business incubator and accelerator sustainability · business incubator and accelerator...

Business Incubator and

Accelerator Sustainability

Thea Chase and Julian Webb

May 2018

Contents 1 Background 4

2 Context for considering financial sustainability 4

21 Public support that encourages the right behaviour 5

22 The quality of ecosystems is an important factor in self sustainability 5

23 Blurred distinctions 5

3 Business Incubator Sustainability 6

4 Property based business model a foundation for self-sustainability 9

41 Critical factors to maximise financial self-sustainability 11

411 Scale of facilities 11

412 Free buildings with long term arrangements 12

413 Critical Mass of Demand 15

414 Time 15

42 Cowork spaces 16

5 Building on the foundation with other revenue sources 17

51 Success sharing 17

511 Small percentage of sweat equity 17

512 Small percentage of sales or increased sales (royalty) 19

513 Seed Funding 19

52 Training 21

53 Partnerships and corporate sponsorship broadening revenue opportunities 22

54 Hybrids Super incubators 23

55 Other commercial activities 23

56 Government funding 23

6 Accelerator Sustainability 25

61 Introduction Accelerator Models still evolving 25

62 Views on accelerator sustainability 27

621 Equity 28

622 Revenue share 29

623 Fee for service 29

624 Related business 29

625 Economies of scale 29

626 Conclusions 30

63 Models 31

631 Investment ndash funding centric 31

632 Community based ndash economic development 32

633 Corporate 33

634 Targeted populations and industries 34

635 Conclusions 35

1 Background This paper was initially commissioned by the BADIR Technology Incubator program in Saudi Arabia

in early 2018 to raise awareness about the global reality of incubator and accelerator financial self-

sustainability It was updated for broader circulation in conjunction with BIIA in Mid-2018

The BADIR Technology Incubator Program which commenced in 2007 pioneered incubation in

Saudi Arabia and now operates 8 technology incubators and 2 accelerators with more planned It

has become the benchmark for incubation in Saudi Arabia and indeed other countries in the Gulf

region

The authors Thea Chase from the USA and Julian Webb from CREEDA Projects Pty Ltd and BIIA in

Australia have extensive experience with incubation and acceleration in more than 50 countries and

work closely with BADIR in Saudi Arabia They thank BADIR for making this paper possible

2 Context for considering financial sustainability Across the globe most start-ups do not continue and of the small percentage that do only a tiny

percentage go on to grow An obvious market failure exists around provision of support to start-ups

whether in terms of infrastructure advice mentoring and coaching or seed finance Start-ups are

simply too risky for this to be viable without public support of one form or another

Hence it should be no surprise that all business incubators rely upon public sector support to some

degree for their establishment and capital costs and to support operational costs some for a limited

time and others for the long term From a purely private commercial point of view no business

incubators are independently financially viable in terms of covering both their operating and capital

costs and making a return to investors The few examples are the exception rather than the rule1

and also rely upon either corporate or public-sector support Over the past 50 years incubators have

become an accepted part of the landscape in most countries with numerous studies of their

operations and impact the results of which help justify public and other investment

Despite early promise it seems seed accelerators are in a similar position with only a few

exceptions that are privately self-sustainable notably y-Combinator Tech Stars 500 Start Ups and

maybe a few other early examples The bulk now rely upon government philanthropic or corporate

funding to support their operations Accelerator models however keep changing as operators search

for a viable business models and relevant impact As a far newer concept and service this is no real

surprise and is why data is hard to come by although research is underway to better understand the

role they play and the impact they achieve

Rather than asking the question can business incubators and accelerators be financially self-

sustainable more pertinent questions are

bull whether or not the public support can be provided in better ways than annual operating

grants

bull to what degree can they be self-sustainable and

bull what are the factors that underpin self-sustainability

1 Just about the only one is Raizcorp in South Africa run by an entrepreneur guru and which receives significant corporate support httpwwwraizcorpcom

Analysis of financial self-sustainability is complicated by the proliferation of services for start-ups in

the past decade many of which use the term incubation or acceleration in new ways and by fact

that accelerator models keep changing Definitions and distinctions are at times blurred

21 Public support that encourages the right behaviour Business incubators and accelerators should operate entrepreneurially in one sense as role models

for their clients Grants are necessary to assist with establishment but in the longer term may not be

the best mechanism for support Grants are normally for relatively short periods and may not

encourage the necessary longer-term perspective recognising it takes many years for client

companies to succeed They can make people lazy and may give the wrong incentive (ie more

grants) unless they are managed by very tight and clear KPIs such as creating x number of

companies and y number of jobs in a period There may be better ways than annual operating

grants Ways that encourage a long-term approach help with at least partial financial self-

sustainability and encourage the right entrepreneurial behaviour As is shown by the following

analysis of sustainable business incubator examples one common way is to provide incubators with

buildings at no or minimal cost They then have to work entrepreneurially to generate rental income

from start-ups Providing seed funds for incubators and accelerators to use to help finance the

growth of start-ups at the same time as encouraging private co-financing is another way public

funds can be used to encourage the right entrepreneurial behaviour and help achieve a degree of

financial self-sustainability A number of examples are outlined in the following analysis

22 The quality of ecosystems is an important factor in self sustainability In parts of the USA Europe Australia and New Zealand incubators and accelerators can rely upon

voluntary high-quality business mentors legal accounting and other professional help This means

they can operate with minimal staff and minimal costs This is not the case in more disadvantaged

regions and countries where this expertise has to be paid for or provided by paid staff Staffing

levels and the cost of operating a similar quality incubator or accelerator with a similar number of

clients may be far higher For this reason even with free buildings many incubators still rely upon a

percentage of public funding The analysis following profiles some examples in good entrepreneurial

ecosystems which cover all their operating costs by rent and other self-generated income albeit in

free buildings provided by the public sector They may not be the most relevant examples for

countries and regions with less well-developed ecosystems where more staff may be need where

costs may be higher and where partial self-sustainability may be a more relevant ambition

23 Blurred distinctions Since the Global Financial Crisis support services for start-ups have proliferated often calling

themselves incubators or accelerators with little regard for definitions This is especially so with

acceleration as noted by GUST in their 2016 report ldquoAs new models emerge the term accelerator

describes an increasingly diverse set of programs and organizations and often the lines that

distinguish accelerators from similar institutions like incubators and early-stage funds become

blurredrdquo2 The rapid rise of coworking spaces in the same period complicates the picture even

further especially when they accommodate acceleration programs or target start-ups

NESTA in the UK now considers incubation ldquonot just as the services provided by a selfndashidentified

lsquoincubatorrsquo but rather as an umbrella term for a range of startup programmesrdquo3

2 httpgustcomaccelerator_reports2016global

3 Start Up Programs Whatrsquos the difference NESTA 2015

In this report despite blurring lines of distinction we consider incubator and accelerator financial

sustainability separately to draw relevant insights from each which then may be combined in

practice around a mixed model Indeed proven and long-standing incubators that may have started

in the 1990s are very likely today to offer most if not all of the services in the table above

3 Business Incubator Sustainability As the World Bank notes ldquoSelf-sustainability while a major aspiration for incubators globally is often

seen as a big challengerdquo4

However there are many examples of business incubators that are financially self-sustainable in

terms of covering their operating costs from self-generated revenue typically in buildings for which

they do not pay rent or the capital costs of the building and after initial public seed funding for their

establishment This is illustrated by data in the NBIA 2012 State of the Industry Report5 which asked

respondents about their ability to maintain operations if cash operating subsidies ceased One third

(33) said they did not rely upon cash subsidies on par with survey results from 2006 and only 18

said they would have to discontinue their services if subsidies ceased

Figure 1 iNBIA - Ability of incubators to continue without subsidy

4World Bank infoDev Program Module 14 Business Models Incubator Manager Training Program

