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2 Copyright 2014 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC Phone: Internet: Some rights reserved. This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 Unported license (CC BY 3.0) creativecommons.org/licenses/by/3.0. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution Please cite the work as follows: Impact Assessment of Business Incubation Models in Eastern Europe & Central Asia infodev, Finance and Private Sector Development Department. Washington, DC: World Bank. License: Creative Commons Attribution CC BY 3.0 Translations If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. All queries on rights and licenses should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: ; pubrights@worldbank.org. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. 2

3 About infodev and CSBKE infodev, a global trust fund program in the World Bank Group, supports growth-oriented entrepreneurs through creative and path-breaking venture enablers such as incubators and accelerators. It also assists entrepreneurs with securing appropriate early-stage financing and convenes entrepreneurs, investors, policymakers, mentors, and other key innovation ecosystem stakeholders for dialogue and action. Among other initiatives, infodev implemented the Creating Sustainable Businesses in the Knowledge Economy (CSBKE) program with the objective to increase the growth of small, innovative and technology businesses, primarily in the ICT and agribusiness sectors. The CSBKE program was designed as a public-private partnership between infodev, Finland, and Nokia Corporation and covers the period from March 2010 to June Contributing authors With extensive primary research for this study carried out by UKBI, principal infodev authors and reviewers to this study are Heidi Humala, Ellen Olafsen and Stefan Schandera, with inputs provided by Michael Ehst and Sophia Muradyan. During an interim external peer review in August 2012, inputs were provided by Steffen Preissler (Fraunhofer MOEZ), Peter Lindholm (consultant), Julian Webb (infodev consultant) and Krzysztof Zasiadly (independent expert). º 3

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5 TABLE OF CONTENTS 1. BUSINESS INCUBATION: AN OVERVIEW 8 2. EXECUTIVE SUMMARY OUTCOMES SUCCESS FACTORS RECOMMENDATIONS OBJECTIVES AND METHODOLOGY INTRODUCTION TO INCUBATION MODELS AND TRENDS IN THE REGION SOCIO-ECONOMIC IMPACT OF BUSINESS INCUBATION IN EASTERN EUROPE AND CENTRAL ASIA REGIONAL OR NATIONAL ECONOMIC IMPACT OF BUSINESS INCUBATION ECOSYSTEM-LEVEL IMPACT OF BUSINESS INCUBATION FIRM-LEVEL IMPACT OF BUSINESS INCUBATION INSIGHTS ON BUSINESS INCUBATION MODELS IN EASTERN EUROPE & CENTRAL ASIA MISSION AND STRATEGY INCUBATION SERVICES FINANCIAL MANAGEMENT SELECTION AND GRADUATION (EXIT) POLICIES MONITORING AND EVALUATION EXECUTIVE TEAM AND GOVERNING BODY CONCLUSIONS & RECOMMENDATIONS IMPROVING MONITORING & EVALUATION INCREASING EARLY-STAGE FINANCING OPPORTUNITIES INCREASING INTERNATIONAL MARKET ACCESS FOR INCUBATEES ENABLING PEER-LEARNING AMONGST INCUBATORS 554

6 LIST OF TABLES AND FIGURES Figure 1. Business Incubation Ecosystem 8 Figure 2. The Four Components of Business Incubation 9 Table 1. Intermediary Vehicles for Innovative Enterprise Development 10 Table 2. Business Incubator Types and Trends in ECA 18 Figure 3. Profile of Incubatees 21 Figure 4. Salary Levels of Incubatees 22 Table 3. Revenues of Incubatees and Graduates 30 Table 4. Export Revenues of Incubatees and Graduates 22 Figure 5. Incubatees Customers and Markets 38 Figure 6. Sources of Revenue 40 Figure 7.Monitoring and Tracking: Indicators used for Performance and Results Assessments 46 APPENDIX 0. APPROACH AND METHODOLOGY SUMMARY OF INDICATORS USED AND EXPECTED RESULTS SUMMARY OF SELF-COMPLETED QUESTIONNAIRES WITH NINE BUSINESS INCUBATION MANAGERS SUMMARY OF SELF-COMPLETED QUESTIONNAIRES FOR INCUBATEES SUMMARY OF FINANCIAL RETURNS ON INVESTMENT MEASURING PERFORMANCE OF BUSINESS INCUBATORS AND IMPACT OF BUSINESS INCUBATION: OVERVIEW OF THE LITERATURE REVIEW AND METHODOLOGY INDIVIDUAL REPORT: ENTERPRISE INCUBATOR FOUNDATION (EIF) AMERICA INDIVIDUAL REPORT: TECHNOLOGY PARK MOGILEV (TPM) BELARUS INDIVIDUAL REPORT: SODBI KAZAKHSTAN INDIVIDUAL REPORT: BASTAU STBI STUDENT TECHNOLOGICAL BUSINESS INCUBATOR (BASTAU STBI) KAZAKHSTAN 101 6

7 10. INDIVIDUAL REPORT: KALISZ INNOVATION CENTER POLAND INDIVIDUAL REPORT: TIMISOARA SOFTWARE BUSINESS INCUBATOR - UBIT ROMANIA INDIVIDUAL REPORT: ZELENOGRAD NANOTECHNOLOGY CENTRE (ZNTC) RUSSIAN FEDERATION INDIVIDUAL REPORT: BUSINESS TECHNOLOGY INCUBATOR OF TECHNICAL FACULTIES - BELGRADE LLC (BITF) SERBIA CORE INCUBATION PROCESS SURVEY 133 LIST OF ABBREVIATIONS BI BoD BSP CBC DTI ECA EEN FTE HEI ICT IPA NBIA NGO NLI OSCE R&D ROI SME VC WB Business incubator Board of Directors Business service providers Cross Border cooperation Democratic Transition Initiative Eastern Europe and Central Asia European Enterprise Network Full-time equivalent Higher education institutions Information and communication technology Instrument for pre-accession assistance National business incubation association Non-governmental organization National Level Institutions Organization for Security and Co-operation in Europe Research & Development Return on Investment Small and Medium-sized Enterprises Venture capital World Bank 7

8 1. BUSINESS INCUBATION: AN OVERVIEW infodev 1 recognizes business incubation as a process aimed at supporting the development and scaling of growth-oriented, early-stage enterprises. The process provides entrepreneurs with an enabling environment at the startup stage of enterprise development. This environment should help reduce the cost of launching the enterprise, increase the confidence and capacity of the entrepreneur, and link the entrepreneur to resources required to start and scale a competitive enterprise. Entrepreneurs accepted into the business incubator stay until an agreed upon milestone is reached, often measured in terms of sales revenue or profitability. Business incubation is one of many tools aimed at fostering innovative enterprise creation and growth. Other complementary intermediaries exist, such as business development service providers and technology parks. Table 1 illustrates how business incubation is positioned in relation to these two complementary vehicles. A business incubator can play an important role in developing and supporting startup companies, and has the potential to stimulate local and regional economies. Figure 3 helps to visualize the broader context within which an incubator operates. A) The (wider) business incubation enviroment B) The business incubation (process) C) Business incubator (a business incubation environment) 8 1 Section adapted from infodev Business Incubation Management Training Program, Module 1: Business Incubation Definitions and Principles. See for training program details.

9 Incubation is a continuous relationship between the incubator and the early-stage entrepreneur, with graduation as the target and occurring when the early-stage company has reached sufficient maturity. Through the incubation process, the support provided by the incubator evolves along with the development needs of the business. Business incubation has four basic components as shown in Figure 2. SERVICES VALUE TO THE ENTREPRENEUR INFRASTRUCTURE e.g. office space, meeting rooms, electricity, phone, internet, lab facilities, etc. Economies of scale decrease the cost of starting a business + benefits from a professional look and brand. BUSINESS SERVICES e.g. help with registration, licenses, accounting, strategy advice, market research, exporting facilitation, etc. Help with non-core business activities saves time and money. FINANCING e.g. brokering and/or providing financial services such as equity, credit, and guarantees. Leveraging the credibility of the incubator and the portfolio of entrepreneurs to overcome financing gaps. PEOPLE CONNECTIVITY e.g. mentoring, coaching, and interaction with fellow entrepreneurs (a micro cluster), market linkages. Learning, exchange of ideas, psychological support, partnerships, business relationships. 9

10 BUSINESS DEVELOPMENT SERVICE PROVIDERS BUSINESS INCUBATORS TECHNOLOGY PARKS TARGET ENTERPRISES Any SME Early-stage enterprises with high growth potential Emerging and established technology business KEY FEATURES Ad hoc, demand-driven assistance. Focused on a particular issue for which the entrepreneur asks for assistance. Usually broad business support, including training and advisory services. Emphasis on location and the cluster effect between enterprises. Ongoing supply and demand driven assistance until an agreed upon performance milestone has been reached Integrated mix of intensive strategic and operational support focused on the enterprise in its entirety Emphasis on colocation and the cluster effect between enterprises. Demand driven assistance. Emphasis on provision of state-of-the-art real estate, office space, and research facilities and networking opportunities. REVENUE SOURCES Government / donor subsidies, fee-for-service Government / donor subsidies, fee-for-service, rent, royalties, equity The business incubator (process) is a public and/or private, entrepreneurial, economic, and social development process designed to nurture businesses from idea generation to startup companies and, through a comprehensive business support program, help them establish and accelerate their growth and success The wider business incubation environment is a broader context which should be conducive to the sustainable development of enterprises and nurturing their growth. Other business incubation activities and definitions for the purposes of this study: Non-incubation activities All activities that are not directly related to the incubation process described above. Upstream and Downstream activities Activities addressing the wider incubation ecosystem as well as outreach and networking activities as part of pre- and post- incubation. Pre-incubation Services related to a specific incubatee before the incubation process. Post-incubation Services related to a specific incubatee after graduation. 10 Informal incubation activities Incubation services as part of the incubation process that the incubator does not formally determine as a service and charge for (such as networking and access to market services for clients).

