I’ve been helping behind the scenes on a new cleantech incubator recently launched in Vancouver, Canada called the Foresight Cleantech Accelerator. And in the process, I’ve been getting the opportunity to learn what other accelerators and incubators are doing well, and not so well, around the world.
The first incubator launched in the U.S. in 1959, but since then the terms accelerator and incubator have become somewhat synonymous. Both are generally used interchangeably to describe organizations, typically with multitenant facilities, which exist to help foster new innovation—though some characterize accelerators as higher velocity and sometimes contributing cash, as in Y Combinator. Like Foresight in Vancouver, many provide educational programming (in Foresight’s case, a structured curriculum called the Venture Acceleration Program), as well as office space, mentoring, expert clinics and networking with strategic customers and investors. Some even offer capital directly. Still others offer pooled support services such as marketing and accounting.
Incubators are a global phenomenon. In efforts to foster job creation and local economies, they’ve blossomed around the planet. There are some 7,000 such programs around the world, according to a 2011 study by the University of Michigan. And—no surprise—some perform better than others.
Best incubator practices
What are some of the secrets of success of the best incubators? University of Michigan researchers collected and analyzed data to determine relationships between how an incubation program operates and how its client companies perform, as measured by a number of outcomes. (It even came up with a web-based tool to help incubation professionals measure their efforts against best practices—facility managers take note!)
Highest performing incubators were found to exhibit the following characteristics:
1 ) No one practice, policy, or service is guaranteed to produce incubation program success. Instead, it’s the synergy among multiple practices, policies, and services that produces optimal outcomes. There is no single “magic bullet” service an incubator could or should offer.
2 ) Top-performing incubation programs often share common management practices. High-achieving programs have a written mission statement, select clients based on cultural fit, select clients based on potential for success, review client needs at entry, showcase clients to the community and potential funders, and have a robust payment plan for rents and service fees. Incubation programs with lax or no exit policies typically had less-than-optimal performance.
3 ) Advisory board composition matters. Having an incubator graduate firm and a technology transfer specialist on an incubator’s advisory board correlates with many measures of success. Additionally, accounting, intellectual property (patent assistance), and general legal expertise on the incubator board often result in better-performing programs. Government and economic development agency representatives also play key roles in enhancing client firm performance, as their presence ensures that the incubator is embedded in the community, which is necessary for its success. Local government and economic development officials also help educate critical funding sources about the incubation program. Incubation advisory boards should include diverse expertise.
4 ) Neither the size of an incubator facility nor the age of a program is a strong predictor of client firm success. Many incubator funders and practitioners perceive that the size and age of an incubator are key success factors. But it is the incubator’s programming and management that matter most. For example, staff-to-client ratios are strongly correlated to client firm performance.
5 ) High-achieving incubators collect client outcome data more often and for longer periods of time than their peers. Overall, two-thirds of top-performing incubators (66.7%) collect outcome data. More than half collect this information for two or more years, while slightly over 30% collect data for five or more years. Collected data include client and graduate firm revenues and employment, firm graduation and survival rates and information on the success of specific program activities and services.
6 ) Most high-achieving incubators are not-for-profits. Incubation programs focused on earning profits were not strongly correlated to client success. The most important goals of top-performing incubation programs are creating jobs and fostering the entrepreneurial climate in the community, followed by diversifying the local economy, building or accelerating new industries and businesses, and attracting or retaining businesses to the host region.
7 ) Public sector support matters. Only three of the top- performing incubation programs studied operated without public sector support from local government agencies, economic development groups, colleges or universities, or other incubator sponsors. On average, nearly 60% of top incubator’s budgets are accounted for by client rent and service fees.
8 ) Incubation programs with larger budgets (both revenues and expenditures) typically outperform incubators with budget constraints. Programs with more resources have more capacity to deliver client services and are more stable. However, the sources of incubation program revenues and the ways the incubator uses these resources also are important. Incubators receiving a larger portion of revenues from rent and service fees perform better than other programs.