5 2012 State of the Business Incubation Industry NBIA

Others are partially self-sustainable combining self-generated revenue with public subsidies as

illustrated by data from the European Business Innovation Centre Network EBN which reports in its

2016 Impact Report that on average public subsidies contributed 68 of member revenues and that

of the remaining 32 58 was contributed by rent and 15 from other income from SMEs and

entrepreneurs

Figure 2 EBN Impact Report 2016 Incubator public subsidies

Figure 3 EBN Impact Report 2016 Incubator private revenue

Across the globe the vast majority of self-sustainable or partially self-sustainable business incubators

rely upon public funding for their establishment and then a rental business model which

predominates and has been supported by governments in numerous countries such as China USA

Europe Malaysia and Australia and which is used as a foundation for a mixed business model such

as India Indeed most incubators have a mixed business model to some extent making revenue from

a range of sources including from training and success sharing with clients

This is illustrated by UK data which shows the importance of public university and corporate support

Percentage of UK incubators receiving funding from different sources6

Other incubators and incubation programs deliberately rely upon long term government funding for

the bulk of their revenue as is the case with the technology commercialisation incubation program in

Israel and much of the incubation in the Gulf at least to date in Saudi Arabia Qatar and Kuwait

although the situation is changing In these cases government is buying the incubation outputs

whether they be jobs companies or commercialisation and providing a service of public benefit at

the same time as addressing a market failure

Self-sustainability is not always desirable if necessary services have to be understaffed or below

standard to make ends meet financially Incubators in many countries or disadvantaged regions

cannot rely upon the free mentoring and professional services that incubators enjoy in other more

developed ecosystems which can minimize operating costs by relying on free services without

compromising services These countries and regions also have well developed entrepreneurial

ecosystems meaning there are fewer gaps and hurdles for entrepreneurs to overcome in other

words less need for incubation

Understanding the particular conditions that underpin sustainable business models is most important

especially the rent-based property model and how this underpins a mixed revenue model with

additional revenue from success sharing training and other sources

Ultimately the question is to what extent can incubators be financially self-sustaining in particular

circumstances and working for particular objectives Whatever the answer it needs to be planned and

will take time to achieve

6 BEIS Research Paper Number 7 Business Incubators and Accelerators the National Picture 2017

4 Property based business model a foundation for self-

sustainability The traditional property-based incubation model is the most common around the world For instance

in 2012 93 of USA incubators had a dedicated facility The model normally relies upon free buildings

(not having to pay capital costs or heavily subsidized rental) with long term arrangements and of

sufficient scale so that the rent and associated facility and office service fees charged to tenants cover

all or a large portion of operating costs Business support is typically bundled in with the rent and not

charged separately

Given incubation relies upon physical facilities it is no surprise that globally a very high percentage

of incubators rely upon rental income as their main revenue source For example the NBIA 2012 State

of the Business Incubation Industry report7 shows that rent accounts for 53 of revenues on average

Figure 4 NBIA - Incubator revenue by source

As mentioned earlier with the 150 incubators in the European Business and Innovation Centre

Network (EBN) public subsidies provide for 68 of revenues and rental fees (housing) accounts for a

total of 58 of the remaining 32 of revenue8

Incubators that rely heavily on rental fees often employ fewer staff members in comparison to those

that rely on subsidies which can afford larger staff numbers Incubators that rely on rental fees for

sustainability typically have small staff numbers ranging from one to five members depending upon

the incubatorrsquos size For instance in 2012 in the USA the average full time equivalent staff numbers

per incubator in the USA was 18 down from 24 in 20029 and in 2012 the average number of clients

in USA incubators was 35 In Europe with higher levels of subsidy EBNrsquos BICrsquos employ more people10


8 EBN EU BIC 2016 Impact Report

9 ibid

10 EBN BIC Observatory 2016

However it must be noted that these incubators in the USA and other developed countries rely upon

significant voluntary assistance from quality mentors and business professionals something that is far

more difficult to achieve in many other countries

Anchor tenants

A feature of property models is anchor tenants Anchor tenants are organizations who are not

incubatees and who are rented space on longer term arrangements They may be service providers

useful to incubatees or related organizations who help attract incubatees to the facility or graduates

or simply organizations renting larger spaces to provide cash flow to the incubator In the USA in 2012

15 of space in USA incubators was rented to anchor tenants

Stepped and Discounted Rental Rates

Many incubators have discounted rental rates stepped up to the commercial rate over the typical

period of incubation say 25 in year 1 50 in year 2 75 in year 3 and 100 of the commercial rate

thereafter

Anchor tenant example Appalachia incubators

Appalachia is a cultural region in the Eastern United States that stretches from the Southern Tier

of New York to northern Alabama Mississippi and Georgia A total of 76 incubators responded to

the 2009 survey of Appalachian business incubators Of these 39 ARC incubators (~50) house

service providers and 38 incubators (~50) house anchor tenants

The presence of anchor tenants in a significant percentage of ARC survey respondents is seen as a

positive indicator for two reasons First the presence of anchor or key tenants can influence

whether an incubator is financially viable Second anchor or key tenants can provide important

services and benefits to incubating tenants ranging from providing supplier or service-provider

opportunities to acting as mentors1

Others instead and to maximizing the rental yield charge a premium for smaller spaces and rent

clients just for the space they need allowing them to change (increase or decrease) on a monthly

basis with a license agreement rather than a lease They may only need 20m2 and be prepared to pay

a premium for such a small space Commercial comparisons are often only realistic for larger spaces

around 100m2

41 Critical factors to maximise financial self-sustainability Three critical factors work together to make this model viable

1 Scale of the facility

2 Free buildings with long term arrangements

3 A critical mass of demand

4 Time

411 Scale of facilities Size matters when it comes to the property-based incubation model Economies of scale are crucial

so that a large proportion of the operating costs are covered by rent The rule of thumb in the USA

and Europe is 3500m2 but it all depends on local conditions The size required depends on the level

of salaries and other operating costs and potential income which in turn depends heavily on prevailing

rental rates against which incubator rates are pegged Incubators struggle when they are too small

Unfortunately in the Middle east 96 have an average of 1000m2 according to the 2011 iPark11

evaluation benchmarking exercise which also found the international average size of an incubator is

4700m2 The situation may be changing at least if the Qatar Business Incubator is any indication

claiming to be the biggest mixed-use incubator in the world with a facility of 20000m212

China with the Torch Program under the Ministry of Science and Technology takes scale to another

level The best of Chinarsquos 1239 technology incubators and 435 national level technology incubators

supported under the program are located in high technology zones or parks of one form or another

capitalising upon the benefits of clustering and so entrepreneurs can benefit from the regulatory tax

and financing services offered in these zones13 and with many tens of thousands of square metres at

their disposal For example

bull Shanghai Pudong Software Park Incubator located in the China (Shanghai) Pilot Free Trade Zone

and the core area of Zhangjiang National Innovation Demonstration Zone is a ldquostate-level science

and technology business incubatorrdquo identified by the Torch Center of the Ministry of Science and

Technology and has 40000m2 for incubation of which 31741m2 is leasable The incubator is

profitable and most revenues are from rent and will soon be enhanced by returns from its seed

fund investment in clients

bull National Science Park of Southeast University (SEUSP) operated by Jiangsu Dongda Science and

Technology Park Development Co Ltd has a rentable area of 127000 m2 and more than 350

companies under incubation It makes 60 of its revenue from rent The initial capital investment

was from the university

bull Suzhou(Cao Hu )Tech Park of Xirsquoan Jiaotong University is a more recent development (2012) by

Xian Jiaotong University and Xiangcheng Economic Development Zone with 28000m2 for

