Business incubation equals business success
Business incubation equals business success
Business incubation in New Zealand is proving to be a resounding success, according to the national incubator association.
Incubators New Zealand chairman Andrew Hamilton says recent statistics show that companies assisted by regional incubators have added strong value to the New Zealand economy and boosted employment.
“Since September 2002, these incubator residents have raised over $29 million in equity capital and more than 500 people are now employed nationwide by incubator companies,” he says.
“Those statistics show fantastic growth and promise. In the December 2004 quarter alone, incubator residents raised more than $13 million in equity capital.”
Incubators New Zealand represents 16 regional incubators, which in turn assist and encourage start-up companies to reach their full potential. Currently, more than 125 fledgling companies throughout New Zealand are being helped by the incubators.
Mr Hamilton says this assistance is already being noted by New Zealand’s business community. “In the last four years we’ve had 59 companies graduate from incubators and enter the mainstream business environment.
“That’s a great start but more importantly, the incubation industry has matured to the point where we’re seeing close to 30 companies a year graduate. Within three years from now, that number will be closer to 50.”
The industry also received a welcome boost this week with the announcement that Telecom will provide sponsorship and assistance to Incubators New Zealand.
Telecom chief executive Theresa Gattung says Telecom is keen to help nurture new companies that can contribute to New Zealand’s economic future.
“Kiwis value innovation and the idea of ‘giving something a go’ and Telecom recognises that innovation and entrepreneurship are important, not just to help individual companies grow, but to help the New Zealand economy grow. Our support for Incubators New Zealand is also a natural extension of the support we already provide to regional incubators such as The ICEHOUSE, Canterbury Innovation Incubator and Innovation Waikato,” she says.
The new relationship will be highlighted later this month with the presentation of the inaugural national incubator awards in Wellington and an expo to showcase some of the up and coming incubator resident companies.
“The Telecom New Zealand Incubator Awards are a chance to celebrate the successes of these emerging companies and, just as importantly, let Kiwis know how good the future can be if we’re economically successful,” says Ms Gattung.
As well as recognising those companies currently achieving in the incubators, the Awards will also acknowledge the 25 companies that have successfully exited the incubators and achieved ‘high growth’ status.
To be high growth, a company must double its employee numbers, achieve revenue of $500,000 during incubation or raise $500,000 in investment. Generating revenue of at least $5 million within three years of exiting an incubator is also a qualifier.
Incubators New Zealand chairman Andrew Hamilton says the achievements of these 25 companies are proof of the success of the intensive quick-growth strategy promoted by the incubation industry.
“Slow and steady doesn’t win the race when it comes to the kind of stand-out start-ups the New Zealand incubator industry is looking for,” he says.
“The incubator industry has committed itself to helping fuel the growth of the New Zealand economy at the fastest rate possible, which means nurturing high growth companies which can contribute the most to our national bottom line in the shortest possible time.”
“The number of high growth companies incubators have already nurtured, combined with Telecom’s sponsorship, are evidence that the incubation industry has come of age in New Zealand.”
The next three years will see the association focus on developing the profile of the industry, lifting the number and quality of incubator resident applicants, and developing initiatives to ensure New Zealand follows best practice in incubator management.
As Mr Hamilton says, “Now is the time to build on the momentum that has already been achieved in the last four years and add real benefit to the economic landscape of New Zealand.”
Incubators New Zealand was established in 2003 to encourage and support growth within the start-up business community and provide a framework for communication. Since its inception, the organisation has provided assistance for dozens of companies nationwide. For more information, please visit www.incubators.org.nz
The Telecom New Zealand Incubator Awards, April 26, Wellington Town Hall.
The Telecom New Zealand Incubator Expo, April 27-28, Wellington Town Hall.
Open to the public on Thursday 28th April from 10am-4pm.
ATTACHED BELOW: BACKGROUND PAPER AND FURTHER INFORMATION
BUILDING BUSINESS SUCCESS: INCUBATION IN NEW ZEALAND
Briefing by Andrew Hamilton, Chair – Incubators New Zealand
Business incubation is in its early years in New Zealand. While there has been substantial progress in the last four years with the number of incubators increasing from two to 16, many challenges remain before New Zealand can realise the full economic impact of this important development industry.