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12 2. EXECUTIVE SUMMARY Business incubation can be a valuable tool for stimulating the startup and growth of new enterprises. Successful incubators accelerate the growth of their clients businesses as compared to new or small businesses operating independently. They do this by providing advice and guidance, and by leveraging linkages to a wide range of innovation and entrepreneurship stakeholders that expand the entrepreneur s access to the knowledge, networks, capital, and markets he or she needs to start and grow the business. Indeed, most incubators in ECA to date are government driven initiatives. They are often initiated by ministries of ICT, education, youth, R&D, science, or economy. Privately driven models are however gaining momentum. Despite the significant investment in business incubation in the region, little research has been done at the national or regional level with regard to the long-term return on (public) investment in business incubation. This assessment aims to provide further insights on the outcomes of business incubation for the enterprises directly served by the incubators, as well as for the broader socio-economic environment the business incubators operate in. This study assesses nine business incubators in eight countries across the ECA region 2, namely Armenia, Belarus, Kazakhstan, Poland, Romania, the Russian Federation, Serbia, and Turkey. These countries were selected to obtain representation from the various subregions of ECA. The specific business incubators were selected based on interviews with stakeholders indicating that these were well-performing business incubators. The intent was thus to analyze what outcomes can be expected from a wellperforming business incubator in ECA. That being said, the number of incubators studied here is small compared to the estimated overall number of incubators in ECA and not all findings can necessarily be extrapolated to the region as a whole. While business incubators in ECA-and worldwide-are set up with varying objectives, all incubators selected for this study are focused on innovative startups and earlystage businesses with high growth potential. Seven were established within the last ten years, and two (Kalisz Innovation Center in Poland and Technology Park Mogilev in Belarus) were established in the second half of the 1990s. An important common characteristic amongst all of the business incubators studied is that they offer business incubation services only as one component or service offering amongst others. This is not as common in other parts of the world. Another notable observation is that the business incubators generally had a poor understanding of the performance of their current and past clients, which made data collection challenging. Many of the firms were quite reluctant to share financial data despite promises of confidentiality. This relates to the level of trust in of the respective societies, but it also relates to a key weakness identified across the business incubators assessed. While monitoring and evaluation (M&E) systems existed in all of the incubators studied, these often consisted of intermittent and irregular performance reviews, where the purpose was limited to monitoring the progress of incubatees against project deliverables as set up in business plans or contracts. As a result, most of the M&E systems reviewed by the study fail to capture the long-term impact of incubators on the local and subregional business communities. The study also found that they were lacking the instruments to track the performance of companies once they had graduated from the incubator. An additional challenge is that the M&E systems examined the overall performance of the organization (including non-incubation activities), but failed to segregate incubation services from the overall activity portfolio of the organization The World Bank Group works with 23 countries in Europe and Central Asia (ECA) to help improve people s lives and achieve shared prosperity in a variety of ways, including through financial lending, analytical and advisory services. For a complete list of target countries and activities, please visit

13 2.1 Outcomes The study concludes that the incubators studied have generally been effective in fostering entrepreneurship and innovation in their local contexts. Effects of incubators on their local regions & industries Creation of enterprises At the time of this study, the nine incubators were providing incubation services directly to 146 firms and had incubated a total of 421 firms. The study also found that incubators appear to stimulate sector and cluster development. The effect was stronger for incubators that specialize in a specific industry, such as ICT. Creation of innovative products Measured by the number of patents, trademarks, copyrights, innovative products, and initiatives undertaken to collaborate with research organizations to commercialize research results generated, 75 percent of the incubators studied generated more than one innovative product and more than one R&D collaboration in the past year. Some 50 percent of graduates indicate that they have developed more than two innovative products during the last year. This can be compared favorably to the rate of early-stage entrepreneurs in Europe that have introduced a new product to the market, which according to the 2013 Global Entrepreneurship Monitor stand at 45 percent. Creation of high-quality jobs Upon entering the incubator, only 20 percent of the companies had more than five full-time employees. Post-graduation, 65 percent of the incubated companies had 10 or more employees and 89 percent of the firms said that most of the new jobs they created require highly skilled employees. Tax contributions One way of calculating the return on public investment is to assess whether the public funds provided to the incubator led to an equal or higher amount of tax revenue for the government. This figure is indeed positive for most of the incubators, indicating that incubators help to create a net financial benefit in the region where they are located. Bridging the financing gap Four of the incubators in the study directly assist their incubatees with finance, either by taking equity in the incubatees or by providing them with low-interest loans. If successful, these endeavors can provide new models for reducing the financing gap for early-stage entrepreneurs in the region. Ecosystem convenorship Through their boards, networking, and a combination of upstream and downstream activities 3, incubators play an important role in developing the innovation and entrepreneurship ecosystem by fostering dialogue and cooperation among providers of business and financial support, policy makers, and entrepreneurs. Effects of incubators on incubated businesses High rates of business survival More than 65 percent of the incubator managers in the study estimated that more than 80 percent of the companies they supported were still in business a year after graduation. Half of the managers said that more than 80 percent of incubatees were still in business five years after graduation. This is a very high survival rate compared to a non-incubator average. 3 Upstream activities target business ideas (i.e., pre-startup) and occur prior to client entry into the incubator environment, through means such as business plan competitions. Downstream activities generally involve established companies, including incubatees after their period of incubation (e.g., mentoring network, alumni associations). 13

14 2.2 Success Factors A few trends could be observed in terms of key success factors for the incubators studied. Self-sustainability The majority (seven) of the incubators in the study were established with the goal of becoming self-sustainable. They reach financial self-sustainability, defined as the incubator generates enough revenue to cover its operational expenses, within two to four years of operation. This compares favorably to what is observed elsewhere. A minority of incubators in the study receive ongoing public subsidies to cover operational costs. Three of the nine incubators have developed business models based on success sharing (equity and/or royalty sharing) models. Revenue from office and workspace leases form the largest share of direct revenue for business incubators. That being said, most of these incubators have established business models based on a revenue mix, including direct revenue from incubation and cross-financing through non-incubation services. According to incubator managers participating in the study, the non-incubation activities also enable them to develop and maintain strong, effective networks on local, national, and international levels that can be leveraged for the incubation service. Organizational structure The quality and attitude of the incubators staff is key to the incubatees assessment of their incubation experience. More than the incubator s team, the manager is perceived as the incubator s main asset, along with the contacts and access to networks and markets he/she is able to provide. Furthermore, the incubator s Board of Directors is expected to play an important role by providing credibility, leadership, strategic direction, networks of contacts, and support for the managing team. In most cases, the incubator benefited from the presence of a champion as the incubator manager as well as on the board: a well-known, respected individual who was committed to the success of the incubator and who undertook external promotion of it. In a minority of cases, incubators reported that the board did not fully understand the process of incubation (as opposed to managed workspace) and the true value of incubation as a regional economic development tool. Incubators studied here also tend to provide a number of important, informal services to incubatees, which are often provided free of charge. These include organized networking, access to finance for incubatees, as well as support with access to local and international markets. 14

15 2.3 Recommendations The results of the study and the impact that these selected business incubators have on socio-economic development and enterprise growth generally speak to the opportunity to scale and replicate successful business incubation activities in the ECA region. Even with the limitations of the current M&E systems, there are clear indications that ECA incubators can be cost-effective and create high-quality jobs, innovative products, as well as provide other industry benefits. Three additional future opportunities include: Enabling peer-learning amongst incubators: Incubators should be seen as role models, embodying the values of early-stage enterprise support and best practice in their business models. Leading examples of both functions should be identified throughout the ECA region and each industry. A number of the incubators that took part in this study could be role models and their experience should be effectively communicated across the region. Improving monitoring and evaluation: There is tremendous potential to develop a sound methodology for assessing and regularly monitoring the performance and impact of incubators in ECA, on both an individual and regional basis. Improving and extending the research methodology of this report could result in a more comprehensive picture of the real return on investment of incubators. Increasing international market access: As evidenced by infodev s recent internationalization pilots, business incubators can play a key part in facilitating access to international markets for their incubatees. In ECA, a shared legacy of transition economies on one hand, and cultural commonalities such as language and intraregional trade agreements (such as the Customs Union of Belarus, Russia, and Kazakhstan) on the other hand, are factors that drive opportunities for internationalization of SMEs in the region, and often at the startup stage. However, the opportunity to facilitate internationalization is not fully exploited by incubators in the region. Increasing early-stage financing opportunities: Access to early-stage finance is a critical constraint for growth-oriented enterprises in the region. Several of the business incubators are piloting innovative schemes at a small scale. With proper M&E, an attempt could be made to scale up these models to extend the benefits to a larger population of early-stage growth-oriented entrepreneurs. 15

16 3. OBJECTIVES AND METHODOLOGY As part of infodev s work to scale business incubators and to strengthen innovation and entrepreneurship ecosystems in ECA, this study provides an analysis of the impact of business incubators on entrepreneurship and innovation development. The objectives of the study are to: Raise awareness among incubation practitioners, policymakers, stakeholders, and donors on the importance of enabling entrepreneurship in the region Establish a segmentation of incubators (e.g. business model, years of operations, sources of funding) to evaluate the effect of incubation on firms through key questions (e.g. creation of jobs, increase in income and productivity) Provide a good practice methodology for evaluating the impact of business incubators on a regular basis The findings of this study are based on a mix of quantitative and qualitative primary data collected from incubator managers, stakeholders, incubatees, and graduated companies. The assessment involved self-completed questionnaires (SCQs), on-site face-to-face interviews, and group discussions with recipients. Recipients included incubator managers, incubatees, graduates, board members, and stakeholders. Data collection tools were structured around a set of indicators identified in collaboration with infodev. Data gathering and interviews were carried out from late 2010 to mid In 2010, infodev conducted scoping missions to Armenia, Belarus, Georgia, Kazakhstan, and Ukraine and held discussions with incubator managers and other stakeholders in Belarus, Georgia, Moldova, and Kazakhstan. The objective of these scoping missions was to understand the potential for growth-oriented startups and SMEs in the region and the particular needs and innovation ecosystem of incubators as they related to startups. Findings from these scoping missions were translated into key research questions and objectives of this report. This study analyzes the results of business incubation on entrepreneurship and innovation development in the ECA region. More specifically, the study reports on: The socioeconomic impact of the incubators on innovation and entrepreneurship activities (Section 2) The sustainability trajectory of the incubators and an evaluation of their financial return on investment (Section 3) Key elements of the business incubation process to consider for generating results (Section 4). Findings from the study also provide insight into the effect of incubation on the local area, namely: Creation of sustainable jobs Commercialization of innovative business models, products, processes, or services Local, regional, and national economic development Sector competitiveness 16

17 4. INTRODUCTION TO INCUBATION MODELS AND TRENDS IN THE REGION The first business incubators in ECA were established in the early to mid-1990s, including the countries of Belarus, Poland, the Russian Federation, and Uzbekistan. A second generation of incubators, established in the mid- to late 1990s and substantially supported by the international donor community, included incubators in Kazakhstan, Ukraine, Armenia, and Kyrgyz Republic. The majority of incubators in these two generations were mixed profile, without a particular sector focus. Long-term experiences with this type of incubators in the ECA region indicate a relation between long-term public support and the sustainability of incubators. Since the mid-1990s, a significant number of incubators of this type have ceased operations, often due to discontinued public or donor support. A third generation of sector-focused incubators emerged by the beginning of the new century, including the EIF incubator in Armenia for example. A fourth generation of incubators has been emerging since around 2005, including startup communities and grassroots initiatives linked to investment communities (e.g., virtual incubator within BAVIN Belarus Business Angels and Venture Investors Network). This trend towards new business incubation models is gaining momentum in the region. Models include business accelerators, co-working spaces, local innovation communities linked to global initiatives (e.g., globally operating Startup Weekend), venture acceleration networks, and grassroots initiatives linked to private investment communities (e.g., BAVIN virtual incubator in Belarus, Happy Farm Incubator in Ukraine ). In addition to these private sector initiatives, governments in the region have started to partner with the new incubators. An example is the Russian Venture Acceleration Fund. According to informal market research carried out by infodev in parallel to this study, there were about 400 to 600 incubators operating in the ECA region in October infodev estimated that 20 to 30 percent of these incubators were sector-focused. A key focus area is ICT, both as a sector and as an enabler of growth in other sectors. Most incubators in ECA to date are government-driven initiatives. The number of university-based incubators has been increasing and in 2010 they represented about 10 percent of incubators in ECA. Mission and key stakeholders are major determinants of business incubator types in ECA. Major business incubator groupings include sector-focused incubators (e.g., for ICT, the EIF incubator in Yerevan/Armenia, Hi-Tech Park Minsk/Belarus), incubators focusing on youth employment and academic entrepreneurship (e.g., YES Incubator in Skopje/Macedonia, Ust-Kamenogorsk Technology Park and Incubator in Kazakhstan), and a group of mainly mixed profile incubators with the mandate to strengthen regional development outside the major cities (e.g., Soroca Incubator in Moldova, Tambov Innovation Incubator in the Russian Federation). Scoping visits by infodev in 2010 reflected that an effective link between state support for incubation and incubator impact and performance measurement was not in place, to effectively manage and monitor incubator operations. Policymakers expressed strong interest in strengthening business incubation program management skills. An earlier infodev survey among members of the Eastern Europe and Central Asia Network of Incubators (ECAbit) indicated that an unstable incubator support policy from governments is seen by a majority of incubators as a major risk in the region 4. Further ecosystem-related needs include effective instruments and regulation for R&D commercialization and early-stage finance. A trend towards new business incubation models is gaining momentum in the region. These models include business accelerators, co-working spaces, local innovation communities linked to global initiatives (e.g., Startup Weekend), venture acceleration networks, as well as grassroots initiatives linked to private investment communities. This trend is often a model of private sector-driven incubation, whereby governments (the traditional driving force, financier, and often administrator of business incubators in the region) have started to partner with the private sector to implement demand-driven incubators or new activities within existing incubators. Table 3 provides an overview of such business incubator types and trends in the region. 4 Stefan Schandera, infodev 2009: Incubating the Incubators: Lessons learned from Eastern Europe and Central Asia, presentation at World Bank Knowledge Economy Forum VIII 2009, INSEAD Fontainebleau/France, April 29-May 01,