11 iPark ndash Jordanrsquos Technology Hub wwwiParkjo

12 httpwwwqbicqawhy-qbicspace

13 httpwwwchinatorchgovcnenglishxhtmlProgramhtml

incubation with 115 incubatees in 2017 in a park with a further 90000m2 of office space Only

30 of its revenues are from subsidies14

In effect China combines incubation technology parks

clustering and early stage financing into one Since the

program started in 1988 it has taken significant

investment from the Torch Program and municipal

partners but the reported results including 11 of

Chinarsquos GDP are more astounding than the scale They

are summarised by the University of NSW15 in the

adjacent graphic noting the investment may well be

understated in terms of the capital cost invested by

municipal partners Writing in the Huffington Post Steve Blank calls the Torch Program the ldquoGlow

that can light the worldrdquo saying ldquoIn size scale and commercial results Chinarsquos Torch Program from

MOST (the Ministry of Science and Technology) is the most successful entrepreneurial program in the

world Of all the Chinese government programs the Torch Program is the one program that kick-

started Chinese high-tech innovation and start-upsrdquo16

412 Free buildings with long term arrangements A large facility on its own is insufficient if

the incubator has to pay the capital costs

or rent There is simply no way to make

a margin to cover the costs and in

particular the cost of a business support

program Buildings may be provided on a

long-term basis with what is called a

peppercorn rental typically a nominal

sum such as $100 or they may be

owned having been purchased or

purpose built with public funding In the

West incubators commonly use old

disused facilities provided by state or

local governments or universities which

they refurbish as business incubators

Old manufacturing facilities schools

council depots are not uncommon In

other countries old disused buildings are

far less common in which case purpose-

built facilities may be the best option

This is common for example in China

14 Information from the authors private contact with the incubators

15 httpwwwtorchunsweduaunational-context

16 httpswwwhuffingtonpostcomsteve-blankchinas-torch-program-the-_b_3063069html

Example INNOVATION DEPOT Birmingham Alabama

USA

Building Former Sears store in downtown Birmingham

Constructed Late 1940s

Renovated 2006

Renovation Cost $17 million

Renovation Funding Sources City of Birmingham

Jefferson County University of Alabama at Birmingham

private donations

Korea and other parts of Asia for instance at the Hong Kong Science and Technology Park17 or

Technology Park Malaysia18

The National Science and Technology Entrepreneurship Development Board in the Department of

Science and Technology19 is the main funding body for technology incubators in India They know the

importance of free facilities and mandate in their guidelines that the host institutions mostly

universities and research institutes have to provide the facilities and utilities at no cost to incubators

which need to be run at armrsquos length from the host institution typically by new non-profit

organisations They make it clear they will only provide funding for 5 years after which the incubator

has to generate the bulk of its own revenues although they do continue to provide what may be called

project funding To date facilities have not been large enough and rent averages around 25 of

revenues Accordingly they are changing the guidelines to mandate 2000m2 must be provided

t-Hub in Hyderabad is a good

example It is being constructed with

public funds claiming to be the

largest technology incubator in South

Asia with 70000ft2 (~7000m2) in

Phase 1 and another 300000ft

(~30000m2) as Phase 2 in the next 3

years20

17 wwwhkstporgenabout-hkstpthe-corporationabout-hkstp

18 httpwwwtpmcommy

19 httpwwwnstedbcom

20 Personal conversations with NSTEDB head Mr HK Mittal and httpstartuphyderabadcomt-hub-phase-2-hyderabad-4-times-bigger-phase-1

Example T-Hub India ndash largest technology incubator in South

Asia

T-Hub also illustrates an important trend whereby leading

incubators incorporate incubation acceleration cowork spaces

and seed funding sometimes referred to as Super incubators or

Hubs

The Innovation Centre Sunshine Coast is an example of a

technology incubator where the university has provided a

1500m2 purpose-built facility for incubation in a regional

area just north of Brisbane21

21 httpsinnovationcentrecomau

Example Innovation Centre Sunshine

Coast

413 Critical Mass of Demand While the property model works well at scale

in major population centres it struggles in

smaller communities where there is not the

critical mass of demand to underpin the

necessary economies of scale The model

can still underpin a sustainability strategy

but needs to be complemented with other

revenue sources and related services to

ensure relevance

This is illustrated by the Grand Junction

Colorado mixed use business incubator

(BIC) With 35000ft2 of incubation space a

loan fund and as a provider of SBDC

services BIC is 75 self-funded Income is

generated through a variety of sources

including tenant rent and program fees

low-cost workshops and classes Business

Loan Fund interest Enterprise Zone

administrative fees and property

management fees for a Department of

Energy facility located on the campus BIC

also receives grants from city county state

and federal government entities and

sponsorships from local banks corporate

entities service clubs and private donors22

414 Time It takes time to adapt incubation to particular local circumstances to evolve government support

systems and incubator business models that work and maximise the potential for self-sustainability

In other words policies and government support systems need to evolve along with the incubators

supported to jointly maximise the potential for self-sufficiency The Torch Program in China started

in 1988 and only in the last decade or two has the program and its incubators with Chinese

characteristics become a beacon for others it took many years to perfect the system Similarly the

Indian incubation system under the NSTEDB started in 1984 but took many years to get the policy and

ecosystem right so that now incubators are only funded by the national government for 5 years but

benefit from seed funds they can use with their clients In most countries the same sort of evolution

applies Malaysia with good incubators in parks such as Technology Park Malaysia (TPM) where

government funds the capital costs and the incubator relies mostly on rent found performance

improved dramatically when the incubators were corporatized ie owned and managed by

independent government owned non-profit companies as opposed to by government departments

22 httpgjincubatororg

Example Grand Junction Colorado Business

incubation Centre in a community of 60000

people

42 Cowork spaces Cowork spaces have a similar business model to property-based business incubators making most of

their revenue from renting desks and space as shown by Deskmag data below23

The big and critical difference is that they do not invest in a comprehensive business support program

allowing 74 of those that need to be profitable to break even or make a profit They simply canrsquot

afford to and instead rely upon events and peer learning None the less numerous property-based

incubators around the world now incorporate cowork spaces into their offering and or work with

private cowork spaces

23 Deskmag 2017 Global Survey

5 Building on the foundation with other revenue sources As noted earlier rental revenue is often supplemented with revenue from a range of other sources in

particular from sharing in the success of clients and training

51 Success sharing With success sharing the incubator shares in the financial success of clients to generate

additional revenue that supplements rental income Even though it does not generate reliable

annual revenue it can be attractive in that clients only pay if they are successful and the

incubator and client interests are thereby aligned There are a few variants

1 Small percentage of sweat equity typically seen in technology incubators for which there are many examples eg Cicada Innovations Sydney (see below)

2 Small royalty on client revenues which is far rarer than equity examples eg SINE at IIT Bombay which also takes a small equity position (see below) and CTIC an IT incubator in Dakka Senegal24 and Western BACE in Melbourne Australia25

3 Finance brokerage whereby the incubator takes a percentage of the finance it helps a client raise typically 1-2 but not if it takes equity

4 Own seed fund investment with a spectrum from supplementing rent with seed fund management fees and a percentage of profits (eg IceHouse NZ Building Clever Companies NZ Indian Technology Incubators) to the very few where investment is the main revenue source (eg PowerHouse NZ)

511 Small percentage of sweat equity With this variant a small percentage of equity typically in the order of 5 is taken in clients Note

the incubators do not pay for the equity with cash Instead it is provided as a condition of incubation

Equity stakes vary by incubator type and from one client to the next Most incubators donrsquot exceed a

10 equity stake while others go as low as 2

The NBIA 2012 Stock Take showed that 29 of technology incubators take equity in some or all of

their clients compared to 13 for mixed use incubation programs Interestingly this is a significant

decline from 2006 when 46 of technology incubators took equity in some or all of their clients