The Government’s Growth and Innovation Framework recognizes that if we are to achieve our economic objective of returning to the top half of the OECD per capita income ladder then we must excel globally. We must become a source of high value innovation in particular sectors of the global economy. However, achieving this level will require a significant strengthening of our innovation system.
Business incubators are an important element of that direction. They give fledgling entrepreneurs an opportunity to develop their innovative ideas and set up new businesses in order to commercialise them. The reality in New Zealand is that we do not have a sufficient number of world class management teams in start-ups. Business incubation catalyses the process of starting and growing companies by providing entrepreneurs with the expertise, networks and tools they need to make their ventures successful.
International research has proven that incubation programmes diversify economies, commercialize technologies, create jobs and build wealth. Incubation can provide a pipeline of innovative, high growth companies which can be part of tomorrow’s economic engine room for a knowledge based economy.
During the past four years most incubators in New Zealand have been in establishment phase, securing sponsors, premises, resident companies and learning the fundamental principles of incubation. Many of the incubators themselves are in start-up mode just like the companies they are designed to help. If there is to be world class incubation in this country, the early success needs to be capitalised on by lifting the capacity and capability of current incubators. It is time now for the industry to talk about outputs and success, not inputs.
There are currently 130 companies under incubation while a further 59 start-ups have already graduated from incubator programmes. Those that have exited have on average increased their turnover by 111%, raised $29 million in capital and now employ more than 500 people.
The results from the past year look even better. Since 2001 a total of 25 start-ups have qualified as ‘high growth’ and the pace is picking up as the industry matures, with fourteen of these graduating in the last year. To be high growth, these companies must achieve two of the three following milestones during incubation: double their employee numbers, achieve revenue of $500,000 or raise $500,000 in investment. Generating revenue of at least $5 million within three years of exiting an incubator is also an indicator of ‘high growth’.
CAPITAL RAISED BY INCUBATOR RESIDENTS HIGH GROWTH INCUBATOR RESIDENTS
This is a great start, but more importantly the incubation industry has matured to the point where nearly 30 companies a year are graduating from regional incubators. Within three years, that number will be closer to 50 – a significant contribution to New Zealand’s economic landscape.
Our successful graduates from last year have a promising future ahead of them judging by their growth and the fact that they recorded an average growth rate in revenue of 156% and in employee numbers of 140%.
Yet just as important as the numbers of incubator resident companies graduating is the quality of these start-ups. As the nominations for the industry’s inaugural awards show, the calibre of resident companies is world-class. Incubator graduates are winning major export contracts, developing world-first technology, and attracting significant levels of investment from both New Zealand and off-shore markets.
The reasons for this improving success lie in part with the programmes and initiatives that the regional incubators, the industry’s association Incubators New Zealand, and New Zealand Trade and Enterprise have been developing. In particular, the creation of a long-term strategy for the industry aligned with government strategies has been fundamental. The focus on ‘high growth’ has underpinned the industry.
The profile of the industry has also been lifted in New Zealand thanks to a range of awareness building activities. The concept of incubation was virtually unknown in New Zealand but in the last two years a knowledge level has been created so that in a recent survey we discovered that nearly 40% of business and 30% of general public know what incubators are and do.
Significant corporate partnerships have also been created for national events and activities designed to assist incubator resident companies. These have included a national ideas contest, a national Angel Investing Seminar Series and the inaugural Telecom New Zealand Incubators Awards & Expo. Incubators New Zealand has also partnered with the Economic Development Association of New Zealand, New Zealand Venture Capital Association, Kiwi Expats Network and many others.
As a result, the industry now has the public profile and the credibility to attract long-term private sector sponsors and partners. Incubators New Zealand hopes to build on its success in securing Telecom as its major sponsor by winning further private sector and corporate support.
Such support will allow the development of critical industry projects that focus on addressing the strategic matters affecting the industry. Last year these projects included:
Creation of the infrastructure for Investment Seed Funds aligned to incubators.
