no formal monitoring • Incubatee gets preferential lease rates, with system at ZNTC, the activity is combined with gradual increase of the rents weekly coaching sessions and consultations. It is assumed that, due to the success sharing business • Three-year business incubation period.7 model, business and financial performances of So far, the business incubator has secured incubatees are closely recorded. The performance $250,000 in financing for incubates. data collected meets the needs of stakeholders (RUSNANO). The main concern is to ensure the feasibility study and development planning has been done properly by incubatees so that timely Management Team Skills and support is provided when needed. Governance Networking. Networking is encouraged and The executive team (five FTE employees) at facilitated in a number of ways by the executive ZNTC consists of specialists in key competence team. areas required to support the development of incubatees (business and economics, marketing, • Incubatees are introduced to industry law, technology, finance, and human resources). networks and clusters. MIET regularly hosts The team also has practical experience in various cluster events (conferences, forums, manufacturing, business, and government service. exhibitions, etc.), which are attended by With a management-incubatee ratio of 5:5, the representatives of large producers, trade executive team spends an average of 30 percent of unions, scientists, and government working its working time directly supporting incubatees. in the nanotech sphere. The incubator is, for instance, partnering with “Made in Zelenograd” (www.made-in-zelenograd.ru), which promotes locally produced goods (mainly in Analysis of Quantitative Data microelectronics, for which Zelenograd has a Deal-flow of clients. Deal-flow of clients is national and international reputation). still under development at ZNTC. The plan is to • Internally, networking amongst incubatees is introduce paid-for services to incubatees and encouraged with some graduates becoming ad hoc businesses to strengthen the business suppliers to the new generation of incubatees. incubator’s financial sustainability. Till now, all There is anecdotal evidence that incubatees applicants were successful, resulting in a 100 work together towards future cooperation, from percent selectivity ratio. This is in line with good the point of view of supplies and outsourcing. practice and typical of recent business incubation initiatives. Apart from incubatees, ZNTC works • As mentioned elsewhere, the incubator is with 36 other businesses. It is clear that apart from currently preparing to launch an open-space the support provided to incubatees, ZNTC’s impact office with “hot-desking” facilities to further has been limited, although figures regarding stimulate networking and joint initiatives innovation activities are positive (see below). The among incubatees. business model developed around equity shares and strong coaching/monitoring activity allows Financial support to incubatees. Other than generic financial advice and access to investment readiness programs, finance providers (angel Investment and/or venture capital) and seed 7 One graduate company taking part in the study argued capital fund initiatives, ZNTC also has a policy of for more flexibility in the time limit for incubation as three years often is not enough for start-ups in this industry. 67 120 incubatees to address an important financial gap are generated from research orders from that usually hinders start-ups and early stage industrial companies (approximately 30 percent) businesses. and state funding for R&D (70 percent). The incubation manager is looking at developing other Survival rates. All incubatees still operate within sources of income that will impact the financial the incubator. None have yet graduated. model (paid for services, rent, services to ad hoc client companies, etc.). Although no formal Innovation and R&D activity. Being a university- monitoring process is in place, financial data about based initiative has helped the incubator establish incubatees and the incubator’s progress is kept a deal-flow of IP commercialization opportunities updated: with higher education institutions. ZNTC also provides direct access to R&D and/or product • Taxes paid in the last 12 months (all development support by facilitating contacts incubatees):$17,000 with key university experts. Results in terms of innovation and R&D activity are convincing: • Taxes paid to date (all incubatees): $17,000 • Average taxes paid by incubatees in the last 12 • Patents applied for or owned in the last 12 months: $3,400 months: 2–3 • Average taxes paid by incubatees to date • Innovative products created in the last 12 (estimated): $3,400 months: 4–5 • Initial capital funding received to set up the • Collaborative projects with knowledge based business incubator: 0 organizations: 4–5 • Initial revenue funding received to set up the Labor skills and salary levels. The typical business incubator: $3 million incubator staff-member at ZNTC is described as highly skilled, male, living in an urban area. Salary levels among incubatees are between $600 and Conclusion $900 per month. Salaries in graduate companies are forecasted at $900 to $1,200 per month. ZNTC is still developing its business and financial models. While its impact on entrepreneurship is Finance raised for incubatees. One of the main