24 httpwwwcticdakarcomfr

25 httpwesternbacecom

This equity which is likely to be diluted by financing rounds does not provide for reliable day to day

revenues It may only be

realizable at exit events or

via founder buy back

arrangements up to 10

years later Instead it allows

the incubator to share in

client success and can be

very useful for motivating

and paying for the right sort

of staff people who may be

allocated a of the

eventual returns None the

less the returns at times can

be high Cicada Innovations

in Sydney26 is just one of

many good examples

involving a ldquofreerdquo building

and in which rent covers the

basic costs and the 5

equity in all clients shares in their success and is used as an incentive for staff

SINE at IIT Bombay27 one of Indiarsquos leading

technology incubators is another example

that enjoys free buildings and shares in client

success by way of both equity and revenue

sharing and with its own seed fund

Raizcorp28 is a rare example of a for-profit

incubator that provides a return to its investors

Raizcorp makes a small profit on rentals and

services charged at market-related rates shares

in the profits and takes an equity stake in the

companies incubated It currently supports more

than 500 businesses with more than 1500

businesses that have graduated since it started in

2000 It develops more than 3000 businesses

per year in other entrepreneurial programs and

employs over 100 full-time staff Raizcorp

generates approximately 40 of its revenue

from profit share and dividends 40 from

Services to Corporates (fees) 5 project

work and 5 from rental

26 cicadainnovationscom

27 httpsineiitborgsineabout-usabout-sine 28 httpwwwraizcorpcomabout-raizcorp

Example Cicada Innovations Sydney iNBIA Award winner - Randall

M Whaley Incubator of the Year 2018

With large free facilities old refurbished railway workshops in a

prime location Cicada Innovations is a classic example Rent covers

the basic costs and the 5 equity taken in all incubatees allows both

the staff and the incubator to share in client success

512 Small percentage of sales or increased sales (royalty) As with sweat equity royalty arrangements typically supplement rental revenue but are rarer (see

Maxum example below)

In the case of incubation royalties are often expressed as a percentage in the order of 2-10 of the

incubatees sales or increase in sales for a fixed period such as 3 years or while under incubation

Equity is often preferable unless the royalty on sales relates to technology transfer agreements such

as occurs with some Indian technology incubators commercialising technology from the host

university or unless the incubator is actively involved in helping generate sales as in the case of the

CTIC in Dakka29 However other examples do occur where a royalty on sales is a preferred mechanism

for the incubator and clients for instance Western BACE in Melbourne30 which has a large free building

and co-work space and charges for incubation with a 7 royalty on sales Another is the Maxum

Business Incubator in South Africa Maxumrsquos incubatees pay for the incubation services through a

royalty system This system means that graduates pay Maxum a royalty of 2 of annual turnover for

the equivalent period that they participate in the incubation program Despite being in operation for

a couple of years only 12 of the costs of the incubator are covered by royalty income

In India there are examples where royalty is combined with equity ie SINE at IIT Bombay which helps

commercialise IIT technology and has its own seed fund (see below)31

513 Seed Funding A few incubators have their own seed funds which generate revenue to supplement rental revenue

(eg Dublin BIC32 IceHouse NZ Building Clever Companies NZ Indian Technology Incubators such

as SINE at IIT Bombay) and at the same time increasing the power of their incubation For a very

few return on investment from seed funding is the main revenue source (eg PowerHouse-Ventures

NZ) It needs to be noted that the vast majority of incubators that operate with seed funds proved

their capability by succeeding with incubation first before managing to set up a seed fund either

with public investment or a mixture of public and private investment

Under the guidance of the National Science and Technology Entrepreneurship Development Board in

India incubators with proven quality manage seed funds capitalized by the Technology Development

Board of India33 This has proven very successful for the incubators concerned which can use the funds

for debt or equity financing and the Technology Development Board which has seen the power of

investing via incubators in companies supported by incubators34 SINE at IIT Bombay is just one

example of an incubator that has succeeded with significant equity returns from its seed fund that

enabled it to be self-sufficient after only a few years of operation35 A number of incubators in New

29 ibid

30 ibid

31 httpsineiitborgsineincubationrelevant-facts

32 wwwdublinbicie

33 httpwwwnstedbcominstitutionaltbihtm

34 Authorrsquos personal communication with the head of the NSTEDB

35 httpsineiitborgsineabout-usabout-sine

Zealand manage funds capitalized by angel investors and government (wwwnzvifconz) for which

good examples are IceHouse36 and IceAngels37 and Building Clever Companies38 and MigAngels39

PowerHouse Ventures40 from New Zealand is a rare and inspiring example of an incubator which now

generates the bulk of its revenue from investing in early stage companies that commercialise public

research The incubator grew steadily over more than a decade before it reached this enviable

position It started in 2001 as the Canterbury Innovation Incubator Cii a reasonably typical non-profit

technology incubator supported by 3 local universities and the municipality in Christchurch New

Zealand along with government funding It was successful with entrepreneur led incubation This

success stimulated establishment of an angel investor network and angel investment funds

capitalising on government early stage investment mechanisms41 Subsequently Cii and the angel

investment fund merged to form PowerHouse Ventures in 2008 as a public private partnership with

the initial public shareholders alongside private investors It continued to grow focussing exclusively

on commercialisation of public Research and Development with its own investment in every venture

assisted In 2017 it listed on the Australian Stock Exchange It illustrates what can be achieved over

time with good incubation combined with seed funding

The Israeli incubator program which has been copied in a range of countries such as Chile New

Zealand and Australia is one example where the government supports technology incubation by

buying commercialisation outcomes via seed funding technology commercialisation projects The

Government invests up to USD$1000000 in commercialisation projects (future companies) by way of

a conditional grant providing up to 85 of a projectrsquos budget to be incubated by one of 18 certified

incubators (partners) who need to provide the remaining 15 of the project budget The grant is

provided via the partner incubator so that the incubator ends up with equity in the venture If the

company succeeds the grant is repayable from revenues in effect as a low interest loan The objective

of the program is to develop innovative technological ideas into start-ups and lead them towards first

round investment42 The program started in 1991 and has steadily evolved and been improved The

investment has been substantial As of 2012 more than USD$650 million had been invested in the

program43 The incubators involved make their money from the equity they accrue from the

government seed funding in the projects and from subsequent investment at least for those that have

venture capital funds Over the years the government has also provided direct funding to help the

incubators establish

36 httpswwwtheicehouseconz and wwwiceangelsconz

37 wwwiceangelsconz

38 httpwwwthebccconz

39 httpwwwthebccconzinvestmentmig-angels

40 wwwpowerhouse-venturesconz

41 wwwnzvifconz

42 httpwwwmatimoporgilIncubatorshtml

43 httpeipaeucomcategoryinformation-centrescience-technologytechnological-incubators-program