18 TYPE MISSION STAKEHOLDERS TREND TECHNOLOGY INCUBATOR Technology commercialization; close to technology parks Academies of Science, Ministries of Science and Technology Small niche, emerging, limited results and impact; In Russia, emerging based on R&D funding and supported by large state R&D programs Countries: Belarus, Moldova, Ukraine, Kazakhstan, Russia 5 UNIVERSITY- BASED INCUBATOR 6 Youth entrepreneurship Ministries of Education Good sustainability based on university resources and longterm stakeholder commitment; emerging, limited results and impact, but a few good examples Countries: Russia, Ukraine, Kazakhstan, and various initiatives (e.g. Moldova) REGIONAL MIXED INCUBATOR Regional development; entrepreneurship development goals Often Ministries of Economy, municipalities, and regional governments; also regional NGOs A large number of programs with mixed results and consistent challenges (e.g., Kazakhstan); new approach in Russia; plans in Ukraine, Moldova; regional youth incubator plans in Azerbaijan SECTOR- FOCUSED INCUBATOR Sector development (in the region mainly ICT) Sector ministries Sector-oriented incubators and technology parks emerging; small number of very successful organizations in the ICT field (Yerevan, Timisoara, Minsk, Moscow); a small number of agribusiness incubators (Uzbekistan, Belarus) with overall high potential in agribusiness PRIVATE INCUBATORS, ACCELERATORS Return on private investment Mainly private investors Emerging niche. Small number in Russia and Belarus, mainly virtual, as well as Ukraine and Bulgaria Access to early-stage financing is a critical constraint for growth-oriented enterprises in the region; earlystage innovation financing remains a key weakness of innovation ecosystems of the Eastern European and Central Asian region 7. Public funding for innovation mainly addresses later development stages of the enterprises, leaving a gap from seed financing to early stage innovation. On the other hand, private sector financing still focuses on traditional industry sectors such as real estate, retail, and commodities. Market exposure for public innovation promotion mechanisms including business incubators and technology parks is considered as a key success criteria of these instruments, and remains a major challenge for public programs throughout the region Estimates In most FSU countries there is a distinction between university-based and research-linked, due to the history of R&D and education system that separate education (universities) and R&D (institutes) in these countries. Although addressed, the system still applies in most FSU countries.) 7 Finding from parallel infodev Access to Finance pilot activities in Kazakhstan and Belarus in 2012, focusing on the development of angel investor/ private capital networks.

19 Furthermore, there is a need to build trust and efficient linkages between private and public sector entities involved in early-stage financing, where the supply of private capital is still at a nascent stage and its potential complementarity to public sector financing is not yet well understood. The role of business incubators in attracting financing for clients and supporting international market exposure and product or service validation in new markets could be instrumental. The business incubators assessed for the purposes of this study are located in Armenia, Belarus, Kazakhstan, Poland, Romania, the Russian Federation, Serbia, and Turkey 8. All incubators are focused on innovative startups and early-stage businesses with high-growth potential. Seven of these have been established within the last ten years, and two (Kalisz Innovation Center in Poland and Technology Park Mogilev in Belarus) were established in the second half of the 1990s. They all share a common mission: the commercialization of business ideas in specific industries and the promotion of entrepreneurship, innovation, and business and job creation at the subregional and regional levels. 8 With the exception of Turkey, where the incubator opted to keep its name and data private, all business incubators studied are further discussed as individual case studies in the Appendices. 19

20 5. SOCIO-ECONOMIC IMPACT OF BUSINESS INCUBATION IN EASTERN EUROPE AND CENTRAL ASIA In practical and policy terms, business incubation can be a valuable tool for stimulating enterprise development and supporting businesses with growth potential. Business incubators provide a safe harbor, intensive resources and a development environment where, if effectively managed, enterprises can flourish. Successful incubators can accelerate the growth and increase the survival rates of their client businesses as compared to new or small businesses operating independently. As demonstrated in the literature review undertaken as part of this assignment (Appendix 5), a number of studies have been carried out to investigate the wider role and added value that business incubators in ECA can play by accelerating the growth and increasing the survival rates of their client businesses. However, very few national and regional studies in ECA have looked at incubation s long-term return on investment. Monitoring and Evaluation (M&E) systems exist in most incubators studied, but often consist of intermittent and irregular performance reviews whose purpose is generally limited to monitoring their progress against fixed targets and project deliverables as set up in their business plans or contracts. As such, these M&E systems fail to capture the true impact of incubators in the longer term and ultimately their broader impact on socio-economic development. Furthermore, it is notable that the greatest added value of business incubation comes to fruition only after graduation, as a direct consequence of the inputs received during the incubation process. One of the recommendations included is to maintain a relationship with graduated companies in order to track their progress and longer term socio-economic impact. One objective of this study, which is structured around nine quantitative indicators 9 identified in collaboration with infodev (Appendix 1), is to contribute to overcoming this M&E gap and to analyze information about incubators longer term results and their socioeconomic effect in their local and national context. The following section will reflect on these nine indicators as part of the business model and operations of the nine incubators studied. 5.1 Regional or National Economic Impact of Business Incubation 20 Business incubators have a broader influence on improving the environment for startups and earlystage businesses in the subregion or region their role is not limited to supporting the growth of incubatees alone. Most of the incubators studied here have a wider service and revenue portfolio beyond their core business incubation activities. A further discussion of these wider goals follows. 9 The nine quantitative indicators are: (1) Deal-flow of clients, (2) Jobs created, (3) Survival rates, (4) Innovation and R&D activity, (5) Salary levels, (6) Finance raised, (7) Turnover, (8) General revenues and export revenues, and (9) Financial management of the Business Incubator and Return on Investment. Further details about these indicators are outlines in Appendix 1.

21 Quality of jobs created Job creation is a key socio-economic impact of business incubators. 57 percent of incubatees provided more than 5 jobs each while their business grew as part of the incubation process, compared to 24 percent on entry. The study identified a total of 709 full term employment (FTE) jobs among the 146 incubatees in the participating incubators. 10 A total of 266 jobs had been created by the surveyed incubators in the past 12 months. The size difference of the incubators needs to be taken into consideration when interpreting these figures. The assumption is that an incubator with larger premises (i.e., more clients) will generate more jobs than a smaller incubator over the same time period. The positive impact of business incubation on job creation becomes evident when looking at companies that have graduated from incubators. For example, only 9 percent of graduated companies said they employed more than 10 people when they entered the incubator. However, when these companies exited the incubator, 50 percent of them employed more than 10 people and at the time of the survey, the percentage had increased to 73. Being selective about clients and having a graduation policy (overall referred to as deal-flow management) allows incubators to focus on incubatees that generate quality and high-skilled jobs. This is an important aspect that can help to reduce so-called brain drain in the countries studied and in the region as a whole. As illustrated below, the staff of a typical incubatee is highly skilled and located in an urban area, and is thus generally better able to seize the opportunities offered by innovation. On average, 89 percent of incubatees and 71 percent of graduated companies state that the majority of their staff members can be described as highly skilled. Location: rural Location: urban Gender: women Gender:men Skills: high-skilled Skills: medium-skilled Skills: low-skilled 0% 20% 40% 60% 80% 100% 120% Source: Self-Complete Questionnaire Incubatees 10 Only seven out of nine business incubators replied to the question. 21

22 Salary levels of course only make sense to report on in terms of Purchasing Power Parity and in relation to salary levels from other equivalent jobs in the given economic context. Interpreting figures based on staff salaries at innovative startups and earlystage businesses can therefore be misleading, as the socioeconomic context and enabling environment vary highly in the different countries surveyed. Furthermore, during the research undertaken here, salary estimates by incubation managers differed from figures given by incubatees themselves: quantitative data collected from managers indicate an average salary of $ a month, while figures obtained from incubatees provides a different and more varied perspective, as shown below: Per month salary levels USD1.500 USD USD USD USD USD300 Percentage of incubatees 0% 5% 10% 15% 20% 25% 30% 35% 40% Source: Self-Complete Questionnaire Incubatees Two-thirds of graduates (61 percent) indicate that their average monthly salary is greater than $600, compared to 39 percent among incubatees. According to incubator managers, incubatee and graduates staff and management salaries are competitive with salaries of the same sector in the marketplace. Compared with salaries in general 11, the nature of high-quality jobs in mainly technologyrelated sectors leads to an overall higher income level for incubatee staff Institute for the Study of Labor (2008), Wage Differentials across Sectors in Europe: An East-West Comparison,

23 Development of innovative products and services The majority of incubators studied mentioned their role as catalysts for innovation activity. As such, they made appropriate support available and created an environment where incubatees could best manage and exploit their innovations. Interestingly, although all of the incubators have links with higher education institutions (HEIs), only four provide access to R&D or product development support: ZNTC (Russian Federation), BASTAU (Kazakhstan), Technology Park Mogilev (Belarus), and BTI Belgrade (Serbia). These four have an established deal-flow of IP commercialization opportunities with the universities and R&D institutions with which they have ties. Innovation activity was measured by the number of patents, trademarks, copyrights, innovative products, and R&D collaboration generated. 75 percent of the incubators had generated more than one innovative product and more than one R&D collaboration in the past year. A quarter of the incubators serve clients who had applied or owned more than one patent in the past year. One had helped clients apply for more than one copyright application during the previous business year. As might be expected, this type of activity is highest among sector-focused academic and scientific incubators, and lowest among mixeduse local economic development incubators. Among incubator graduates, only 5 percent state that they have applied for or owned more than one patent during the previous year, and the same percentage say that they have applied for trademarks or copyrights. Some 50 percent of graduates indicate that they have developed more than one innovative product during the last year, compared to 28 percent of incubatees. The number of patents registered by clients of ICT incubators is low. ICT incubator managers stated that R&D was more often seen in new product development, such as software development, than with outsourcing services for international clients. At UBIT Timisoara, for example, only one out of eleven incubatees produced their software products in 2008: the majority of incubatees focused solely on software outsourcing. By 2011, the number of incubatees producing and marketing their own software products had increased to three. According to UBIT management, new software product development is at the very core of the incubator s mission. Incubatees may also need a particular infrastructure to manage and exploit their innovations in specific industries. Incubatees of ZNTC in Moscow (Russian Federation) noted that the nanotechnology lab at the incubator is a key infrastructural benefit received from ZNTC. Among the five incubators with a strong academic and scientific background, ZNTC is the only organization offering in-house laboratory services. 12 Innovations versus Outsourcing: The region is a major destination for IT, mainly software development outsourcing. Among ICT business incubators in the region, outsourcing is a major activity for incubatees. According to the incubators interviewed, outsourcing is still the major revenue source for clients but the share of new product development is steadily increasing. In this context, the share of new IT products exported by incubatees is also increasing. 23