limited due to its young age, the factors necessary strengths of this incubator is its policy of acquiring for the model to become successful over time are equity in clients. As a result, the business in place. These include selection and exit policies, incubator has raised a total of $250,000 among the a portfolio of business development resources, five incubatees in the last 12 months. and an executive team with appropriate skills and experience. The selection and exit policies are General revenues and export revenues. The described in the business plan and are in line with following are the revenues at the incubator: the wider objectives of the business incubator. However, some flexibility exists and will remain • General revenues in the last 12 months: till the incubator reaches financial sustainability. $340,000 There is no formal monitoring activity so far but • Export revenues in the last 12 months: $75,000. performance of incubatees are recorded during coaching based on the initial needs assessment Since these businesses are at an early stage completed as part of the selection procedure. of growth, export activities are limited. There is an opportunity here to develop a formal Internationalization services are in place at ZNTC process. Financial support is a key element of to encourage and assist expansion of incubatees the program. Networking is also encouraged into foreign markets. and facilitated, in particular between incubatees. The objective is to encourage development of a Financial return on investment. As mentioned ZNTC community and mutual assistance between earlier, the incubator currently cannot survive incubatees, thus improving and further developing without support from the public sector. Revenues the support structure. 68 121 TABLE 1: Summary of Quantitative Data Indicators Quantity Applicants in the past year 5 Applicants in the last five years 5 Applicants accepted in the past year 5 Applicants accepted in the past five years 5 FTE jobs at entry 0–5 FTE jobs at exit N/A Current FTE jobs (among incubatees) 40 FTE jobs created in the last 12 months via business incubation 31–40 FTE jobs created to date via business incubation 31–40 Graduations in the last 12 months 0 Graduations to date 0 Jobs created by companies that graduated in the last 12 months N/A Survival rates of companies 12 months after graduation N/A Survival rates of companies five years after graduation N/A Patents applied for and owned in the past 12 months 2–3 Trademarks applied for and owned in the past 12 months <2 Copyrights applied for and owned in the past 12 months <2 Innovative products developed in the past 12 months 4–5 Collaborative projects with knowledge based-organizations (for example, R&D 4–5 organizations, research institutions, HE and FE institutions) in the past 12 months Number of incubatees assisted by the BI in securing finance 5 Average salary among incubatees $600–$900 Incubatees that have secured finance 5 Total finance secured by the BI $250,000 Finance secured by the BI for incubatees $500,000 Finance secured to date by incubatees and graduated companies N/A Annual turnover at entry (average) $50,000 Annual turnover at exit (average) $500,000 (estimated for 2014) General revenues in the last 12 months $340,000 Export revenues in the last 12 months $75,000 BI income in the past 12 months $770,000 BI running costs in the past 12 months $730,000 BI income to date $770,000 BI running costs to date $730,000 Seed capital raised in the past 12 months $250,000 Seed capital raised to date $250,000 Public funding received to date $3 million Taxes paid in the last 12 months (all incubatees) $17,000 Taxes paid to date (all incubatees) $3,400 Average taxes paid by incubatees in the last 12 months (estimated) $3,400 Average taxes paid by incubatees to date (estimated) $17,000 Initial capital funding received to set up the business incubator 0 Initial revenue funding received to set up the business incubator $3 million 69 122 Appendix 13: Individual Report: Business Technology Incubator of Technical Faculties—Belgrade LLC (BITF) Serbia • Create a critical mass of well-trained young educated entrepreneurs that can create a new long-term economic core • Create conditions for direct commercialization All data and information contained in the study was of scientific and research work of professors collected in July and August 2012. and associates of faculties, and knowledge and technology transfer. Apart from its mission, BITF’s other main objective Overview is to facilitate the creation of new hi-tech SMEs Business Technology Incubator of Technical (ICT, med-tech, green technology, embedded Faculties—Belgrade L.L.C. (BITF, www.bitf.rs) systems, mechanical engineering, and automated was established in 2007 as a partnership between systems). four technical faculties of the University of Belgrade (civil engineering, mechanical, electrical Background engineering and technological/metallurgical), the BITF’s manager worked to prepare and initiate the Municipality of Palilula (www.palilula.org.rs), and project for 18 months before it was launched in the Democratic Transition Initiative (www.dti.org. March 2006 with funding from OSCE.9 The project rs). The project was supported by the Organization was implemented in three phases. The first phase for Security and Cooperation in Europe, based was carried out through the Democratic Transition on international experiences