News article about for-profit incubator companies:
arizonarepublic.com
For-profit incubators on the rise
Colorado is home to newest start-ups
By Kris Hudson
Rocky Mountain News
May. 10, 2000
DENVER - In the New Economy, where ''get in early'' is the rule, the latest whiz-bang factories don't churn out products. They build companies.
The practice of business incubation - long the specialty of non-profit agencies focused on economic development - has taken on a for-profit, Internet-driven hue in the past year as venture capitalists and seasoned entrepreneurs vie to give rise to the next generation of high-flying, high-tech market makers.
Fueled by a surging economy, the wealth generated by the Internet's first wave and an endless supply of dot-com ideas, the ranks of for-profit incubators in the United States are expanding at the rate of one a week.
According to market research firm International Data Corp., more than 100 for-profit incubators operate around the globe, including more than 60 in the United States. They include incubation marvel Idealab! of Pasadena, Calif., which recently filed for its initial public offering, raised a $1 billion investment fund and spawned notables such as eToys and GoTo.com.
The National Business Incubation Association counts nearly 800 self-described incubators - both for-profit and non-profit - in the United States. That's up from the 540 to 550 tallied in 1998.
''It's definitely growing quickly,'' IDC analyst Meredith Whalen said of the incubation boom. ''I think we still have more time ahead of us in this build-out phase. We're at the beginning of seeing them pop up.''
In Colorado, the trend has surfaced on the Front Range, where at least four new incubators have sprouted recently - iVention Group, eDevelopments, iBelay and iConcepts. The newcomers join a handful of established incubators already nurturing the region's start-up companies.
An incubator, or accelerator, provides fledgling firms with management advice, staff recruiting, networking contacts, inexpensive office space and, sometimes, venture investments in exchange for a share of ownership in client companies. With for-profit incubators, the venture sums and ownership stakes they buy can be hefty, and the tenant companies' allowed length of stay can be limited to nine months.
For many small businesses, which might not get their products to market as quickly or wisely without an incubator's assistance, the price is worth paying.
For those who operate incubators, the pool of potential tenant companies is deep. Entrepreneurs and executives are leaving traditional businesses and even mature Internet companies to take the high-risk, high-reward gamble of launching a high-tech company. The payoff chances are boosted with New Economy giants preferring to buy innovative, young companies rather than financing their own research and development.
''The reason there are so many other incubators starting up is that we created a lot of wealth in the first phase of the Internet,'' said Pete Estler, the MatchLogic founder and former chief executive officer who is starting his own incubator and venture fund. ''So a lot of guys like me are thinking, 'I've started two companies, and now I'd like to do 10 more.' ''
How the incubation boom will play out remains to be seen. Some speculate consolidation will occur. Others see some efforts failing. But one thing's certain: The newcomers will change Colorado's industry.
Estler left Internet marketing software firm MatchLogic late last year armed with $100 million from ExciteAtHome Corp., Tango Partners and others to invest at his discretion. Within two years, he envisions his incubator, FastIdeas, and his venture fund, iBelay, launching 50 companies a year.
Estler intends to provide tenant companies with every service they need, including financial, recruiting and technical support services; access to a network operations center (NOC); and multiple rounds of financing.
''Our whole strategy is to take things off your plate that are not strategic and get the CEO focused on proving the business model,'' Estler said.
In return for the incubator's services, companies will be asked to hand over a 60 percent ownership stake.
EDevelopments, based in Orange County, Calif., was launched last year by Koll Development Co. veteran James Watson and Buy.com founder Scott Blum. It intends to open massive incubators in Denver and other major U.S. markets. |