24 Technology Park Mogilev, Belarus The incubator facilitates expert advice to its clients (both incubatees and graduates), supports recruitment through its network with HEIs, and provides advice on the commercialization of innovative products offered by the partner universities. Among its key partners, the local Institute of Technology of Metals is home to knowledge-based innovative ideas, and helps its undergraduate and graduate students become more innovative by conducting a great deal of fundamental and applied research in the field of technology of materials. Bastau Ust-Kamenogorsk, Kazakhstan The incubator is run by the East-Kazakhstan Technological University (EKTU) as part of its innovation activities, which also include an annual innovation competition, cooperation with the National Innovation Fund, and a technology park program (since 2003), which is a network of student design bureaus, university laboratories, University Science and Technology Council, Science Fund Parasat, and the Ministry of Science. The main idea behind the creation of the incubator was to teach students how to create jobs and to promote innovations. It would be fair to say that the incubator achieves this goal. However, there still is a challenge in commercializing the innovative products developed by the incubatees. With limited government support in this sector, such a challenge could only be addressed by developing international networks and information exchange, developing cooperation with funding agencies and venture funds this is going to be the incubator s and university s goal for the future. BASTAU stakeholder Technology Park Mogilev, Belarus The Zelenograd Innovation and Technology Center (ZITC) was founded in 1998 to assist scientific and industrial activity in the field of microelectronics, electronics, and IT. This is an innovation initiative of the Moscow Institute of Electronic Technology (MIET), a university in the Russian electronics sector. One of its key stakeholders is the Union of Innovation Technology Centers of Russia (UNITC), which provides opportunities for incubatees to promote their ideas and products through industry-specific events, technology audit services for pre-bi clients, and support in accessing the foreign markets and investments (for post-bi). 24

25 Financial returns from incubator activities The relatively short time span of two to four years in order to break even indicates that investments in incubators in the region can have a quick impact on the development of innovation and entrepreneurship activities. Based on results from incubatees and stakeholders, the study demonstrates that incubators are not just facilities, but that the intangible innovation network created and provided by incubators is of equal if not higher value. A key determinant of financial management and return on investment into business incubators would be in measuring the impact and additionality of non-facility services. Overall, it is strongly recommended that there is a need for incubators in ECA to better measure and communicate the value of non-facility services that are often provided on an informal basis, free of charge. Gateway function 5.2 Ecosystem-Level Impact of Business Incubation The majority of the incubators end users (incubatees and graduate companies) participating in the study perceive incubators as gateways for enterprises a place where all actors in the entrepreneurship and innovation ecosystem can meet and exchange views and information. Incubatees and graduates often cited the feeling of being part of a community. They also mentioned the incubator s role as a trigger for entrepreneurial activities and ICT cluster development, particularly those where support for SMEs was inefficient or inexistent. 25

26 INCUBATORS AS ENABLERS FOR SECTOR DEVELOPMENT: PERCEPTIONS OF STAKE- HOLDERS (BOARD MEMBERS, FOUNDERS, AND/OR MAIN DELIVERY PARTNERS) UBIT Software Incubator Timisoara, Romania Over its seven-year existence, UBIT has not limited its activities to supporting startups and early-stage businesses within its premises. UBIT s Director has developed and operated a number of activities, with the objective of fostering an entrepreneurial spirit within the area as well as generating client deal-flow (lack of demand for business incubation is an issue in Timisoara). UBIT has also been instrumental in the development and operation of the ICT cluster in Timisoara. Data collected during this study demonstrates that over the years UBIT has worked with more than 300 individuals outside incubation, in a context where the structure to support startups and early-stage businesses and government support are limited and entrepreneurial spirit is just emerging. The incubator plays an important role as a gateway for the enterprise, but resources (human and financial) are limited. In a country where support for SMEs and startups is very limited, more initiatives like this are needed. This incubator is an example of a sustainable program funded by regional bodies (not the government). The business model itself (as a tool for regional economic development) is very well perceived and evidence exists of its impact: the incubator is at the center of -and drives the ICT cluster in the area. The business incubator therefore needs to be integrated further to clustering activities because this is where the money currently is. - UBIT Board Member It is very difficult for a business to get visibility in the marketplace, as there is no real structure in place for supporting startups and SMEs. The incubator manages just that. Networking and exposure are key assets of the program. Incubatee The main reason for moving in was the low-cost rental system, but I now realize that the work by the business incubation director to expose my business to the ICT and business community of the area has been key in the development of my business. Graduate Enterprise Incubation Foundation Yerevan, Armenia EIF has been not only a business incubator but also a business development agency for the past nine years. In fact, incubatees represent only about four percent of the total client base, while the majority of other businesses served receive support other than incubation. Since the start of operations, EIF has been instrumental in the development and operation of the national ICT cluster, and now enjoys an established reputation. Additionally, EIF serves as a gateway to Armenia for transnational companies including Microsoft, Cisco, Intel, HP, Sun Microsystems, and National Instruments, which receive specific incubation services and have become cornerstones of the Armenian IT market. EIF facilitates networking activities with the Armenian diaspora worldwide. For instance, it has helped create sales offices in Canada and Austria to help its clients promote ICT services in other countries. The incubator also organizes matchmaking events targeted at addressing the specific needs of its clients. Given that EIF hosts companies working in the same industry sector, the incubatees cooperate with each other closely in outsourcing various services that are add-ons to their main product, and help reduce project completion time. This has a positive effect on the companies image and revenues. In fact, the incubatees community has been called a mini- Silicon Valley by end users consulted as part of the study. 26

27 Incubators in this study are often involved in upstream and downstream activities, which contribute to the creation and development of business communities and broader innovation ecosystems. These activities generally take place pre- and post-incubation and are categorized as follows: Upstream activities target business ideas (i.e., pre-startup) and occur prior to client entry into the incubator environment, through means such as business plan competitions and thematic community gatherings. Downstream activities generally involve incubator graduates and established companies (including those operating independently outside the incubator) and occur after their period of incubation, through means such as mentoring networks and alumni associations. Such activities support the incubator s mission to commercialize business ideas and research in specific industries and the promotion and development of entrepreneurship, innovation, and job creation at local and national levels. Upstream and downstream activities contribute to fostering entrepreneurship and innovation within the community and as part of an innovation ecosystem. Support of upstream and downstream activities helps promote the incubator, serves as a pipeline for deal-flow, allows the incubator to keep in touch with companies post-graduation, and helps strengthen the local business community. Through these activities, the ECA incubators studied here meet their objectives of fostering the entrepreneurial spirit within their business communities and of stimulating demand for business incubation. stronger presence within the locality and region, as well as a natural pipeline for new clients (i.e., dealflow). Depending on the nature of an incubator and its specialization, those taking part in upstream and downstream activities may include individuals from the local community, students, graduated companies, higher education institutions, industry clusters, local and regional authorities, and others. Business plan competitions Innovation camps and summer schools for young entrepreneurs Investment pitches Clustering (e.g., ICT) and sector-promotion activities Facilitation of outsourcing activities between incubatees and graduated companies Involvement of graduated companies on the incubator s selection panel These activities outside of the business incubation process itself contribute to the perception of ECA incubators as gateways for enterprises, stimulating entrepreneurship and innovation and, in some cases, playing a key role in the development of local industry clusters. They directly foster the flow of startups to the incubation environment and create the business networks the incubatees need for growth. At the same time, non-incubation activities allow incubators in ECA to cross-finance their incubation work. Indeed, the incubator studies report that on average, incubation activities contribute only 18 percent of their total revenue. Non-incubation activities give incubators a clearer and 27

28 5.3 Firm-Level Impact of Business Incubation Survival rates All incubators studied provided figures on the survival rates of their client; however, one incubator has not yet graduated a firm so this data covers eight incubators altogether. Compared to survival rates of companies operating independently outside an incubator 13, the figures reported by these incubators are encouraging. Again, with a small sample size and a lack of control group this data cannot necessarily be extrapolated to the ECA region as a whole, but it provides anecdotal evidence regarding firm survival through incubation. Firm survival rates 12 months after graduation show that in six incubator cases, survival rates of incubated companies are at more than 80 percent. In two cases, the survival rate is below 32 percent. This would typically mean that the firm has been incubated for a period of two to three years and is on average three years old. It is generally understood that about 50 percent of new firms fail within the first five years, so this data point around 80 is encouraging. Firm survival rates five years after graduation are more relevant in terms of quantifying longer term socio-economic impact. Using the same logic model above, a firm five years after graduation would typically be about eight years old. Where about 30 percent of independently operating firms fail within their first ten years, four incubators estimate that more than 80 percent of their firms have survived five years after graduation, and two incubators estimate that between percent of firms have survived five years after graduation. These are strong figures and speak to both the impact that business incubation has on growing companies that can sustain itself in the market and to the importance of maintaining contact with graduates to better track this impact. Bridging the financing gap Financing is perceived as a challenge for incubatees in environments where the business and financial support structure for startups and early-stage businesses is not well developed. 14 More than half of the incubators in the study directly assist their incubatees in securing finance through support such as: Equity or royalties in incubatees Seed capital initiatives Micro-loans Collaboration and match-making with Business Angels (UBIT) Access to state and donor funds This kind of support is relatively uncommon in more developed countries, where financial support is generally signposted or delivered via external providers Other studies also come to the general conclusion that survival rates within incubators are higher, for example: Meredith Erlewine, Comparing Stats on Firm Survival in Measuring Your Business Incubator s Economic Impact: A Toolkit. Athens, Ohio: National Business Incubation Association, The Centre for Strategy and Evaluation Services (2002) Benchmarking of Business Incubators (Final report). Brussels, European Commission Enterprise Directorate General-survey reveals that the survival rate of firms reared in an incubator environment was significantly higher than the business success rate amongst the wider SME community, estimated at 30-50% (over a 5 year period) there was a notable clustering of incubators reporting a survival rate amongst tenant firms of 80-90%, [however] survival rates are one indicator of the performance of incubators, of more importance is the extent to which incubators can contribute to the accelerated development of innovative, high-growth firms and their capacity to create new jobs. 14 Incubators taking part in the study that are located in more mature environments such as Kalisz Innovation Centre (Poland) may therefore be used as models.