and best practice Initiative (one of the founders of BITF). examples. The second and third phases were carried out BITF is located on the campus of Technical through the Business Technology Incubator. A Faculties Belgrade (Ruzveltova 1A) and has feasibility study was developed and in August 2006 premises measuring 600 square meters, of BITF was officially registered and started working. which only half is useful office space. The space At the end of 2006, BITF conducted the first five- comprises of 12 business office units, a training day training on how to start your own business room, and offices for the executive and project for a group of students of the technical faculties. management team (three offices in total). BITF has The training took place at the Faculty of Civil provided (on occasional basis) hot-desking for few Engineering (one of the founders). In December start-ups established by students from technical 2007, the incubator was officially launched with faculties.8 its first six incubatees. Later, more space was renovated and another six incubatees moved in, Mission and objectives including the Serbian business angel network and The BITF Mission Statement is: embedded cluster. • Support students to start and develop their own businesses, thus supporting their staying in Serbia and preventing brain drain 9 BITF manager Gordana Danilovic-Grkovic, “I was working 8 Several students from electro-technical and mechanical on establishing the relationship between faculties and faculties established Strawberry Energy in the second the municipality. The key funds during initiation of the year of their studies in 2009, first as an NGO, and two incubator came thanks to OSCE.” years later as a registered company. They closely cooperate with the BITF management team. 70 123 PLACEHOLDER Photo: Credit bItF IntEnds to support studEnts to Assessment of Business crEatE a crItIcal mass oF wEll-traInEd Incubator Practices and young EducatEd EntrEprEnEurs who can Processes crEatE a nEw long-tErm EconomIc corE. Selection Policy This incubator has implemented an effective screening process that identifies companies 1. Administrative phase: Review of that can help it achieve its mission and vision. documentation submitted, and check that Prospective applicants learn about the incubation the project complies with the objectives of program through brochures, BITF’s web site, incubator’s program. informal interviews, training organized by BITF, 2. Technical and financial evaluation: and/or an incubator tour. If interested, they can Applications that meet requirements proceed to submit a formal application or business plan. the second phase. Applications are submitted BITF’s physical location (part of the campus of electronically. Each reviewer assesses the technical faculties), and proximity to students project within seven days of receipt and delivers and teachers, helps spread the word about its his/hers marks to the management of the activities and services. The incubator manager’s incubator. The type of business determines who wide network of contacts plays an important role reviews the project application. For example, in securing a pipeline of prospective applicants/ an IT researcher and an intellectual property companies. BITF’s team helps entrepreneurs expert will evaluate a software development during pre-incubation or their incubation company applicant. The applicant must indicate application. what resources and services he expects from BITF, such as admin, accounting, legal, The selection process for admission to BITF gives secretarial, consulting, training and mentoring, weightage to start-up projects. BITF has a formal marketing and promotion, connectivity and (written) selection policy which is published in a networking, space, etc.). daily newspaper and on its web-site. A selection committee, bound by a confidentiality agreement, 3. Selection committee: A five-member evaluates candidates based on pre-defined criteria committee comprising representatives of the and general guidelines for evaluation. The aim incubator founders gives the final green light is to admit only scientifically and commercially based on the quality of the application and viable “companies to be.“ Applicants are at early physical and other capacities of the incubator. start-up stage, generally within the first two years The selection process lasts three or four weeks, of business operations, not yet profitable, and and is described in detail in the feasibility study still growing. The selection panel looks for the prepared in 2006. Applicants are informed about following: the exit policy and the maximum duration of • Innovative technological ideas their stay in the incubator in their first meeting/ interview with incubator management. Even • Market potential though the selection policy/procedure seems a • Ambition and potential for growth and job bit bureaucratic, it does work well in practice. creation. Nevertheless, more flexibility in communication with candidates is recommended. Before the The selection process has three phases: formal admission process starts, the management team could have a few meetings with applicants. During this, applicants must provide evidence 71 124 of innovation either in the process, service, or been updated since. BITF has no formal written technology. The goal of the selection process is to strategy plan for development and sustainability. determine