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University Incubators Are Hatching Student Start-Ups

Posted on 06 November 2009

Three years ago, a professor at the Haas School of Business at the University of California, Berkeley, noticed a recent M.B.A. graduate still hanging around campus. As it turned out, the former student was running a business from the office of a faculty member who was on vacation.

“So I was thinking: A guy like that ought to have a place where he can go and do this legitimately,” says the professor, John Freeman.

As a result, the Haas business incubator was born. Located in the basement of a nearby hotel, the incubator gives students a rent-free space where they can try to “hatch” their business plans. They share fax and copy machines, conference rooms and Internet connections. It’s funded by donations.

The Haas incubator is one of up to 30 business incubators that have opened in association with colleges and universities in the past three years. Between 120 and 130 of the 800 business incubators in North America are affiliated with colleges or universities, according to the National Business Incubators Association (NBIA), an organization based in Athens, Ohio. The rest are sponsored by government, nonprofit and for-profit organizations.

The Haas incubator is typical of the trend. It gives each student group roughly 100 square feet of cubicle space, about enough for a team of three. The only cost to the entrepreneurs is the phone bill.

Interest has been particularly strong from recent alumni. The reason: Typically an M.B.A. student doesn’t have a business plan ready until graduation is near.

“It’s often the case that they aren’t really ready to get rolling until their M.B.A. program is almost done anyway,” says Mr. Freeman. “It doesn’t make sense to throw them out of the incubator in May.”

As a result, recent alumni are allowed to use the Haas incubator, although current students get priority. Some of the entrepreneurs are M.B.A.s who have been working full time, often in consulting, and who return seeking incubator space.

One of Haas’s successes has been, an online real-estate brokerage founded by graduates Scott Kucirek and Juan Mini. The company, which initially received $1.7 million in seed money and recently scored $16 million in venture capital, has more than 100 employees and has been doubling in size about every three months, according to a spokeswoman. It recently signed a deal to move into a new 45,000-square-foot facility — a big jump from the 100 square feet it started out with at the incubator.

“The Haas incubator experience was great for the founding process,” says Mr. Mini. “For 18 months, Scott and I went through five different business plans until we arrived at our present business model.”

A Growing Trend

The business incubator concept has been around since 1959, but it didn’t take off until the 1980s. “In the early days, the incubators were sort of a Rust Belt phenomenon, where companies had been shut down,” says Sally Linder, director of publications for NBIA. The first opened in Batavia, N.Y., following factory closures there. Abandoned buildings were set aside for businesses to start up and operate. Resources for the budding companies to share were added when it became apparent they needed more than just a space. It was dubbed an incubator because one of the original companies was a poultry producer, according to Ms. Linder.

In 1980, there were 12 business incubators in North America. Now there are an estimated 2,500 worldwide, according to NBIA.

Economic Impact

Business incubators often have a positive economic impact on their surrounding regions.

The Austin Technology Incubator and the University of Texas are widely regarded as having had a role in transforming the economy of the Texas city. “It arrived on the scene early, at a time when Austin was trying to become a technology city — which it most definitely has become,” says Ms. Linder.

The incubator at Rensselaer Polytechnic Institute in Troy, N.Y., had a similar effect on its region. “[It's] just an incredible system of incubation and entrepreneurship integrated within the whole university system,” says Ms. Linder. “Many companies have grown out of the university and have stayed in Troy.”

A technology-related incubator at Springfield Technical Community College that opened in 1999 hopes to do the same in Springfield, Mass.

Located in a technology office park, the idea is for start-ups to “graduate” from the incubator and into the technology park, according to Fred Andrews, executive director of the incubator, which is called the Springfield Enterprise Center.

“We want to be a dynamic force for economic development in the region,” says Mr. Andrews.

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