29 Case 1: Zelenograd Nanotechnology Centre, Russian Federation Other than generic financial advice and access to Investment Readiness Program, finance providers (Angel Investment and/or venture capital), and Seed Capital Fund initiatives, ZNTC has developed a policy regarding equity stakes and has the target of holding 25 percent share of the equity (from RUSNANO funds) in the incubatees with the following. This is done through an agreement of holding a 25 percent share in the business for the first 3 years, with the incubatee receiving preferential lease rates over a 3-year business incubation period. In total, incubatees at ZNTC have secured a total of $500,000 in financing, with ZNTC directly supporting half of this amount. Case 2: Kalisz Innovation Center, Poland Operated by a foundation, the incubator has been a loan provider for SMEs and new businesses (including incubatees) through its entrepreneurship development fund. In particular, it has helped the unemployed gain access to financing and advising while guiding and counseling them on the implications of loan funding. It offers rates below those of commercial banks, with interest rates of percent for SMEs (depending on the economic situation of the company, profitability, and the type of guarantee) and 6 8 percent for the unemployed. Since the start of operations in the mid-1990s, the foundation has supported over 306 SMEs and over 263 individuals who would otherwise be unable to access traditional bank financing. This loan provision, alongside its work in enterprise support, highlights the core added value of the foundation and the incubator to the local business community. Case 3: EIF, Armenia Project-based financing is provided directly by EIF or partner funds in the form of equity investment of up to 30 percent, grants (using donor funds, industry specific, and depending on the donor framework) or microloans. EIF provides assistance in access to funds, pre-seed financing, and matchmaking, specifically by providing professional advice and support in preparing project proposals for equity financing and VC funding. Case 4: SODBI, Shymkent, Kazakhstan There are three ways the incubator secures finances for its clients: consulting on business planning, partner search, and negotiations with the financial institutions and SME support funds; providing micro-loans to clients through the micro-credit organization SODBI-Finance at an annual rate of up to 36 percent and taking up to a 49 percent equity share in the SME. Case 5: EIF, Armenia According to Radu Ticiu, head of UBIT, the initial investment for software development startups in Timisoara is secured through contracts. Radu Ticiu estimates that UBIT has supported virtually every UBIT incubatee with at least one contract, reaching a total value of more than $100,000 worth of such contracts. 29

30 Revenue Incubatee revenue provides another indicator of incubatee growth rates. The study finds significant revenue growth among participants. Without a control group, this figure is not comparable to the revenue growth of companies operating independently outside an incubator. However, the figures give an understanding of firm performance within the study sample and portray whether the incubator itself is operating well ultimately, an incubator s success should be judged by the success of its companies. More than half of the incubator clients (including those that have graduated) had annual turnover below $10,000 when they entered an incubator (Table 3). Further in the incubation process, turnover increased: only 29 percent of incubatees state that their current annual turnover is below $10,000, while 45 percent say it is in the range of $10,000 to $100, percent of incubatees state that their annual turnover is higher than $100,000. Among graduates, 64 percent had turnover higher than $200,000 and 34 percent had turnover over $500,000. A number of incubatees emerged as high-performers (high-performers are defined as incubatees with revenue higher than $101,000 and graduates with revenue higher than $250,000). About 12 percent were already at this level then they entered incubation. The rate increased to 25 percent during incubation and to 64 percent after graduation. The percentage is highest among ICT incubatees and graduates. INCUBATEES GRADUATES USD Total number of respondents Total percent of respondents USD Total number of respondents Total percent of respondents Annual turnover at entry <5K 17 (of 33 respondents) 52 <5K 8 (of 17 respondents) K 1 (of 33) K 3 (of 17) K 6 (of 33) K 1 (of 17) K 3 (of 33) K 4 (of 17) K 2 (of 33) K 1 (of 17) 6 >100K 4 (of 33) 12 >100K 0 (of 17) 0 Current annual turnover <10K 9 (of 31 respondents) 29 <55K 2 (of 17 respondents) K 6 (of 31) 19, K 1 (of 17) K 8 (of 31) K 3 (of 17) K 1 (of 31) K 2 (of 17) K 1 (of 31) K 3 (of 17) 18 >200K 6 (of 31) 19,5 >500K 6 (of 17) 34 30

31 Access to international markets About 65 percent of incubatees indicated that their business activity is domestic, while 57 percent say that they are active in regional markets and 41 percent indicate international activity. It is noteworthy that most respondents from CIS-based incubators in the sample indicate interest only in other CIS countries, whereas target markets for incubatees from the other ECA regions have greater geographic diversity. EIF Yerevan and BITF Belgrade have successfully established ties to the diaspora of their countries, mainly in the US and in Western Europe. As shown in Table 4 below, about 80 percent had export revenues below $3,000 in the last 12 months. In three cases (all ICT companies) export revenues were significantly higher (greater than $40,000). Among graduates, six out of 21 respondents to this question had substantial export revenues (greater than $85,000), and four of these six had significantly high (greater than $ 500,000) export revenues. General and Export Revenues Total (number of respondents) Total ( percent of respondents) Incubatees average export revenues in the last 12 months (31 responses) <3K K K K K 1 3 >40K 3 10 Graduates average export revenues in the last 12 months (21 responses) <15K K K K 0 0 >85K 6 38 In more than half of the cases where incubatees have entered international markets, they have been supported by their host incubator. However, none of the respondents had worked with incubators from other countries to support their market entry there 15. In these countries where company growth can often be constrained by their domestic market size, business incubators could be in a unique position to support the internationalization of their incubatees. 15 infodev has piloted a co-incubation program during to better understand the extent to which incubators in other countries can serve as soft landing platforms for incubatees from partner incubators. Please see infodev s Enabling International Market Linkages: Lessons & Insights (2014) for further information. 31

32 6. INSIGHTS ON BUSINESS INCUBATION MODELS IN EASTERN EUROPE & CENTRAL ASIA Research on incubators shows that their success is strongly tied to the outcomes of their incubatees and graduates, and that the investment of funds, time, and expertise by the executive team, as well as external support, are expected to yield a return over time. All incubators responded favorably to the importance of the following elements for their work: Integration of the incubator into the local or regional economic development framework Client selection and exit policies 6.1 Mission and Strategy Delivery of the business incubation package (i.e. structure and design of its operation and management) Incubator staff and governing body Contextual factors. The study found that incubator managers and stakeholders stressed the need to effectively link government support for incubators with incubator impact and performance measurement. However, the indicators and methodology used by incubators in the region often fail to capture and record their true financial benefit. All incubators in the sample were set up with financial and / or in-kind support from the public sector (city, county, or regional councils, or another government entity) in an effort to improve the local and regional socio-economic environment through encouraging entrepreneurship and innovation. In addition, incubators located at universities or those that have strong links with academia aim to commercialize research and ideas. Thus, government and university representatives often sit on incubator boards and play a role in developing their mission and objectives. Another common factor in incubator missions is the desire to develop a fledgling industry. Three of the nine incubators in this study were created with the goal of fostering development in a specific industrial sector. Missions and strategic objectives The missions and strategic objectives detailed in hthe incubators business plans and other strategic documents generally relate to local and regional SME development, job creation, the retention and exploitation of specific sector know-how, or to benefit from the presence of global players in a local area. Examples of missions and objectives as highlighted by the incubators and stakeholders in the study are listed in the text box below. These examples show how incubators have been integrated with local or regional policy landscapes. 32

33 EXAMPLES OF MISSION AND OBJECTIVES FOR INCUBATORS EIF The incubator serves as a bridge between the IT sector, the government, and the international community. It catalyzes the creation of small ICT-enterprises, in close cooperation with giants of the IT industry. UBIT The incubator was conceived with the objective of retaining and exploiting local know-how in the software industry, and to take advantage of global players from the IT and software industry in the area. Technology Park Mogilev The incubator is incorporated into the science park. It supports startups and new entrepreneurs in developing their innovative R&D projects into marketable products. SODBI The mission of the incubator is to promote SME development in the region, and to support the development of production, processing, and service companies at the startup and development stages. The previous approach of the incubator was to deliver business advisory and training services and to coach the incubatees. However, the crisis period has proved that in addition to these services, financial support (access to finance, equity share, partner search or other) is also required. Kalisz Innovation Centre The current and longer term vision for the incubator is to become a technology incubator where science, industry, and entrepreneurship meet, and to be a link between science, education, and the local economy. This vision is included within the innovative development strategy for the area, with plans to incubate new industrial technologies (e.g., energy efficiency, low carbon technologies), develop socioeconomic science, create a new seed capital fund, and extend cooperation with European and international partners, particularly through engagement in European programs and funds. In line with best practice, objectives are generally revised on a regular basis by the executive team in consultation with the board and other stakeholders. Sometimes tensions arise between the need for the incubator to become or remain financially sustainable and the initial strategic objectives. The reasons for tension can be contextual (e.g., low demand for business incubation services), and/ or it can relate to a lack of understanding of the business incubation process by key partners and funders. 33

34 Technology Park Mogilev We enjoy advice from the incubator manager and the experience shared by some of the incubatees/graduates working in the same industry sector. There is a community that includes the incubator residents and graduates, where people get to know each other through public and visibility events organized by the incubator. This allows for direct contacts and outsourcing from the peer companies. (Incubatee) We kept in touch with the incubator because we enjoy the outsourcing opportunities from the current incubatees: it s easy to find professionals in the IT sector in one building. (Graduate) UBIT The main reason for moving in was the low-cost rental system, but I now realize that the work undertaken by the BI Director to expose my business to the ICT and business community of the area has been key in the development of my business. (Graduate) 34

35 35

36 6.2 Incubation Services Business development services (non-facility services) Business development services are provided by either the executive team or external providers. Services are provided in various ways and on different terms: in a number of cases, incubator managers have set up their own network of external providers with whom they have established commercial agreements (possibly on a pro-bono basis). Three of the nine incubators studied have policies related to equity stakes and/or royalty agreements. Equity services are provided indirectly via key partners (ZNTC, EIF, Technology Park Mogilev) or directly by the incubator itself (SODBI, EIF). SODBI, EIF, and Kalisz Innovation Centre also provide shortterm micro-loans and other business loans aimed at resident startup incubatees and ad hoc businesses. Study respondents most commonly provide the following business development services: General business advice and coaching Training, seminars, and/or workshops Access to technical and/or business expertise General accounting and/or financial management advice and service Opportunities for networking, including international linkages Marketing and sales Access to finance, including grants, seed capital, and fundraising support 36 The share of incubation services provided on an informal basis, such as market access support, is high. Although incubatees perceive these types of services as key benefits of incubation, almost no records have been kept for these services. As one incubator manager said and others confirmed, the reasons these services are not recorded is that they are delivered free of charge and therefore not formally tracked. As discussed under recommendations, incubators should better track such services offered and consider these as a revenue-generating mechanism for the incubator, as well as a means to better understand how resources (time) are being spent during the incubation process. Incubators provide various forms of financial support for incubatees. In addition to equity or royalty agreements with incubatees, half of the incubators studied provide access to investment readiness programs. Most also provide access to finance providers, angel investors, or venture capital funds, as well as access to seed capital

37 funds. Seven of nine incubators have secured a total of $1.285M in financing for their incubatees. About 40 percent of incubatees taking part in the study include foreign countries as part of their customer market and almost all were interested in internationalization activities: they are predominantly interested in former Soviet Union countries, but also in the European Union, U.S.A., and Canada. Incubatees were interested in general expansion, corporate partnerships and access to growth funding, among other business development opportunities. To a lesser extent, incubatees also look at joint venture opportunities, mentoring, and technology transfer. However, none of the respondents said that incubators from other countries had supported their internationalization activities. Half of those who were internationally active stated that their host incubator provided internationalization support. EIF Yerevan (Armenia) and BITF Belgrade (Serbia) have successfully established ties to vheir countries diaspora, mainly in the US and in Western Europe. In fact, EIF has become a strategic hub for Armenia s ICT internationalization strategy. According to EIF management, the share of incubatees developing and internationalizing their own products, rather than providing outsourcing services such as software programming to foreign companies, has steadily increased. Significant differences between the types of incubators (Table 2) and their main service portfolios generally could not be observed. Exceptions are access to laboratories and research equipment, and access to R&D and technology transfer support, which is higher among academic and scientific incubators. For ICT incubators, appropriate information technology and safety technology are crucial elements of the infrastructure provided to clients (see also Facilities and Shared Admin Services later in this chapter). Not surprisingly, interviews conducted with incubator managers indicated that sector-focused incubators (in the sample, mainly ICT-focused incubators) offer the advantage of specific sector knowledge and national and international contacts. A trend that is gaining momentum in ECA is a move to new business incubation models, including business accelerators, local innovation communities linked to global initiatives (e.g., Startup Weekend), venture acceleration networks and grassroots initiatives linked to private investment communities (e.g., BAVIN virtual incubator Belarus). These new models are not nonprofit organizations in most cases, but are initiated and managed by private sector players. Incubation services are often approached as pre- or post-financing activities aiming to increase investment readiness and to shorten the startup and incubation phases of a company. Services are often provided through mentoring networks. The box below discusses BAVIN in more detail. Timisoara Software Business incubator (UBIT) In the Timisoara area, about 12,000 people are employed in the software industry, working for around 500 ICT companies. Branches of multinational players, including companies such as Siemens, Alcatel Lucent, Continental, Berg Computers, and Haufe-Lexware, are major employers, mainly in the software outsourcing industry. A major objective of the incubator is to provide jobs and growth opportunities for young entrepreneurs with the ambition to start their own businesses in the software industry. In 2008, 10 of 11 incubatees of UBIT provided outsourcing services only, but now three incubatees are bringing their own products to (mainly international) markets. According to Radu Ticiu, manager of UBIT, this share has been slowly but steadily rising. More details on these three companies can be found here: and nextroot.com. Investment needs during the startup stage are not as high as in other sectors, says Mr. Ticiu. What is needed primarily is a contract, allowing the company to start working and to hire staff. The incubator does not track these contracts as part of the M&E system. According to Mr. Ticiu, virtually each incubatee was supported by UBIT in order to get at least one contract for starting up. The overall value of the contracts that were facilitated by UBIT exceeds $100,000. Even though we could track this information, nobody in our region is really interested in this data at the moment. For key policy makers, the main objective is to attract foreign investors to the region, and we are considered to be a small niche only. 37