whether a good match exists between Serbia does not have an incubator program and/ the incubator’s resources and mission and the or strategy for incubator development. As a result, applicant’s needs and potential. most of BITF’s activities are ad hoc and aligned with the objectives set up in the feasibility study. No selection process would be complete without a One of the key issues to be addressed as part thorough discussion of expectations. According to of the strategic planning effort is to investigate standard practice, developed during work on the and decide whether BITF is ready for long- feasibility study, the management team usually range planning (strategy) or whether it is best has several meetings with applicants to address to focus on a short-term planning (perhaps a this. Discussion of expectations includes a review one-year plan to start with and keep extending of any contracts that clients are required to sign. the term with every new plan or after moving During these meetings, the management team into new premises at Zvezdara). Although BITF explains graduation criteria, possible reasons for has not worked on its strategy, the impression a termination, required benchmarks, and the time is that management and BITF’s founders have a they have to meet them. strategic vision that includes the transfer of BITF’s operations to new premises located at Science and Exit Policy Technology Park, Zvezdara.11 The business incubator has a formal graduation process as a part of its policy, described in the In addition to business incubation services, BITF feasibility study and discussed with applicants at conducts or takes part in a number of activities inception. Criteria involve: aimed at fostering entrepreneurial and innovation spirit in and around Belgrade. BITF was one of • Maximum time limit/duration of stay (three the founding members of the Serbian embedded years, year-on-year extension of the contract) cluster that merged with Serbian Software Cluster • Stepped rents (rent increases over the period of in 2010 to create the ICT Net cluster. the lease: 50 percent of the commercial rent in Examples of BITF’s activities aimed at fostering the first year, 75 percent in the second, and 100 entrepreneurial and innovation spirit include: percent in the third year) • Removal of subsidy (during the third year of stay). • Serbian Business Incubator Network (being set up) BITF’s exit policy does not involve achieving of • ICT Net cluster www.ict-net.com business, revenue, and/or profitability targets as criteria to end the companies’ stay within the • European Entrepreneurship Network (EEN) incubator. www.een.rs • Serbian Business Angels Network, SBAN www. BITF offers no mentorship support and no help sban.eu to new generations of incubatees from alumni or graduated tenants. Experience shows that very • Outsourcing Centre Serbia, OCS www.ocs.rs few graduated companies are willing to spend • Science and Technology Park, Zvezdara, time mentoring new entrants. BITF is working to which is designed to support small incubator develop mentorship programs for incubatees by companies involved in the development of ideas alumni or graduated tenants through the Science and their technological applications. http:// Technology Park, Zvezdara. www.piu.rs/projects.php?lan=eng&id=12 Strategy and Delivery Achieving financial sustainability is the biggest Strategy. BITF’s operations are based on the 10 challenge and an important part of the strategic feasibility study written in 2007 that has not objectives of BITF. The business model is largely dependent on project grants and there is no policy 10 Longer-range planning requires some level of the management team and BITF’s board over future organizational stability. It was difficult to plan during development, based on a well-defined mission statement the past few years, since BITF staff were fully occupied and organizational goals. carrying out functions required for survival (mainly project chasing). At that time it was unrealistic to look 11 This is conditional and dependent on future political five years ahead. It seems there is consensus among developments in Serbia. 72 125 regarding equity and/or royalty agreements with • General accounting and/or financial incubatees. Having only 600 square meters of management advice (internal) office space does not allow BITF to achieve self- • Opportunities to network with finance providers sustainability based on economy of scale. (internal). The table below gives details on sources of • Access to investment readiness programs, revenues and their contribution in covering BITF’s access to finance providers, angel Investment running costs: and/or venture capital (in cooperation with the Serbian Business Angels Network) Percentage of • Financing of innovations: a) BITF participates Sources of revenue running costs covered in the innovation program conducted by the Ministry of Education, Science and Rent 12 Technological Development through which Consultancy and 3 BITF has distributed 11 grants for innovation external work development; b) Incubatees can also access Service fees (accounting) 5 grants from the Innovation Fund of Republic of Projects approximately 80 Serbia, (at the moment of writing this report, two companies have received grants). BITF has worked on establishing and supporting During a focus group discussion, participants two other incubators in Serbia, in Vranje in 