The Angel Tour – a tour of New Zealand by United States experts to promote the concept of angel investing in early stage companies.
Power of Angel Investing – an education program to assist angel investors build their knowledge and competency, and create formalised angel networks clustered around incubators.
Best Practice – a series of training programs for Incubator Managers. This has been complemented by regular industry summits, an industry standard financial template for reporting and measuring incubator performance, and an online best practice repository.
The Wild Ideas Competition – a nationwide ideas competition run in conjunction with Vodafone.
Incubator Expo – a national incubation expo in Wellington for all incubators and residents in incubators.
Credit for much of this success is shared with the Government, primarily through the support and assistance of New Zealand Trade and Enterprise. To date just over $10 million has been granted to 19 incubators, Incubators NZ and industry projects.
Because of the small size and young age of the industry, it has been important for the regional incubators to collaborate to ensure the continued success of incubation in this country.
Accordingly, Incubators New Zealand was established in 2003 as an industry body and charged with driving and guiding the development of incubation. The association is tasked with providing New Zealand’s regional incubators with the tools, capability and networks to significantly increase their chances of growing the next wave of Kiwi start-up entrepreneurs.
The association envisions that incubators will become a key part of the economic development infrastructure of New Zealand through the creation of new, high growth businesses. If New Zealand is to become a knowledge economy then there is a need for increased commercialisation of science and intellectual property. Incubators can assist in this commercialisation process and can leverage the approximate $500 million currently being spent by Government on science and technology research.
We have learnt that if we are to develop strong regions, the regions themselves need to become involved in fostering innovation locally. Internationally, incubators tend to work best when they are designed to support and participate in a broader strategic framework – either regionally focused or targeted on particular priority sectors, or a combination of these factors. The Christchurch and Wellington regions are good examples of where this can work and how incubation can play a major role.
It follows that incubators are often promoted by an inclusive partnership of stakeholders, including local government, tertiary institutions and the private sector. Public institutions usually have an important catalytic and leadership function, including pump-priming investment and/or ongoing maintenance investment. Therefore, most successful incubators internationally are “Not for Profit” and community owned. Innovation Waikato and the recent launch of the BioCommerce Centre in Palmerston North are further examples of these strategies at work.
In fact, there is an increasing global recognition that the incubators that produce the best results in terms of economic development are often not fully financially self-sustainable and may rely on some form of ongoing income subsidy. While there are a number of different funding models, the evidence to date is that public support for the establishment of incubators is likely to remain critical for the foreseeable future.
A significant threat to this is the steady stream of new enquiries from people considering establishing new incubators which, if they all came to fruition and were funded, would dilute and weaken the impact of the current Government support programme. Incubators tend to have substantial fixed costs from inception and they take time to establish income streams from tenants and other sources. This produces a heavy reliance on external funding in the early years and this is already placing increasing demand on Government funding. In fact, it is arguable that there are already too many incubators in New Zealand given the nascent stage of development of the start-up industry.
Now is the time to build on the momentum that has already been achieved in the last four years by making a step change in the proficiency and scale of early stage start-ups in New Zealand.
As an industry we have set some bold but achievable targets. To develop the incubation infrastructure in NZ to critical mass we aim to have at least 20 ‘high growth’ companies graduating per annum from approximately 16 incubators by 31 December 2006. All stakeholders must work together if this objective is to be achieved.
In order to deliver on this target, it will be necessary to lift the capability and capacity of existing incubators, plus any others that are established. It is internationally recognised that incubators benefit from economies of scale. The current average occupancy capacity of New Zealand incubators is seven companies. We need to encourage many of the incubators to lift this capacity to approximately 18 companies over the next three years. By the end of 2007, if these goals are achieved, there will be over 200 companies in incubators in New Zealand.
The incubator industry has committed itself to helping fuel the growth of the New Zealand economy at the fastest rate possible, which means nurturing high growth companies that can contribute the most to the national bottom line in the shortest possible time. We need to foster an incubation industry that is focused on assisting high growth companies. Our strategies are aligned with this objective, however we accept that for a variety of reasons there will always be other types of ‘mixed use’ incubators.