38 FIGURE 5: INCUBATEES CUSTOMERS AND MARKETS High-income Medium-income Low-income Rural market Urban market International market Regional market Domestic market Source: Self-Complete Questionnaire Incubatees 0% 20% 40% 60% 80% 100% CASE: ANGEL INVESTMENTS AND MENTORING BAVIN Business angels and venture investors network / Minsk / Belarus BAVINCUBE is a virtual incubator and business accelerator operated by a business angel association in Minsk. BAVINCUBE s goal is to foster access to finance for innovative startups by providing a virtual hub for business incubators and other entrepreneurship support organizations as well as business angels and private sector investors in Belarus in other words, a virtual incubation network and match-making platform. The founder of BAVINCUBE is the Business Angels and Venture Investors Network (BAVIN), a for-profit angel association and business accelerator, which brings together the venture capital and business expertise of angel investors with entrepreneurs, their new business ideas, and startup companies. Unique in Belarus, BAVIN was founded in November 2010 by a number of pioneer Belarus Business Angels. By joining BAVINCUBE, entrepreneurs will have opportunities to meet online and face-to-face with successful Belarusian entrepreneurs and business angels, pitch and win investments, participate in master classes online, and to receive mentoring, thus accelerating startup and new business development in Belarus. In August 2012, 203 companies with business plans applied to the a BAVIN network. BAVIN incubatees include 34 selected companies in pre-incubation, five in incubation, and four graduates. Several projects have received business-angel support through mentoring but without financing. A total of 930 projects applied to enter BAVIN in August Art hostel Traveler Minsk is one case of a successful a BAVIN incubatee. The 36-bed hostel is the first of its kind in Belarus. Started by Kseniya Kurus, a Belarusian student who secured a BAVIN angel investment of $50,000, the hostel reached its break-even point after one month of operation. According to Mr. Kurus, the BAVIN angel has not only contributed with investment but also provided frequent business advice. Oftentimes he uses his personal business network contacts to help with our business development, says Mr. Kurus. Following the success of the Traveler hostel, plans to expand the network are under way. 38

39 Facilities and shared administrative services With the exception of BASTAU Ust-Kamenogorsk (Kazakhstan), all incubators provide office space. The size of the office and workspace provided ranges from 600 to 5,400 square meters. BASTAU, a universitybased incubator focusing on pre-incubation services, offers flexible hot-desking units (shared workspace). All of the incubators in the sample offer meeting and conference facilities. Five of the nine incubators also offer production space. One incubator environment (ZNTC) provides access to in-house laboratories and research equipment. The other academic and scientific incubators in the study provide access to labs and research equipment through partners and host universities. Facilities at reduced rental rates and shared administrative support often are the initial reasons for incubatees to move in. In some cases, rental fees are only half the market price. Incubatees also say that being in an incubator brings credibility and visibility to their enterprises (see box below). Sector-focused incubators in this study underlined the need for reliable, state-of-the-art technology infrastructure (connectivity and safety in the case of ICT incubators; laboratories and equipment in the case of ZNTC). BUSINESS INCUBATION, ANGEL INVESTMENTS, AND MENTORING Example 1: Initially, the main reason for us to apply for business incubation services was the low-cost rental space. Almost half as expensive as the market rate, the incubation fee is based on a stepped rent. (incubatee) Example 2: The incubator consists of a decent facility (including equipped office) with a competitive price The location of a business can tell the client a lot about its character I wish to be treated as a serious partner for businesses, so the incubator, with its facility and reputation, are contributing to my company s image. (incubatee) Example 3: I was attracted by the cheap rent (the rent is 30 40% cheaper than any commercial facility) as well as the contacts and exchange opportunities with counterparts at the incubator. (incubatee) Incubator managers said they offered a number of facilities and administrative services, including: Meeting rooms and conference facilities Communal areas for networking Parking Security system Broadband connections Telephone, network, and hardware Reception area Office equipment 39

40 6.3 Financial Management Annual operating costs for incubators in the study vary, depending on an incubator s type, size, scope, and objectives, among other factors. Due to the financial monitoring and evaluation practices of the organizations in this sample, financial data could only be collected on a total organization-level, rather than activity-level (where, on average, incubation activities contribute only 18 percent of total revenue). As described in Appendix 16, incubation-related revenues are not the primary income source for incubators, and incubation activities have in fact been cross-subsidized through other activities (such as project work). Five of the nine incubators in the study rely on grants, either directly in the form of subsidies for operations, or indirectly through subsidized projects managed by the incubator. On average, grant funding makes up more than 40 percent of the incubator s operating costs. More than 30 percent of operating costs are covered by rent, which demonstrates the importance of an incubator facility for the financial sustainability of the organization. Other sources of operating revenue include: Consulting and outside work: 9.9 percent Other service fees: 7.7 percent Investment (royalties/ equity): 4.4 percent Three incubators in the study have developed successsharing business models, taking in equity or royalties from incubatees. The share of incubation services provided on an informal basis, such as market access support, is high. Although incubatees perceive these types of services as key benefits of incubation, almost no records have been kept of these services and no direct revenue is generated by these intangible services. FIGURE 6: SOURCES OF REVENUE 9.9% Rent Service fee 34% Investment (royalties/equity) 36.37% Consultancy and external work 7.7% Grants 9.9% 4.4% Loans Source: Self-Complete Questionnaire Business Incubation Managers 40

41 ZNTC ZNTC was founded as a limited company in 2010 at the initiative of National Research University of Electronic Technology (MIET), Zelenograd Innovation Technology Centre (ZITC), and the Russian Corporation of Nanotechnologies (RUSNANO), a government-owned, non-commercial organization created to support nanotechnology development through subsidies and training. In addition to generic financial advice and access to the Investment Readiness Program, finance providers (angel investment and/or venture capital), and seed capital fund initiatives, ZNTC has also developed a policy that aims to hold a 25 percent share of the equity from RUSNANO funds in incubatees. The incubator has secured $250,000 for incubatees so far, while the incubatees themselves have raised $500,000. SODBI SODBI Incubator is a subdivision of the SODBI private fund, an NGO targeted at SME development in the region. The incubator secures finances for its clients in three ways: Consulting on business planning, partner search and negotiations with the financial institutions, and SME support funds Providing micro-loans to clients through SODBI-Finance, a micro-credit organization, at an annual rate of up to 36 percent Taking up to 49 percent of the equity from the client. SODBI s management is seeking to attract additional investments to the fund as they are required to make it self-sustainable. Enterprise Incubator Foundation (EIF) EIF is focusing on networking and cooperation with donor funds that provide project-based financing aimed at addressing specific industry-related issues. EIF serves as a platform for implementation of donor initiatives in this sector in Armenia. Most of the incubation services are subsidized by donor-funded activities and publicprivate partnerships. Project-based financing is provided by EIF or by partner funds in form of equity investment (up to 30 percent), grants (using industry-specific donor funds), or micro-loans. Only two of the nine incubators do not have financial sustainability as a strategic objective. Both are university-based initiatives whose incubation activities are covered by their host universities. An earlier infodev survey among members of the Eastern Europe and Central Asia Network of Incubators (ECAbit) indicated that an unstable incubator support policy from governments is seen by a majority of incubators as the major risk for incubators in the region 16. The seven incubators aiming to become selfsustaining reached the break-even point 17 within two to four years of operations. This is well below the length of time established as good practice, which indicates a minimum of seven years for an incubator to break even. Again, it is worthwhile to note that the sample does not claim to be representative of all incubators in the region. The text box below summarizes the findings on financial management for six of the incubators in the study, and incorporates their views on achieving viability without public-sector support. 16 Stefan Schandera, infodev 2009: Incubating the Incubators: Lessons learned from Eastern Europe and Central Asia, presentation at World Bank Knowledge Economy Forum VIII 2009, INSEAD Fontainebleau/France, April 29-May 01, For the purposes of this study, break-even is considered as the time in which an incubator through its operations or otherwise has been able to recuperate the cost of investment of establishing the incubator. Incubators studied here and those located in the ECA region generally are primarily established through public funding; therefore, the return on investment is considered in broader socioeconomic impact terms as a return for the government investment. 41

42 FINANCIAL POSITION REGARDING BREAK-EVEN AND FINANCIAL SUSTAINABILITY EIF The incubator was developed in 2002 and has rented the current building since Staff salaries are covered by project-based financing from local and international donor funds. It reached break-even by Technology Park Mogilev The incubator is self-sustainable as it owns the building, its strong team of managers and experts, a large partnership network, and a strong image in the local and regional market. The park was established in 1993 and reached break-even in SODBI Established in 2000, the incubator reached break-even in Other nurturing services (such as consulting and training, translation services, centralized accounting, and IT services) have spun out and became self-sustaining. Most incubatees consist of academic or corporate spin outs. UBIT The incubator is a small-scale operation and its running costs are covered by public subsidies, income from rent, and extra activities. Because it relies on public funding, financial sustainability is not one of its objectives. ZNTC The incubator currently provides space free of charge, as is required by one of the key stakeholders. Most of the advisory services are also free. However, management is planning to introduce fee-based services to strengthen the incubator s sustainability and reduce the risk of failure. Fees would be set based on the incubatee s development stage and business needs. BITF Belgrade The incubator provides office space, but only to a small number of tenants (the available space is 600 square meters). The main source of revenue (80 percent) is participation in projects (donor or government-funded) that do not directly relate to incubatee activities. A new facility of 2,000 square meters is under construction. BITF partly cross-subsidizes incubatee support with project-related (not incubatee-related) revenues. 42