52 Training Many incubators with a mixed revenue model make significant revenue from training related to

entrepreneurship SME growth and management or in some industry specific examples vocational

training There are many examples but a few illustrate the potential

The IceHouse44 in Auckland New Zealand a globally

recognised incubator affiliated with the Auckland

University business school but an independent non-

profit company makes most of its revenue from

training that complements its incubation angel

investment and cowork space activities

The Kiln Incubator45 a component of the Canberra

Innovation Network in Australia complements

government funding rent of incubation and cowork

space with revenue from start-up training

Furntech46 in South Africa is the main vocational

education provider for the furniture industry

and operates an incubator for those of its clients

interested in starting a furniture business The

incubator contributes 15 to its overall

revenues

44 wwwtheicehouseconz

45 httpwwwkilnincubatorcomworkshopshtml

46 furntechorgzaincubation

53 Partnerships and corporate sponsorship broadening revenue opportunities Partnerships with the corporate sector and universities is a source of deal flow capability and revenue

for more and more incubators Most have some form of corporate sponsorship and various

partnerships for delivery of particular programs The trend for more corporate engagement is

illustrated by BCG data47

Tech Fort Worth in the USA is a case in point48 Incubation and acceleration are their core programs

generating a core of revenue They have a ldquofreerdquo building from the City for

which they pay $100 per annum as well as 22 of the rent they receive till

2028 Adding to this base are a range of programs and initiatives including

bull Corporate sponsorship revenue

bull CowtowTechnest a revenue neutral pipeline generator

bull The impact awards to showcase impactful technology

and entrepreneurs generating ticket sales

bull Angel investors generating membership fees

application fees and sponsorship

bull Partnerships with universities leading to funding

referrals experts and interns

bull Partnerships with large universities leading to

sponsorship experts to help clients potential

customers for clients board member sand referrals

47 BCG Incubators Accelerators Venturing and More 2017

48 httptechfortworthorg

54 Hybrids Super incubators Most of the examples quoted so far including Cicada Innovations in Sydney Kiln in Sydney Innovation

Depot in Birmingham Alabama IceHouse and BCC in New Zealand t-Hub and other Indian incubators

are hybrids or what have been called super incubators combining incubation acceleration cowork

spaces sometimes seed funds and numerous partnerships leading to corporate sponsorship and

funding opportunities

The EBN 2016 BIC Observatory reports that 77 of EU BICs incorporate a cowork space 46 have a

start-up acceleration program and 91 offer access to funding Indeed just about any proven

incubator globally will operate along these lines with a mixed business model

55 Other commercial activities A few incubators support themselves by making money from other related commercial activities They

are not common but illustrate what can be achieved with innovation and entrepreneurship

With similarities to franchising Timbali in South Africa49 incubates poor women as flower growers and

makes revenue by selling the flowers under the Ambon brand The model has been successful and

with additional government funds is expanding into horticulture The Rural Enterprise Network in Sri

Lanka50 does the marketing and sales for its incubatees who are poor rural producers and takes a

20 commission

The Seda construction incubator in South Africa makes money out of project management by taking

on large construction contracts and sub-contracting the work to its incubatees51

TrecStep52 a famous technology incubator in India makes significant revenue by executing donor

funded development projects

56 Government funding As noted earlier government funding is crucial for incubator establishment in terms of both

operational and capital costs The market failure is clearly evident and incubators simply do not start

without Government initiative and funding

UBI data illustrates the importance of government funding for university incubators along with that

from universities which may be a combination of facilities and funds53

49 httpwwwtimbalicoza

50 httpwwwrensrilankaorghomehtml

51 httpwwwsedaorgzaMyBusinessSTPPagesethekweniaspx

52 httpswwwtrecstepcom

53 UBI World Benchmark Report 1718

Those incubators that over time become financially self-sustainable typically rely also upon free

buildings provided by government most often municipal or state governments rather than national

governments or universities or other public bodies However only some incubators are self-

sustainable in this way

Many other incubators are only partially financially self-sufficient even in free buildings as shown

earlier with date from the EU and examples from China In these cases government is in effect buying

either jobs new companies or at times commercialisation of RampD from the incubator Given

government funding lasts this strategy can be sustainable and can pay for more intensive incubation

than is possible in self-funded examples in effect paying for jobs companies commercialisation or

ecosystem benefits

6 Accelerator Sustainability

61 Introduction Accelerator Models still evolving Accelerators provide fixed-term programs that last for fewer than 12 months most last about three months They provide mentorship and technical assistance that enable the ldquofast-testrdquo validation of ideas Additionally accelerators link entrepreneurs to business consultants and provide assistance in the preparation of pitches needed to obtain further investment 54

The first significant research and attempts at definition were conducted by University of Richmond

assistant professor of management Susan Cohen in 2013 (and in 2014 with professor Yael Hochberg

of Rice University) settled on a succinct definition based on four characteristics identified in the Seed

Accelerator Ranking Project ldquoa fixed-term cohort-based program including mentorship and

educational components that culminates in a public pitch event or demo dayrdquo55 Y Combinator and

TechStars two of todayrsquos most preeminent accelerator programs were at the forefront of the

accelerator phenomenon with Paul Graham of Y Combinator credited with establishing the first

program in the United States in 2005 When TechStars founded by entrepreneurs David Cohen Brad

Feld David Brown and Jared Polis launched in 2007 it became Y Combinatorrsquos first real

competition56 The characteristics of traditional accelerator models are as follows

bull Provides seed stage investment 15-25k in exchange for 4-7 equity

bull Short duration 3-6 months ndash primary difference with incubation or angel investment

bull Cohort based ndash companies entering and graduating at same time

bull Intensive programs characterized by extensive mentor interaction

bull Extensive networking educational and mentoring opportunities

bull Selection ndash generally casting wider net due to durationfocus

bull Companies very early stage ndash may not have any organizational form

bull Programs geared toward business model validation and preparation of offer

bull Most have work space

bull Demo day culmination ndash presentation to investors

Inspired by long tested incubator models and experience with investor backed incubators in the dot-com era the private sector popularized Accelerators starting in 2005 Accelerators are typically focused on highly scalable high-growth high-value startups However the general profiles of accelerators and their participants have begun to change Todayrsquos cheaper technology costs easier routes to customer acquisition and better forms of direct monetization suit the nimble talented technology-heavy teams that are able to create a product or service quickly Overtime models have continued to evolve focusing on developing specific industry cluster innovations fostering geographic based economic development goals and promoting entrepreneurial projects in underserved populations

54 Evaluating the US Small Business Administrationrsquos Growth Accelerator Fund Competition Program A

Report Prepared by the Federal Research Division Library of Congress February 2018 10

55 Dempwolf Auer and DrsquoIppolito ldquoInnovation Acceleratorsrdquo

56 Randall Stross The Launch Pad Inside Y Combinator Silicon Valleyrsquos Most Exclusive School for Startups (New York

Portfolio 2012) 41

As models evolve a lack of clarity exists in what constitutes an accelerator Some groups refer to themselves as accelerators but in actuality function as incubators while others meet the formal definition of accelerator but continue to call themselves incubators These programmatic differences however become blurred on an organizational level as startups position themselves in the marketplace Indeed the 2016 Global Accelerator Report by Gust a startup service provider notes that ldquoas new models emerge the term lsquoacceleratorrsquo describes an increasingly diverse set of programs and organizations and often the lines that distinguish accelerators from similar institutions like incubators and early-stage funds become blurredrdquo57 Research has shown that attracting venture capital to a region has a positive impact on employment growth and entrepreneurship more broadly An increase in finance activity following the arrival of an accelerator leads to new growth in local regional investment groups Accelerators also can serve as catalysts bringing together forces to create an entrepreneurial environment where one did not exist previously58