The quality of the incubation management team and incubator board is crucial to the overall performance of incubators. The current incubator managers have a range of capabilities, but all can benefit from further best practice information and training. New entrants to the incubation industry will be encouraged to draw heavily on this expertise.
Because of the nature of their business, and the short time in which the industry has been in operation, incubators have relied on government funding to survive. A significant factor then for the industry in this fragile stage of development is the support of Government in order that the industry might achieve its goal of financial independence by 2011. Incubators have a desire for a longer term commitment than the current annual funding allocation from Government so that they can create more certainty in their business.
The major issues that we are now working to address are:
Lifting the volume and quality of deal flow for incubators.
Providing more funding earlier for residents of incubators.
Initiatives to lift the quality and understanding of the incubators and their management
Utilizing the combined talents and networks of incubators for the benefit of the resident companies looking to operate in foreign markets.
In order to achieve this we will strive to achieve the following goals.
Goal 1 - Foster an incubation industry that is incubating high growth companies. By 31 December 2006 and each year thereafter, we want to see 20 companies per annum graduating that are high growth companies.
Goal 2 - Encourage incubators to implement measures that will drive them toward long term financial sustainability.
Goal 3 - Encourage incubators to attract private equity for resident companies through their links with angel and venture funding organisations and individuals. Incubators New Zealand will proactively assist with the creation of angel networks. We want to see $10m new equity per annum raised, 30% of incubator residents receiving a private equity injection per annum and formal Angel networks established around 50% of incubators.
Goal 4 - Encourage incubators to have a plan to increase their capacity and capability to be able to reach appropriate economies of scale. For general and high tech incubators the target is 18 companies per incubator.
Goal 5 - Initiate a number of programmes to create more companies to apply for incubation while also lifting the quality of applicants. Ideally we will see at least a 25% increase in the number of companies screened by our incubator members.
Goal 6 - Ensure our incubators are strongly networked to each other in order to share best practice and conduct business that benefits all resident companies. This will be partly achieved by ensuring all incubator managers participate in at least two national activities per annum.
Goal 7 - Establish and maintain relationships with international incubators in key priority markets that can be utilised by all New Zealand incubator resident companies and position Incubators NZ as an active participant in the international incubator movement. Already, partnerships have been created with the Australian, Asian, US, Canadian, UK & European incubator associations.
Goal 8 - Ensure that incubators achieve and maintain international best practice. Working with New Zealand Trade and Enterprise we need to build capability to ensure that incubators achieve and maintain this level. We will establish measures against international standards and ensure that progress is made in lifting the level of competency in incubation.
Goal 9 - Lead the development of a data-capture program that tracks the performance of residents in incubators over time and enables an annual impact assessment to be undertaken. In addition, individual incubators will benchmark their performance against other incubators in NZ and internationally.
We have never had a problem in New Zealand with finding ideas or technology. The problem has just been making them happen in global markets. Now we have the structure in place and the benefits will accelerate as more companies are brought into the market.
We have achieved so much to date. Now is the time to build on this momentum and add real benefit to the economic landscape of New Zealand.
CURRENT NEW ZEALAND INCUBATOR MEMBERS
AUT Technology Park (AUT)
Innovation Greenhouse Porirua
Industrial Research Limited
The NRG Charitable Trust
The Bio Commerce Centre
Canterbury Innovation Incubator (Cii)
Dunedin Fashion Incubator (DFI)
Southern Institute of Technology
HALL OF FAME
Year Start-up Incubator
2004 Cleanflow Systems
AUT Tech Park
AUT Tech Park
AUT Tech Park
Canterbury Innovation Incubator
Canterbury Innovation Incubator
Terranova Pacific Services www.techpark.aut.ac.nz
AUT Tech Park
AUT Tech Park
AUT Tech Park
2002 Moods Messaging
Skunk Shot www.iamemo.com
www.innovationgreenhouse.co.nz The ICEHOUSE
2001 Climate Coatings
www.innovationgreenhouse.co.nz The ICEHOUSE
*3 companies who have reached High Growth status are not disclosed for confidentiality reasons.