2010 said they needed more information on and help to and in Uzice. The Vranje project was financed by access EU funds for SMEs, such as CIP13 (eco- SPARK, a Dutch development organization, and innovation), FP7, etc. lasted for a year. The Uzice project is on-going; BITF is providing consultancy and know-how for The incubator also provides the following services: the newly established incubator. • Hot-desking (ad hoc) Delivery. Some business and financial support • Meeting room and/or conference facilities services are provided internally, and others externally via the management team’s network of • Reception area/reception facility contacts (mainly the director’s contacts). Business • Broadband connections (provided for free by and financial services12 include: university) • General business advice/consultancy (internal) • Office equipment (mostly provided by USAID) • Training, seminars, and/or workshops mainly • Telephone network and hardware on starting a business (internal) • Car parking plaza • Market research (in development, as external • Security services. service) Coaching. BITF does not provide coaching. • Help in finding grow-on space (ad hoc and on demand, internal) Mentoring. BITF’s management team provides • Access to specialist/expert advice (intellectual mentorship for tenants. This is more in terms property rights) of answering occasional questions by client • Access to R&D and technology transfer support (Centre for Technology Transfer at University of Belgrade was recently established. Deal 13 A technological partnership representative said, “Thanks flow of IP commercialization from University of to BITF we have several opportunities to attend trainings Belgrade is planned) for EU-funded projects. If you are small company and fighting to survive, to get additional commercial projects, you don’t have time to learn how to apply, to take care of the formal application process, satisfying the prerequisites of the call, etc. We do not always 12 BITF manager Gordana Danilovic-Grkovic, “Services understand the terminology, and what we are missing is developed and offered by BITF, local knowledge (know- maybe project preparation services that could be offered how about the market conditions, local laws and through the project team established by the incubator. regulations, etc.), and the trust tenants have in the We as a company do not have in-house knowledge and management team are critical factors for BITF success.” enough people to prepare an application.” 73 126 companies and offering ad hoc help, not as borrowing, etc. BITF has organized several continuing/permanent guiding-relationships.14 trainings for “investment readiness” in cooperation with SBAN. An integral part of this training was on Monitoring. Monitoring and evaluation of company investment pitch sessions. performances is mainly informal. The incubator requests basic information from client companies once a year (usually at the end of the accounting year in April).15 Links with graduated companies Management Team Skills are maintained, but their performances are not and Governance monitored and evaluated once they leave the It may appear that the management-incubatee incubator. ratio of 1:3 is high, but it is difficult to say if BITF Networking. Incubator clients do not meet is overstaffed. The management team consists regularly at the end of month or for Friday of a director, full-time accountant, full-time pizza/beer. However, incubatees and graduated business development person, part-time IT companies feel that there is good cooperation support (30 percent), receptionist, and two project among incubatees even without formal networking staff mainly dedicated to project preparation and events. Networking with external stakeholders implementation. The team has business know-how (such as founders, donor community, etc.) is and know-who within Belgrade. Staff-members perhaps the management team’s main strength spend on average 50 to 60 percent of their working and largely due to the director’s involvement. time directly supporting client companies. This was clearly highlighted during the focus The director has excellent relationships with group discussions with incubatees and graduated the founders (technical faculties at Belgrade companies. The opinion was that in a country university, DTI, and Municipality of Palilula), as where support from the government to start-ups well with the Ministry of Science and Technological and SMEs is limited, BITF provides incubatees Development and with other relevant national with visibility and credibility in the market place. and local institutions such as the city of Belgrade, BITF, for instance, introduces clients (tenants several of Belgrade municipalities, and other and graduates) to local and national government relevant players. bodies, agencies, programs, industry networks (such as EEN), chambers of commerce, and clusters (ICT cluster, SBAN, etc.). Analysis of Quantitative Data BITF regularly organizes training and other Deal-flow of clients. Since it opened in 2007, workshops on its premises and has a wide network BITF has received 36 applications for business of external providers for this. These activities are incubation of which 27 were accepted. This part of the original feasibility study, but do not ratio appears to be high, but the executive team generate any revenues. generally assists applicants in developing their business idea up