57 Gust ldquoGlobal Accelerator Report 2016rdquo accessed September 20 2017 httpgustcomaccelerator_reports2016 global

58 Fehder and Hochberg ldquoAccelerators and the Regional Supply of Venture Capital Investmentrdquo 4 25 29

bull Business development assistance

bull Increased success rates

Business

Incubation

bull Critical early stage capital

bull Access to networks

Angel investment

Seed accelerators

62 Views on accelerator sustainability Sustainability of Accelerator programs is entirely dependant on the model under consideration Indeed many Accelerators are not focused on the Accelerator program sustainability as it may be part of a larger strategy as shown by the examples below or a lost leader in the product chain (for example the investment fund or incubator) In the traditional equity model unicorns and gazelles are expected to experience liquidation events returning funds to the Accelerator and associated funds From a structural standpoint the actual equity is sometimes held by the Accelerator itself as an entity or may be held by a separate entity The Telluride Venture Accelerator (TVA) 59located in Telluride CO USA started in 2013 in an effort to engage mentors and investors from the region impact the local economy through attraction of technology companies and ignite a regional entrepreneurial eco-system TVA was started by a non-profit community foundation ndash the Telluride Foundation and programmatic funds are raised by the foundation from individuals private foundations and government grants Simultaneously the Telluride Venture Fund (TVF) was formed as a LLP with a small number of investors (less than 10) TVF has raised 3 funds with slightly different investors and has invested in approximately frac12 of the graduates from TVA TVA historically invested $30k USD for a 5 equity stake in participant companies This equity is held by the Telluride Foundation (TF) and any returns would go to TF to continue its charitable work and IS NOT tied to supporting TVA long term from a sustainability perspective however it is implied TVA has adopted the revenue share option for the 2018 cohort and sees this as an immediate strategy to return dollars from investments for operations TVF operates independently making investments in both TVA and other regional companies It expects to make typical venture fund returns but also acts with a philanthropic eye towards regional economic development and is ldquopatient capitalrdquo The bigger picture outcomes for projects like TVA and the Southwest Colorado Accelerator Program for Entrepreneurs (SCAPE) located in Durango CO is the increase in active investment capital in Western Colorado Concentration of capital in the US has historically been on the coasts The proliferation of Accelerators the experimentation with models AND views on sustainability are directly related to the effort to change this because of the correlation of availability of risk capital to startup and growth of job creating firms The two Accelerators in the southwest region of Colorado have arguably inspired the startup of several funds and angel groups throughout western Colorado as well as new $12MM USD government sponsored fund serving rural Colroado

59 wwwtelluridevacom

Concentration of Venture Capital Investment Across the United States

Source Richard Florida ldquoA Closer Look at the Geography of Venture Capital in the USrdquo CityLab February 23 2016

httpswwwcitylabcom life201602the-spiky-geography-of-venture-capital-in-the-us470208

621 Equity Traditional models exchanged cash investments and resources in exchange for an equity ownership

in young companies Essentially a private sector model these programs reduce risk for investors

give investors better access and encourage a faster paced growthfail determination Accelerators

also reduce costs for angel investors and venture capitalists in a number of ways The accelerator

model distributes ldquothe inherent riskiness of investing in tech startups over a large startup poolrdquo and

reduces the real and opportunity costs associated with searching for new investment opportunities

as well as investment risk along two dimensionsmdashproduct risk and company risk60 Risk is lowered in

part because the accelerator gathers candidates in a single location and thus attracts investors who

might find the costs of searching for opportunities in smaller regions too high The use of a demo day

allows investors to observe multiple companies in a single instance and creates opportunities for

non-local investors to seek additional investment opportunities in the area This helps reduce the

search and sorting costs for investors when investing in smaller regions61

Pay back or return on investment is anticipated through liquidation events which returns multiples

to investors and the Accelerator programs Accelerator titans ndash Y Combinator 500 Startups and

TechStars have been successful in ROI mostly because of outliers or Unicorns The vast majority of

Accelerators have not seen liquidation events in a timely manner expecting a 5-7 year performance

but in reality a 10-12 year time line might be more realistic Even then the challenge becomes the

paper value of these investments transitioning to cash available for operations Although TVA

investments held by TF are valued at over $30MM USD no funds have been returned in 5 years The

60 Dempwolf Auer and DrsquoIppolito ldquoInnovation Acceleratorsrdquo 1 17 18

61 Fehder and Hochberg ldquoAccelerators and the Regional Supply of Venture Capital Investmentrdquo 7

Global Accelerator Network (GAN) in 2015 reported a 5 acquisition rate overall (most common

liquidation event enabling payback of investment) 6 in Accelerators over 4 years old In summary

the equity model has worked for a few early accelerators but for the remainder is still unproven

622 Revenue share As Accelerators have proliferated a movement away from purely IT to product services and other

STEM focused companies has led to exploration of other manners of funding and returns Revenue

share has emerged as a common alternative to the equity model This approach generally involves

providing an investment in exchange for a percentage of revenue ndash usually a percentage of gross

profit that kicks in after a revenue milestone and continues through some predetermined rate of

return In the case of the Telluride Venture Accelerator (TVA) companies have the option to receive

an initial investment of $30k US and begin payback after reaching $100k US in revenue with a 20 of

gross profit payment until a 3X return is achieved for the Accelerator This development recognizes

a more appropriate method to finance companies which appeals to both the companies and

investors as liquidation events are less likely and less desirable for certain types of companies and

economic development minded investors

623 Fee for service The value of programming connection to mentors and increased attractiveness to investors that

Accelerator programs provide is a service companies are willing to pay for The emergence of

models providing high level service in exchange for payment is often not connected to an exchange

of equity or other risk orientated return expectation

Founders Space offers an accelerator and incubator program that doesnrsquot invest in its startups

but instead offers services in exchange for cash and equity upfront Founders Space runs more

than a dozen types of startup programs in-person and on-line These programs range from one

day to several months Some programs are designed for early-stage startups while others focus

on later stage and some programs are focused on particular sectors like Fintech Agtech Health

Advertising Big Data AI SaaS etc62

624 Related business Hybrid models have emerged as a norm These models combine various aspects from traditional

Acceleration business incubation and fee for service and rely on multiple sources of revenues

Often times providing Acceleration becomes a feeder for the main focus of the effort such as

incubation where the business model may rely on rent and fee payments or investment funds

where the returns are expected on the investment fund itself rather than any initial investment

during the Accelerator program In fact Accelerators such as TechStars quickly moved to offering

additional capital with terms that somewhat protected the investment from the significant dilution

experienced by the first in money Accelerators commonly provided

625 Economies of scale Economies of Scale kick in when Accelerators perfect models and launch them in additional

locations The most prolific of these models is TechStars based in Boulder CO

Techstars is an extensive worldwide network that provides their clients with a three-month program and mentorship that is authentic optimistic and empathetic Once yoursquore in the Techstars family yoursquore in for life Techstars wants their members to feel cared for and to give them the freedom to

62 httpswwwfoundersspacecomprogram

work in the environment best suited for them Thatrsquos what makes them so unique They offer 34 location options for their programs giving these entrepreneurs plenty of choices

ldquoOur global ecosystem of founders mentors investors and corporate partners work together to create a network of support that lasts throughout your entrepreneurial journeyrdquo -- Techstars63

626 Conclusions Some accelerators are pushing the decision by the startup to provide equity or other payment to

the end of the program contingent on the Startup achieving its goals and receiving the benefits

offered by the Accelerator programs This provides a guarantee of sorts and places a good amount

of risk to the Accelerator itself to make good on their upfront claims This caveat is in response to an

increasingly competitive environment to attract the best startups into Accelerators

A variety of success factors and benefits are provided by business accelerators to startups local

economies investors policymakers and the accelerators themselves The success of these programs

can be measured in both short- and long-term events according to research published in 2013 by

Ross Baird CEO of Village Capital a Washington DC-based venture capital firm and others In their

report for the Aspen Institute Baird and his co-authors found that in the short term the success

rate of an accelerator can be measured against the acceptance rate and frequency with which

graduates are acquired or otherwise exit the program In the long run an acceleratorrsquos success can

be measured against its startupsrsquo internal rates of return and abilities to bring in sources of funding

particularly if the accelerator does not take equity stakes in its startups Other characteristics related

to an acceleratorrsquos scale of success include the intensive format of mentoring and business skills

training the program length and the founderrsquos historical connections to investors64

When it comes to financial self-sustainability recent data from the Global Accelerator Learning

Initiative (GALI) shows the importance of corporate philanthropic and government revenues not

equity In their 2016 survey nearly 50 of respondents received corporate funding and 21 relied

on corporate funding for at least half of their total funding Less than 10 generated revenue from

equity returns or success fees charged to investors65

63 ldquoAmericas Top 7 Startup Accelerators and What Makes Each Uniquerdquo Entrepreneurcom September 13 2017