9 ) The growth or size of a host region’s economy are poor predictors of incubation program outcomes. Incubator management practices are better predictors of incubator performance than the size or growth of the region’s employment or GDP.
10 ) A region’s capacity to support entrepreneurship has limited effect on incubation program outcomes. Compared with incubator quality variables, regional capacity variables have less predictive power. Among regional capacity measures studied, only urbanization, work force skills, availability of locally controlled capital and higher educational attainment have moderate influence on incubator client outcomes.
Cleantech incubator-specific advice
In support of the Foresight Cleantech Accelerator I’ve been working with, I’ve recently spoken with a handful of others around the world involved with cleantech clusters, incubators and accelerators. Below are some top challenges I heard, and potential ways to mitigate them.
11 ) Sanity-check the services you offer. Incubator management should review the array of services provided through the incubation program and assess the effectiveness of those services periodically.
Services found by the University of Michigan (in the study previously referenced above) to be statistically significantly related to client firm performance include:
Providing entrepreneurial training (from business basics to comprehensive training in managing a new enterprise)
Offering increased access to investment capital
Securing strong supportive relationships with local area higher education institution(s)
Providing production assistance (from R&D and prototyping through to engineering production systems)
Developing strong mentor programs (e.g., shadow boards, loaned executives, periodic engagement with incubator managers, participation in program activities)
Shared administrative services and office equipment, and assistance with client presentation and business etiquette skills
But in cleantech, not all of these services may be necessary. Incubators shouldn’t feel bound to traditional concepts of what has been appropriate at other tech accelerators—even successful ones like Y Combinator. The requirements of clean and green tech companies can be different. In fact, the pivot earlier this year of high profile San Francisco green tech accelerator Greenstart to simply focus on design was apparently in direct response to client needs.
12 ) Don’t assume business training is business training. Some graduates of a certain energy software accelerator in Texas complain about the value of its programs, characterizing them as oil and gas executives trying to teach energy and water entrepreneurs about energy efficiency. Ensure you have relevant, credible domain experts teaching your companies.
13 ) Cultivate bench strength in your domain experts. Clean/green incubators lament that it’s hard for them to keep top coaches and entrepreneurs-in-residence (EIRs). The good ones apparently keep leaving to join the most promising companies they’re working with, or investment funds. Accelerators need to be constantly recruiting and developing new coaches and EIRs, interviewees cautioned.
14 ) Raise lots of money. An incubator needs financial support, and clients can’t be expected to contribute 100% of an organization’s requirements. Raise funds early and often. In terms of a best practice, the Research Triangle Region Cleantech Cluster (RTCC) has done a great job securing local commercial support, convincing 10 large companies with a significant local presence to each contribute $25k/year with a 3 year commitment (for a total of $75k each up front) for an advisory board seat. Supporting companies include ABB, Duke Energy, Field2Base, Power Analytics, PowerSecure International, RTI International, SAS, Schneider Electric, Sensus and Siemens.
15 ) Beware of incubator founders leaving, sometimes collapsing the operation. Founders of accelerators get lured away more often than one might think, one interviewee said, pointing to NREL’s CleanLaunch program. Launched with fanfare in 2011, its website is now down as of this writing after the founder left. Mitigate by ensuring the board has a succession plan for the organization’s leader, who, being human, isn’t beyond being lured to the next possible disruptive start-up him or herself.
Article by Dallas Kachan, appearing courtesy Kachan & Co.
A former managing director of the Cleantech Group, Dallas Kachan is now managing partner of Kachan & Co., a cleantech research and advisory firm that does business worldwide from San Francisco, Toronto and Vancouver. The company publishes research on clean technology companies and future trends, offers consulting services to large corporations, governments, service providers and cleantech vendors, and connects cleantech companies with investors through its Hello Cleantech™ programs. Kachan staff have been covering, publishing about and helping propel clean technology since 2006. Details at www.kachan.com.