to the point when they are ready Financial support to incubatees. Even though for incubation. The major sources for incubation access to finance is crucially important for start- are technical faculties (four BITF founders), ups to grow, this was not planned during the university spin-offs founded by students or original feasibility study. Only one company has professors,17 and young people returning from succeeded in getting external financing.16 The overseas after study or work. Demand for business rest finance growth through internal earnings, incubation and sources of deal-flow are not of and a very small number through loans, informal major concern for BITF management, even though an entrepreneurial spirit is still lacking in Serbia 14 http://en.wikipedia.org/wiki/Mentorship and the support structure for support start- ups and SMEs remains limited. BITF leads or is 15 Beatgear representative, “There is no strong, formal commitment from companies related to planned yearly involved in promoting and fostering innovation and goals. Also there is resistance from companies to many entrepreneurship in Belgrade and other regions of questioners, surveys, etc.” Serbia (Vranje, Uzice). 16 Teleskin owner Mr. Sava Marinkovik has succeeded in getting angel and VC financing. He repatriated from 17 Professors from University of Belgrade established the U.S., with a Stanford degree and a promising and six companies, of which three are from the Faculty of innovative business idea. Technology and Metallurgy. 74 127 Survival rates. Survival rates of companies 12 • Cost per Job: $4,260 (This is total investment months after graduation from BITF is 81 percent, divided by number of jobs created. It measures which indicates the effectiveness of this incubator the incubator’s cost for each job produced by in mobilizing resources and services for clients. client companies. In this case we divide total Nevertheless, it is premature to say that this status investment of $426,000 by number of jobs in will remain five years after graduation. client and graduate companies, which is around 100.) Innovation and R&D activity. At BITF, both graduated (Teleskin) and incubatees (Strawberry • Taxes paid in 2011 (all incubatees):$134,000 Energy) can claim to have developed innovative • Taxes paid to date (incubatees): N/A products. BITF plays an important role in • Average taxes paid by incubatees in 2011 (it developing innovation infrastructure and R&D hard to estimate average tax paid, it could in Belgrade and in Serbia through a new project can be a few hundreds up to $20,000. Some financed by the Swiss Agency for Development and graduates were paying up to $200,000.) Cooperation (SDC). It is also involved in the Science and Technology Park, Zvezdara. The SDC-financed • Average taxes paid by incubatees to date: N/A project could support the export of innovative • Initial capital funding received to set up the products sources from BITF. The project has three business incubator: $260,000 phases; in its first, BITF is identifying potentials • Initial revenue funding received to set up the and gaps in export policy. The second phase business incubator: $91,000 envisages development of a network to promote innovative products and services with the support of innovative infrastructure such as clusters, SBAN, Serbian Business Incubator Network, etc. Conclusion In the third phase, BITF will work with Serbian BITF’s activities have not been limited to diaspora to encourage and fund innovation. supporting start-ups and early stage businesses on its premises. A number of external projects Salary levels. There is wide discrepancy between were developed and implemented by BITF’s salaries of graduated companies and incubatees. management and project team. Some of these Salaries range from $300 in incubatees to $1500 projects had collateral objectives—while fostering in graduated companies, which is above the an entrepreneurial spirit in Belgrade they were national average. In some companies, male and also meant to generate deal-flow. BITF was a female employees are equally balanced, but most founding member of the Serbian Embedded employees are male, highly skilled and urban. Cluster that merged with Serbian Software Cluster Finance raised. BITF is not responsible for raising in 2010 to create the ICT Net cluster. By getting funding for client companies, but has still secured involved with the Science and Technology Park, funding for 11 companies through the National Zvezdara, BITF is ensuring integration of incubator Investment Fund and Ministry of Science and operations into the wider national (technology) Education. BITF charges companies 10 percent as development strategy. administrative costs, which totals $61,000. This Developing first-class business support services is revenue is approximately four percent of BITF’s a challenge that BITF will face in the near future. total income from its inception. This includes acquiring a virtual dimension for General revenues and export revenues. Figures firms not located in the incubator, developing for 2011 were provided. General revenues for internationalization services, etc. This incubator incubatees in 2011 were $1.06 million. Average has already reduced its dependence on public revenues per client company were between subsidies and is now sustainable. Given the $76,000 and $150,000. The total export revenues challenges in the Serbian context (lack of support among incubatees were approximately $696,000. structure for start-ups and early stage businesses, limited support from the government, nascent Financial return on investment. The financial entrepreneurial spirit, and limited human and details for the incubator are provided here: financial resources), BITF’s achievements are quite remarkable. 