64 Dempwolf Auer and DrsquoIppolito ldquoInnovation Acceleratorsrdquo 28

65 wwwgalidataorgaccelerators

Accelerator Revenues GALI 2017

The importance of corporates is reflected in UK data also where 51 of accelerators receive

corporate funding (please note the graph below shows the percentage receiving funding from a

source not the amount)66

Percentage of UK accelerators receiving funding from various sources

This reflects the evolution in the industry and the emergence of new models outlined in the next

section It indicates that financial sustainability more and more depends on corporate philanthropic

and government support

63 Models

631 Investment ndash funding centric Cohenrsquos idea was to help start more companies by investing a small amount in 10 of them at one

time and enrolling them in an intense 90-day program during which they would work closely with


mentors and other angel investors in order to get their businesses to the next stage and in a position

to raise a full angel round67

632 Community based ndash economic development One of the primary motivators for use of the Accelerator model in community and economic development is the models ability to help organize capital in the eco-system Funding for the operation of these programs is through federal state and local grants as well as corporate and private foundations Additionally accelerators have the potential to impact local economies through tax benefits and economic growth A population of successful entrepreneurs can bring substantial tax revenues to regions as well as broader economic benefits Regions with more entrepreneurial activity tend to have better economic outcomes Metropolitan statistical areas with an established accelerator show more seed and early-stage entrepreneurial financing activity Such activity is not limited to accelerated startups but also impacts non-accelerated companies primarily from an increase in investors68 One of the largest intentional funders is the US Small Business Administrationrsquos Growth Accelerator Fund Competition Program (GAFC) Other significant public and private funding tends to be project based targeted to geographic areas which are experiencing significant economic stress Both The TVA and the Southwest Colorado Accelerator Program for Entrepreneurs (SCAPE) have been recipients of GAFC awards SCAPE was founded in 2013 by local angel investors mentors and regional economic development groups to foster development of the entrepreneurial eco-sytem Supported with an initial grant from the State of Colorado Office of Economic Development and International Trade (OEDIT) SCAPE raises funds each year for operations and direct company investment Investment funds are managed through a separate LLP investment entity with a carry reserved for the SCAPE non-profit entity Company investment is provided in small increments during the program to assist companies in attaining investment relevant milestones such as intellectual property and product development Applications are solicited from a 5-county region and are evaluated with a job creation and local impact lens Investments are regarded as a long-term play (10-12 years) and impact is regarded as a regional build of the capacity to support growth companies The LLP invests more significant dollars and leverages other investors at the completion of the program upon evaluation of companies potential for regional impact and investment worthiness Investment vehicles are both equity and revenue share A population of successful entrepreneurs can bring substantial tax revenues to their home regions as well as broader economic benefits Regions with more entrepreneurial activity tend to have better economic outcomes In regions with less venture capital financing accelerators become more important as a funding source In light of many local governments adopting the accelerator model Massachusetts Institute of Technology economist Daniel C Fehder and Rice University professor Yael Hochberg published in 2015 their findings from a study that measured the impact of such programs on local entrepreneurial ecosystems The researchers focused on the availability and provision of seed and early-stage venture capital financing for startups and found that the presence of an accelerator led to a shift in the general equilibrium of funding activity Their findings revealed that the arrival of an accelerator was associated with a 104 percent annual increase in the number of seed and early-stage venture capital deals a 289 percent increase in the amount of seed and early-stage funding provided in the region and a 97 percent increase in the number of distinct investors investing in the region Fehder and Hochberg were able to tie the increases to the presence of

67 Brad Feld Startup Communities Building an Entrepreneurial Ecosystem in Your City (Hoboken NJ Wiley 2012) 15

68 Hathaway ldquoAccelerating Growthrdquo

nearby investment groups Regions with previously existing formal angel groups experienced a larger impact than regions without such groups meaning that startup accelerators are complementary to existing institutions in a regionrsquos innovation ecosystem69 The SBA created the GAFC program in 2014 to draw attention and funding to parts of the country where gaps exist in the entrepreneurial ecosystem The GAFC awards $50000 cash prizes to accelerators to help support their organizations The money can be used for operational expenses hiring or programmatic support that leads to better access to capital mentorship networks and workspace enabling high-growth startups to scale up and grow sustainably In 2014 GAFC awarded $25 million to 50 winners from 31 states Washington DC and Puerto Rico In 2015 it awarded a total of $44 million to 88 winners representing 39 states Washington DC and Puerto Rico In 2016 the program awarded $34 million to 85 winners representing 38 states and Washington DC Overall between 2014 and 2016 the SBA awarded 223 GAFC prizes to 187 unique winners for a total of $103 million For the 2017 competition the SBA limited the awards to past GAFC winners and planned to award 20 teams with the $50000 prize 70

Contrary to the typical accelerator model in which the provision of seed funding is fairly standard less than half of the GAFC winners provided such financing to their startups and even fewer took an equity stake in those businesses Approximately one-quarter of the winners provided seed funding to only their most promising startups Of those that did take an equity stake in exchange for seed funding most took 5ndash6 percent equity Accelerators that made investments in their startups made an average total investment of $1827600 between 2014 and 2016 71 Governments around the world are increasingly seeing innovation as a key factor for maintaining economic competitiveness One way of doing so is to create their own public programs and funds or reinforce existing programs so that they can have a bigger impact on the ecosystems they serve In the USA and Canada 36 of accelerators reported that they either received a mix of private and public funding or are 100 publicly funded Public funding typically comes in the form of government grants and subsidies72

633 Corporate Corporates are entering the Accelerator space with a variety of motivations and models These

models fall manly in two camps

1 to encourage the use of their platforms and tools and

2 to encourage innovation within their corporation

Corporate accelerators drive innovation at a much faster pace than is possible internally create

growth options by taking stakes in interesting companies gain a window into technologies and

business models that will become ldquowinnersrdquo and profitably leverage existing sales distribution

69 Fehder and Hochberg ldquoAccelerators and the Regional Supply of Venture Capital Investmentrdquo 2ndash3

70 Evaluating the US Small Business Administrationrsquos Growth Accelerator Fund Competition Program A Report Prepared by the Federal Research Division Library of Congress February 2018


72 Gust ldquoUSA amp Canada Accelerator Report 2015rdquo accessed October 5 2017 httpgustcomusa-canada-accelera tor-

report-2015

networks and relationships into additional value73 Just about any good corporate has its own

accelerator Corporate accelerators like Microsoftrsquos may overly encourage the use of their products

with the chief purpose not making money but ldquoincubatingrdquo its parent companyrsquos

ecosystem74 Microsoft for Startups is a new program that delivers access to technology go-to-

market and community benefits and which helps startups grow their customer and revenue base It

is committing $500 million over the next two years to offer joint sales engagements with startups

along with access to Microsoft technology and new community spaces that promote collaboration

across local and global ecosystems Startups are an indisputable innovation engine and Microsoft is

partnering with founders and investors to help propel their growth75

634 Targeted populations and industries Increasingly Accelerators have been used as tools to target specific industries and populations where entrepreneurship and innovation are a desired outcome GUST in its 2016 survey found that ldquothe global acceleration landscape is increasingly moving towards verticalization with 575 of accelerators running programs focused on a particular industry or sector niche businesses associated with a specific industry sectorrdquo None the less others are not focused on a sector as shown by UK data76

Percentage of UK accelerators with a technology focus

The chart above also illustrates the sectoral breadth of acceleration which now operates in varied and very different sectors as is illustrated also by GUST technology trends77


74 httpswwwfastcompanycom3062151four-alternative-types-of-accelerator-that-startups-overlook