43 Technology Park Mogilev Current support from the public sector is administrative only, including co-organization of public events. Support is not linked to any of the key sustainability factors. UBIT Based on the current model, the incubator is not viable without public funding. BITF To date, BITF has been unable to provide incubation services without cross-subsidizing them by participating in donor- or government-funded projects. SODBI The incubator has been established and runs without public funding. It is self-sustainable, provided that the rent covers the majority of current expenses. In addition, SODBI has created a self-sustaining consulting and training unit. ZNTC At present, the incubator is fully dependent on public sector financing. At its early stage of development, the incubator is focused on skill building (technology and consultancy), and facility enhancement. Given that it is required to provide space for free, ZNTC plans to focus on commercializing its intellectual support to incubatees and ad hoc clients by strengthening its market position and knowledge base. 6.4 Selection and Graduation (Exit) Policies Selection and graduation (exit) policies are among the processes that distinguish incubators from general business development services. International good practice indicates that incubators are selective about choosing clients in a particular stage of development and industry sector, so that they can make a positive difference to the small-firm economy in the area and region by starting and maintaining the deal flow of startups moving into the incubator and then graduating. It should be common sense for incubator clients that once having achieved a certain development milestone you decide to leave the incubator walls to let other businesses at their startup stage enjoy the favorable conditions at the incubator this is my corporate social responsibility this is how I can contribute to small business development, in a way... It is not really fair to set up rigid frames for the incubatee to leave the warm nest, but it makes sense limiting the time and space allowed for the company. The business has to be growing and increasing the number of jobs created and space occupied these are the sustainability indicators that must lead the company to a decision to find a larger facility outside of the incubator or possess its own facility. (incubatee taking part in the study) 43

44 Selection policy Importantly, the selection policy (criteria and procedure) must to be in line with the strategic objectives set up in the business plan or strategy document of an incubator. Equally, a graduation (exit) policy needs to be applied, both to encourage incubatees to plan for the future and to release resources for the next generation of incubatees. With one exception, all incubators taking part in the study have selection policies that match their profiles and missions. These policies involve a number of criteria for an applicant to meet, but most cite the following: Ambition to grow the business Ability to benefit from business incubation Strong business plan Technical expertise Readiness and capacity to pay for incubation services. Although no standard procedure could be identified among the organizations in the sample, they all involve an interview (with members of the executive team and experts when appropriate), during which applicants discuss the business proposal 18. In addition to meeting a set of criteria, applicants in most cases also must provide evidence of innovation management and demonstrate that it contributes to the competitive advantage of the business idea. Two incubators also use a scoring matrix for evaluating business proposals as part of the selection procedure. Discussions with incubator managers during the onsite visits indicate that a degree of flexibility often operates in practice, especially for incubators that have been recently established or that are located in areas where entrepreneurship awareness and demand for business incubation services are low. Applicant flow A constant flow of applicants is crucial to maintaining a selective client policy. Incubators with a longer track record, such as the Kalisz incubator, have the advantage of excellent local brand awareness. ICT incubators in the sample and non-specialized academic- and scientific-based or linked incubators with a strong ICT focus often use local business community events (as per the upstream activitives outlined in the previous section above) to reach their target audience. Highly specialized organizations such as ZNTC scout for new applicants at specific departments of research institutes and universities. At the same time, the collaboration of these specialized organizations with other early-stage development institutions, such as technology commercialization offices, assures their integration into the overall early-stage enterprise development value chain. As elsewhere in the incubation world, the network of partners and stakeholders is seen as a key asset of incubators. Graduation policy A stable churn between those companies moving in and those graduating should be established for true business incubation to be delivered, thus contributing to the general mission of incubators to generate innovative and successful businesses for the local and sub-regional economy. Incubatees whose host incubators apply a graduation policy are generally made aware of it at inception. Among the most-cited incentives for encouraging incubatees to move out are: Stepped rental plans Limits on the incubation period Revenue and profitability targets Business development targets 44 Selectivity ratios (the percentage of business proposals selected for business incubation) among the study participants ranges from 100 percent in the newest incubator (ZNTC has hosted five incubatees since being created in 2010) to 25 percent. On average, slightly more than 60 percent of applications are selected for business incubation. Best practice indicates that selection becomes stricter as the incubator develops and demand increases, but this could only be verified with this sample on one occasion and within a relatively mature socioeconomic environment. In practice, graduation policy is handled in a flexible way so that business incubation processes and strategic objectives as set up by the governing body are balanced with the need for incubators to generate rental income. Incubators that did not have a graduation policy gave different reasons: Demand for business incubation is low due to current economic climate Incubators in science parks do not need an exit policy since incubatees can be relocated on-site A graduation strategy is not part of the incubator s policy. 18 The interview panel differs from one incubator to another and may involve the executive team as well as members of the board and/or industry experts.

45 In at least one case, former incubatees who have graduated are involved with the selection panel or with public events, training, and workshops. Graduate companies may provide training or exchange experience with incubatees, as stimulating cooperation initiatives (partnership, supply, and other business opportunities) between incubatees and graduate companies. 6.5 Monitoring and Evaluation As highlighted by research on incubation and from practical discussions and visits to incubators studied here 20, monitoring and tracking the performance of clients is key to effective business incubation. An effective Monitoring & Evaluation framework can: Help incubators assess their effectiveness and efficiency, immediately and over a period of time, against their respective key objectives Measure the long term impact of an incubator and thereby better inform policymakers and stakeholders about the return on investment in incubation Help incubators understand the patterns of development at innovative and growth SMEs, as well as how different early-stage growth patterns can influence later business development Identify needs and opportunities to help incubatees and graduate businesses Identify opportunities for collaboration between incubators, and between current and past tenants. As part of this study, four types of measures were considered and discussed with business incubation managers and stakeholders. These are summarized in Figure UK Incubators: Identifying good practice, UKBI A number of indicators and expected results were identified that are further analyzed in the remainder of this report. 45

46 FIGURE 7: MONITORING AND TRACKING: INDICATORS USED FOR PERFORMANCE AND RESULTS ASSESSMENTS QUALITATIVE METRICS FOR ASSESSMENT OF BES PRACTICE BUSI- NESS INCUBATION 1. EFFICIENCY AND EFFECTIVENESS OF THE BUSINESS INCUBATION PROCESS QUANTITATIVER METRICS FOR ASSESSMENT OF RESULTS PROFILE OF INCUBATEES AND TRENDS PROFILE OF GRADUATE COMPANIES (AND ALSO OF OTHER FIRMS ASSISTED) AND TRENDS 4. PERFORMANCE OF THE INCUBATOR ITSELF AS A GOING CONCERN Nearly all incubators in the region indicate that they keep some records related to most of the above quantitative indicators regarding the effectiveness and efficiency of the business incubation process. However, figures related to financial viability and the financial benefit gained from incubators were provided by only half of respondents. There is formal semi-annual monitoring targeted at identifying gaps in enterprise development and supporting the elimination of such gaps. Besides the formal procedures, coaching is provided to incubatees upon request. Results from the semi-annual monitoring activity are considered at TPM s board meetings when analyzing and reviewing the incubator s objectives and priorities. Most also have more detailed records related to their incubatees performance, i.e.: job creation, survival rates, innovation and R&D activity, and salary levels. However, the information is rarely collected formally. As monitoring occurs, it is logically linked to coaching provided to incubatees. The data collected from monitoring is discussed in the coaching sessions. In addition, the data collected in most cases looks at the overall organization, rather than specifically at the core incubation process. Information about graduate firms is much less commonly collected, and is normally confined to the minority of graduates with which each incubator remains involved. Financial figures of incubators were tracked in most cases but not always provided for this study, due to their confidentiality The issue was addressed in this research by asking respondents to provide indications of their turnover, revenue etc. rather than exact figures.

47 47

48 6.6 Executive Team and Governing Body Executive team The operations of the incubators studied are generally outlined in business plans and strategic documents, and are in line with missions and objectives. The quality and attitude of the executive team is key to the incubatees assessment of incubator performance and value. The role of the incubation manager was cited as crucial by the majority of incubatees. Although incubatees are often initially attracted to below market-average rent or greater visibility in the marketplace, the business community within the incubator is judged a key asset a posteriori. Incubator managers who are well connected to or have direct experience in the private sector, and who are regarded champions in their communities, will bring the most value to incubatees. Government-driven incubator programs should be guided by this principle when appointing or selecting incubator managers. Although it was not discussed in depth, there appears to be a relationship between the time the team spent with incubatees and the incubatees appreciation of the assistance they received. Managers differ in the proportion of working time they spent directly with incubatees (the minimum was 10 percent; the maximum, 40 percent). On average, managers spent 25 percent of their time working with incubatees. Again, this figure should be interpreted with caution, given that in many cases incubation plays a minor role in the overall activity portfolio of organizations studied. In most cases, the executive team provided support informally when it was requested by incubatees. More than the incubator s team, the manager him/ herself is perceived as the incubator s key asset, along with the contacts and access to networks and markets he/she is able to provide. Furthermore, being located among peers encourages collaboration and mutual assistance within an industry, which in turn contributes to the development of the enterprise. Sector-focused incubators participating in this study stressed the need for good ICT infrastructure (connectivity and safety) and the importance of access to laboratory and research equipment. Governing body The composition of a strong, committed, representative, and credible governing body is perceived as a valuable and necessary resource for an incubator to operate successfully. Based on discussions with managers and stakeholders, each incubator s board is expected to provide credibility, leadership, strategic direction, networks of contacts, and support for the executive team. However, in some cases, it was felt that the board did not fully understand the holistic approach of business incubation (as opposed to managed workspace) and the true value of business incubation as a regional economic development tool. In one case, this gap was filled by the presence on the board of a business incubation champion, i.e., a wellknown, respected individual who was committed to the success of the incubator and undertook much of the external promotion work. Asked to identify the major risk for incubator sustainability from a management perspective, the majority of incubator managers indicated that withdrawal, instability, or reduction of public support was the highest risk. 48

49 Kalisz Innovation Center The incubator foundation is governed by a council (Board of Trustees) comprised of five members from the local industrial and educational sectors appointed by the Mayor of Kalisz. The foundation council has an oversight role in the development and management of the incubator deciding on the projects and programs that the incubator will pursue, with an annual plan presented and discussed in January each year and with a minimum of four meetings held per annum. The Board of Directors consists of two members, including the president, Piotr Sadowski, who has day-to-day operational responsibility for the foundation and the incubator. Alongside Board Member Kazimierz Mochalski, they have responsibility for the line management of 14 staff members who deliver the business loan fund, provide enterprise support services, e.g., Enterprise Europe Network, and provide administration for the incubator. The foundation staff includes technical personnel, loan officers, and innovation and technology specialists who deliver the day-to-day activities of the foundation. Mr. Sadowski has extensive experience in business incubation, having managed the Kalisz incubator since its inception in 1994 and been involved in its planning, financing, and development in his previous role working with the Kalisz local authority. The development of the incubator, as a result of loan funding through the World Bank TOR-10 program, included support through a training program directed at establishing a network of Polish incubators in which Mr. Sadowski was a participant. In addition, Mr. Sadowski has been a consultant for the Polish Agency for Enterprise Development and has been involved in numerous projects focused on SME development and enterprise. 49

50 7. CONCLUSIONS & RECOMMENDATIONS 50 This study aims to capture the results of incubation on the growth of the incubated companies, and more widely on entrepreneurship and innovation in the local community. The following conclusions and recommendations apply to a broad range of stakeholders governments, development agencies, investors, partners, governing bodies, and executive teams as well as to infodev. For clients, the biggest impact of incubation is that it accelerates their startup phase by providing ready access to knowledge, networks, and infrastructure. There is no single model for successful business incubation in ECA: synergy between an incubator s internal processes, its management team, and the local community produces an optimal outcome. Another effect of incubation in spurring client growth (and the consequent creation of quality jobs), was also confirmed by the study s participants. This was achieved by creating a nurturing environment in addition to providing business support, which gave clients visibility and credibility in the marketplace and access to markets and networks, which accelerated growth. The incubators had different business models depending on their strategic objectives (initial and current), their sources of funding, and the context in which they evolved. More than 30 percent of the operating costs of incubators covered by this study are covered by rent, which demonstrates the importance of an incubator facility for the financial sustainability of the organization. A number of initiatives were using success-sharing financial models based on equity shares in incubatees, a practice that is still only moderately used in incubators elsewhere, for instance in Western Europe. Participating in activities other than incubation to assure sustainability was a major commonality of incubators in the ECA region. At the same time, business incubators would require continued support for the development of their sustainable and revenue-generating services business model. Supporting incubators to develop business models that combine investment-based incubation with the diversification of revenues and the implementation of non-incubation activities could be seen as key in enabling business incubator sustainability and maximizing incubation impact. A good incubator manager is a networker with strong ties to the business community, according to the study. A strong, committed, representative, and credible governing body is another necessary resource for a successful incubator. Incubatees rate the quality of incubator managers more highly in direct proportion to the amount of work time those managers spent with incubatees. An incubator s board should include business incubation champions, consisting of experts in the industry or representatives of graduate companies who can promote and lobby on behalf of incubators. The impact of incubators in ECA reaches beyond the incubation process itself. Although they are not part of the business incubation package, the downstream and upstream activities undertaken by the majority of incubators have a significant impact on entrepreneurship and innovation activities in their local ecosystem. Through these activities, the ECA incubators surveyed meet their objectives of fostering the entrepreneurial spirit within their business communities and of stimulating demand for business incubation. h Activities other than business incubation contribute to the perception of ECA s incubators as gateways for enterprises, stimulating entrepreneurship and innovation and, in some cases, playing a key role in the development of local industry clusters. They directly foster the flow of startups to the incubation environment and create the business networks the incubatees need for growth. At the same time, these non-incubation activities allow incubators in ECA to cross-finance their incubation work (e.g., those activities directly related to incubatees).