75 128 TABLE 1: Summary of Quantitative Data Indicators Quantity Applicants in the past year 10 Applicants in the last five years 36 Applicants accepted in the past year 8 Applicants accepted in the past five years 27 FTE jobs at entry < 30 FTE jobs at exit > 41 Current FTE jobs (among incubatees) 34 FTE jobs created in the last 12 months via business incubation < 30 FTE jobs created to date via business incubation > 100 Graduations in the last 12 months 4 Graduations to date 5 Jobs created by companies graduating in the last 12 months < 30 Survival rates of companies 12 months after graduation > 80 percent Survival rates of companies five years after graduation N/A Patents applied for and owned in the past 12 months <2 Trademarks applied for and owned in the past 12 months <2 Copyrights applied for and owned in the past 12 months <2 Innovative products developed in the past 12 months >8 Collaborative projects with knowledge-based organizations (for example, R&D approximately 4–5 organizations, research institutions, HE and FE institutions) in the past 12 months Incubatees assisted by the BI in securing finance 11 Average salary among incubatees >$900 Incubatees that have secured finance >11 Total finance secured by the BI $615,000 Finance secured by incubatees $615,000 Annual turnover at entry (average) $5,000—$50,000 Annual turnover at exit (average) $10,000—$1 million General revenues in the past 12 months N/A Export revenues in the past 12 months $696,000 BI income in the past 12 months $264,000 BI running costs in the past 12 months $100,000 BI income to date $1.63 million BI running costs to date $410,000 Seed capital raised in the past 12 months N/A Seed capital raised to date N/A Public funding received to date $426,000 Taxes paid in the last 12 months (all incubatees) $134,000 Taxes paid to date (all incubatees) $625,000 + $170,000 Average taxes paid by incubatees in the last 12 months (estimated) $9,144 for 15 companies in 2011 Average taxes paid by incubate to date (estimated) $13,062 Initial capital funding received to set up the business incubator $260,000 76 129 130 Appendix 14: Core Incubation Process Survey (infoDev, July/August 2012) In order to separate incubation activities from other activities of organizations, incubation was defined as business activities related to incubatees. Incubatees were defined as clients In addition to the UKBI’s research, infoDev fulfilling three criteria: interviewed six of the nine incubator managers who participated in the study in July and August I. Business start-ups in the country of incubation, 2012. The objective was to learn about the role less than three years in operation. of business incubation within the overall context of their parent organizations. The rationale for II. Located inside (tenants) or outside the this was that preliminary findings of UKBI’s incubator. studies indicated a significant role of incubators in III. Receiving business incubation support services activities not directly related to business incubation on a regular basis and based on an incubation and incubatees. According to UKBI’s findings, agreement, rather than just ad hoc services. incubatees contribute on average 18 percent to The following three questions were discussed with the total turnover of incubation environments. Tax incubator managers: contributions by incubatees, compared to initial investment for setting up business incubators, are I. The share of business incubation within the positive in most cases. service portfolio of the organization. 78 131 PLACEHOLDER Photo: Credit II. The business model of business incubation • Key benefits from incubation, as perceived by services within the overall business model of incubatees (opinion of incubator managers), the organization. is access to networks and markets. The total III. Monitoring and evaluation of business activity portfolio of incubators supports the incubation activities in the context of overall development of these networks. Yet, incubators activities of organizations. participating in the sample indicated they do not charge incubatees for these services. The findings can be summarized as follows: • In case of specialized incubators, a • For four out of six incubators interviewed, major benefit for incubatees is related to incubatees take up only a minor share of client infrastructure (such as laboratories and portfolios. reliable and safe IT infrastructure). • The share of turnover and revenues generated • The incubators participating in the survey from incubatees is even smaller (maximum 15 stated that no mechanism is in place to percent in the sample). measure the performance of the incubation process other than the overall monitoring and • Major revenue sources of organizations evaluation system. The reason for this is the include participation in projects related to perceived lack of need for such information, SME development, but not directly related both on side of the incubator and incubator to incubatees. Rather, incubation is cross- stakeholders. subsidized by other revenue streams. 79 132 133 134