75 httpsblogsmicrosoftcomblog20180214grow-build-connect-microsoft-startups


77 GUST 2016 Accelerator report

Approximately half of the respondents in the GAFC study described themselves as focused on an industry (such as life sciences or food) or a location (such as rural areas or specific counties) Forty-one percent of the winners described themselves as focused on a demographic (such as women Native Hawaiians or veterans) or technology (such as biotechnology or clean technology [cleantech]) Between 10 percent and 20 percent of the respondents described their organizations as being focused on a product a service or being a social enterprise 78

635 Conclusions Accelerators have proven to be effective tools in providing investors access to qualified deal flow

and value add to fledgling companies Communities have benefitted from a better eco-system to

support a greater network and targeted industries and populations have seen success in the growth

of startups

Sustainability of these efforts is dependent on the patience and diversity of funding sources

combined with customized investment models to appropriately fund companies and provide returns

for Accelerators and investors In this context it is becoming clear that the vast majority of

accelerators require either public subsidies or corporate support or both to be sustainable


Contents 1 Background 4

2 Context for considering financial sustainability 4

21 Public support that encourages the right behaviour 5

22 The quality of ecosystems is an important factor in self sustainability 5

23 Blurred distinctions 5

3 Business Incubator Sustainability 6

4 Property based business model a foundation for self-sustainability 9

41 Critical factors to maximise financial self-sustainability 11

411 Scale of facilities 11

412 Free buildings with long term arrangements 12

413 Critical Mass of Demand 15

414 Time 15

42 Cowork spaces 16

5 Building on the foundation with other revenue sources 17

51 Success sharing 17

511 Small percentage of sweat equity 17

512 Small percentage of sales or increased sales (royalty) 19

513 Seed Funding 19

52 Training 21

53 Partnerships and corporate sponsorship broadening revenue opportunities 22

54 Hybrids Super incubators 23

55 Other commercial activities 23

56 Government funding 23

6 Accelerator Sustainability 25

61 Introduction Accelerator Models still evolving 25

62 Views on accelerator sustainability 27

621 Equity 28

622 Revenue share 29

623 Fee for service 29

624 Related business 29

625 Economies of scale 29

626 Conclusions 30

63 Models 31



633 Corporate 33


635 Conclusions 35







region


























grants
































































entrepreneurs





































charged separately
















9 ibid





Anchor tenants









thereafter















around 100m2





4 Time








































































USA



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private donations



















years20


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19 httpwwwnstedbcom



Asia




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ensure relevance

































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allocated a of the





many good examples































































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32 wwwdublinbicie



































37 wwwiceangelsconz




41 wwwnzvifconz





















revenues







































20 commission
























ecosystem benefits




























Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups






63 Models 31



633 Corporate 33


635 Conclusions 35







region


























grants
































































entrepreneurs





































charged separately
















9 ibid





Anchor tenants









thereafter















around 100m2





4 Time








































































USA



Renovated 2006




private donations



















years20


18 httpwwwtpmcommy

19 httpwwwnstedbcom



Asia




Hubs







Coast









ensure relevance

































people







































allocated a of the





many good examples































































29 ibid

30 ibid


32 wwwdublinbicie



































37 wwwiceangelsconz




41 wwwnzvifconz





















revenues







































20 commission
























ecosystem benefits




























Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups












region


























grants
































































entrepreneurs





































charged separately
















9 ibid





Anchor tenants









thereafter















around 100m2





4 Time








































































USA



Renovated 2006




private donations



















years20


18 httpwwwtpmcommy

19 httpwwwnstedbcom



Asia




Hubs







Coast









ensure relevance

































people







































allocated a of the





many good examples































































29 ibid

30 ibid


32 wwwdublinbicie



































37 wwwiceangelsconz




41 wwwnzvifconz





















revenues







































20 commission
























ecosystem benefits




























Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups


































































entrepreneurs





































charged separately
















9 ibid





Anchor tenants









thereafter















around 100m2





4 Time








































































USA



Renovated 2006




private donations



















years20


18 httpwwwtpmcommy

19 httpwwwnstedbcom



Asia




Hubs







Coast









ensure relevance

































people







































allocated a of the





many good examples































































29 ibid

30 ibid


32 wwwdublinbicie



































37 wwwiceangelsconz




41 wwwnzvifconz





















revenues







































20 commission
























ecosystem benefits




























Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups








































charged separately
















9 ibid





Anchor tenants









thereafter















around 100m2





4 Time








































































USA



Renovated 2006




private donations



















years20


18 httpwwwtpmcommy

19 httpwwwnstedbcom



Asia




Hubs







Coast









ensure relevance

































people







































allocated a of the





many good examples































































29 ibid

30 ibid


32 wwwdublinbicie



































37 wwwiceangelsconz




41 wwwnzvifconz





















revenues







































20 commission
























ecosystem benefits




























Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups









Anchor tenants









thereafter















around 100m2





4 Time








































































USA



Renovated 2006




private donations



















years20


18 httpwwwtpmcommy

19 httpwwwnstedbcom



Asia




Hubs







Coast









ensure relevance

































people







































allocated a of the





many good examples































































29 ibid

30 ibid


32 wwwdublinbicie



































37 wwwiceangelsconz




41 wwwnzvifconz





















revenues







































20 commission
























ecosystem benefits




























Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups










around 100m2





4 Time








































































USA



Renovated 2006




private donations



















years20


18 httpwwwtpmcommy

19 httpwwwnstedbcom



Asia




Hubs







Coast









ensure relevance

































people







































allocated a of the





many good examples































































29 ibid

30 ibid


32 wwwdublinbicie



































37 wwwiceangelsconz




41 wwwnzvifconz





















revenues







































20 commission
























ecosystem benefits




























Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups















































USA



Renovated 2006




private donations



















years20


18 httpwwwtpmcommy

19 httpwwwnstedbcom



Asia




Hubs







Coast









ensure relevance

































people







































allocated a of the





many good examples































































29 ibid

30 ibid


32 wwwdublinbicie



































37 wwwiceangelsconz




41 wwwnzvifconz





















revenues







































20 commission
























ecosystem benefits




























Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups
























years20


18 httpwwwtpmcommy

19 httpwwwnstedbcom



Asia




Hubs







Coast









ensure relevance

































people







































allocated a of the





many good examples































































29 ibid

30 ibid


32 wwwdublinbicie



































37 wwwiceangelsconz




41 wwwnzvifconz





















revenues







































20 commission
























ecosystem benefits




























Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups












Coast









ensure relevance

































people







































allocated a of the





many good examples































































29 ibid

30 ibid


32 wwwdublinbicie



































37 wwwiceangelsconz




41 wwwnzvifconz





















revenues







































20 commission
























ecosystem benefits




























Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups














ensure relevance

































people







































allocated a of the





many good examples































































29 ibid

30 ibid


32 wwwdublinbicie



































37 wwwiceangelsconz




41 wwwnzvifconz





















revenues







































20 commission
























ecosystem benefits




























Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups












































allocated a of the





many good examples































































29 ibid

30 ibid


32 wwwdublinbicie



































37 wwwiceangelsconz




41 wwwnzvifconz





















revenues







































20 commission
























ecosystem benefits




























Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups




































29 ibid

30 ibid


32 wwwdublinbicie



































37 wwwiceangelsconz




41 wwwnzvifconz





















revenues







































20 commission
























ecosystem benefits




























Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups





































37 wwwiceangelsconz




41 wwwnzvifconz





















revenues







































20 commission
























ecosystem benefits




























Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups
























revenues







































20 commission
























ecosystem benefits




























Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups









































20 commission
























ecosystem benefits




























Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups















ecosystem benefits




























Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups

































Portfolio 2012) 41






Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups











Business

Incubation



Angel investment

Seed accelerators

































































































63 Models






















report-2015






















of startups






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