51 The major socio-economic impact of incubators may be the creation of high-quality jobs. The creation of such jobs was spurred by two factors: the focus on incubatees operating in technology-related fields in most of the incubators studied, and the fact that being incubated helped them attract and develop highly skilled staff. Business incubation managers and stakeholders have stressed the need for an effective link between government support for business incubation and the impact and performance measurement of the incubator. In this regard, more mature incubators in the study could serve as role models. The results of the study and the impact that these selected business incubators have on socio-economic development and enterprise growth speak to the opportunity to scale and replicate successful business incubation activities in the ECA region. Incubation in ECA demonstrates good value for public investment and should be supported. Despite the limitations of the current M&E systems, there are clear indications that ECA incubators have been cost-effective, usually generating more tax revenue than they cost to establish, and creating high-quality jobs. Particular recommendations that emerged as a result of this study include: 7.1 Improving Monitoring & Evaluation There is tremendous potential to develop a sound methodology for assessing and regularly monitoring the performance and impact of incubators in ECA, on both an individual and regional basis. Improving and extending the research methodology of this report could result in a more comprehensive picture of the real return on investments made on incubators. At the same time, developing the scope of this study and replicating it in the future would provide incubators, practitioners, and stakeholders with longitudinal evidence of the value of this support. It is also recommended that corporate and private investors incubators be included in future studies. 51

52 The study indicates a strong need to better measure the value of non-facility services that are often provided on an informal basis, free of charge. Impact and performance assessments focusing on the core incubation process as well as on upstream and downstream activities may help incubators demonstrate their value not only for incubatees but also for incubator stakeholders, and can enhance the overall sustainability of incubators by exploring new sources of revenue and new service models. Existing benchmarking exercises and good M&E practice in the ECA region should be consulted to improve the measures of incubator success and to strengthen formal monitoring procedures within the incubator. Given the trust-based relationship that generally exists between incubatees and incubator managers, data should be collected internally with results reported to the relevant national authorities and other supporting organizations, such as infodev. It is likewise highly recommended that incubators maintain relationships with their graduates and with other entrepreneurs in the region. The greatest added value of business incubation comes to fruition only after graduation, as a direct consequence of the inputs received during the incubation process. Some specific recommendations for improving M&E frameworks include: Standardize methodology with M&E framework Develop a standard methodology for incubators in the ECA region to use as part of their monitoring performance assessment activity. This methodology should analyze the separate components and value propositions of the incubation package and ideally be conducted by sector. Such a framework could be developed by infodev, provided for free to incubators, and rolled out globally to aggregate international M&E data into a real-time research laboratory. Analyze the value of intangible services Impact and performance assessments can help incubators show the total value of all services they deliver to incubatees and stakeholders by quantifying the benefit that incubatees get from an incubatorenabled innovation network and turning this into new sources of revenue for the business incubator. Have clients complete a performance indicator dashboard The M&E exercise should encourage incubatees to regularly (i.e., quarterly) complete a dashboard during their incubation period and (i.e., annually) after graduation. Data should be stored online for easy access. 7.2 Increasing early-stage financing opportunities Access to early-stage finance is a critical constraint for growth-oriented enterprises in the region, yet early-stage innovation financing remains a key weakness of innovation ecosystems of the Eastern European and Central Asian region 23. Public funding for innovation mainly addresses later development stages of the enterprises, leaving a gap from seed financing to early stage innovation. On the other hand, private sector financing still focuses on traditional industry sectors such as real estate, retail, and commodities. Market exposure for public innovation promotion mechanisms including business incubators and technology parks is considered as a key success criteria of these instruments, and remains a major challenge for public programs throughout the region. Furthermore, there is a need to build trust and efficient linkages between private and public sector entities involved in early-stage financing, where the supply of private capital is still at a nascent stage and its potential complementarity to public sector financing is not yet well understood. The role of business incubators in attracting financing for clients and supporting international market exposure and product or service validation in new markets could be instrumental. Several of the business incubators are piloting innovative schemes at a small scale. With proper M&E, an attempt could be made to scale up these models to extend the benefits to a larger population of earlystage growth-oriented entrepreneurs Source from parallel infodev Access to Finance pilot activities in Kazakhstan and Belarus in 2012, focusing on the development of angel investor/ private capital networks.

53 7.3 Increasing International Market Access for Incubatees As evidenced by infodev s recent internationalization pilots, business incubators can play a key part in facilitating access to international markets for their incubatees. In ECA, a shared legacy of transition economies on one hand, and cultural commonalities such as language as well as intraregional trade agreements (such as the Customs Union of Belarus, Russia, and Kazakhstan) on the other hand, are factors that drive opportunities for internationalization of SMEs in the region, and often at the startup stage. The opportunity to facilitate internationalization is however not fully exploited by incubators in the region. Business incubators can play a key part in facilitating access to international markets for their incubatees, as companies in these markets do not necessarily have access to more traditional trade or export promotion agencies services found elsewhere in the world. By linking companies to the necessary goto-market support structure, successful expansion into international markets can mean revenue growth for the enterprise, job creation in home and in new markets, and together with a spillover effect into industry competitiveness. Most incubatees in this study are interested in expanding to international markets in the short-term and medium-term and most of those regarded as highgrowth incubatees in this study are indeed growing due to export and internationalization activities supported by the incubator. infodev has supported access to international markets for high-growth enterprises through a number of pilot activities 24 and could translate this experience into developing such services in ECA and tailoring them to particular incubator needs. Services could include: co-incubation or softlanding services between and among incubators in the region or in other global markets; the development of a specialized internationalization service at the incubator itself with adequate capacity and skills development to implement this; development of industry expert and target market databases; as well as awareness-raising among incubation practitioners and stakeholders to foster collaboration and communicate market trends and opportunities. 24 See infodev report (2014) Enabling International Market Linkages: Lessons & Insights 53

54 7.4 Enabling Peer-learning Amongst Incubators An oft-repeated observation from the organizations participating in the study is the strong need their clients expressed for market access, networking, and peer -learning, and the high value they placed on incubation for providing such access, networking, and learning. There does not seem to be a systematic platform in place for such services on a regional level, beyond for example, an existing network of incubators (ECAbit), which provides services on an informal basis and free of charge. Well-performing incubators (identified through a shared monitoring & evaluation framework, for example) should be seen as role models, embodying the values of early-stage enterprise support and best practice in their business models. Leading examples of both functions should be identified throughout the ECA region and each industry. A number of the incubators that took part in this study could be role models and their experience should be effectively communicated to like-minded peers across the region. This can be done through the identification of stakeholders and peers (including the local public sector, donors and international development agencies seeking to invest in business incubation), their engagement in overall business incubator activities, and regular reporting on progress and potential opportunities to scale successful activities and attract additional partners. This can be done on a regional level, through grassroots innovation communities, and/or by individual and well-regarded champions in the field. Furthermore, best practice among incubators can be shared in formal training environments that aim to increase the overall capacity of business incubator staff to manage their operations. All of the incubator managers involved in this study have been exposed to or taken part in infodev s Business Incubation Management Training Program 25, which is specifically aimed at incubator staff as well as stakeholders in emerging markets and ranges from general incubator operations to specialized services. Training incorporates a number of best practice cases that are dissected and discussed among participants, providing tools to replicate these practices into the participant s own incubator and socio-economic context See for additional details about infodev s Business Incubation Management Training Program.

55 An Evaluation and Impact Assessment of Business Incubation Models in Eastern Europe and Central Asia Appendices 1 55

56 Appendix 0: Approach and Methodology The methodology to capture added value of incubators is based on a cross-sectional analysis involving both quantitative and qualitative approaches. Cross-sectional Analysis The added value of business incubation is not limited to the businesses incubated, but also occurs over the long term. Data was captured from: The incubator s executive team (management) Incubator stakeholders (board members, founders, and main delivery partners) Incubatees Graduates (companies that had completed the incubator program). Quantitative and Qualitative Data The analysis is based on a combination of empirical and qualitative data. Qualitative data was captured through standardized questionnaires from incubator managers and executives, incubatees, and graduates. In addition, individual face-to-face interviews and focus group discussions were held with incubator managers, clients, and stakeholders. Table 1 provides an overview of the sample and participants. With one exception, incubators for this study were members of the infodev-supported Eastern Europe and Central Asia Network of Business Incubators and Technology Parks (ECAbit). Selection criteria included regional affiliation (across ECA subregions: Central Asia, Eastern Europe, Central Europe, Southern Caucasus, South-east Europe, and Turkey), type of incubator, and history of success, either general or in a particular field. TABLE 1: Overview of Sample and Participants Recipient Business incubation managers Incubatees and graduates Tools used Planned number of responses Profile of incubators 9 9 Self-completed 9 (1 per incubator) 9 questionnaire Face-to-face interview (based on standardized questionnaires) 9 (1 per incubator) 9 Self-completed questionnaire 57 (29 incubatees + 28 graduate companies) Actual number of responses 58 (37 incubatees + 21 graduate companies) Group discussion 9 (1 per incubator) 9 (31 participants) Stakeholders Group discussion 9 (1 per incubator) 9 (28 participants) NOTE: The quantitative and qualitative indicators used for the study are listed in appendix 1. Quantitative data summaries collected from business incubation managers are in appendix 2; and from incubatees, in appendix 3. Qualitative data is also summarized in the individual reports produced as part of this study (appendixes 6 13). 2 56

57 PLACEHOLDER Photo: Credit The objective was to identify a group of case studies representing different regions and types of incubators in ECA. Empirically established results were not an objective. Table 2 provides an overview on types of incubators that participated in the study and regions of origin (adopted from Scott-Kemmis, et al. 2004). The UK Business Incubation (UKBI) team visited eight incubators between August and October infodev visited an additional incubator in July 2012 and conducted additional interviews in Data for the study was collected in September and November 2011, with the exception of BITF Belgrade (July/August 2012). infodev interviewed six of the nine participating incubator managers in July/August Three questions were discussed with incubator managers: 1) the share of business incubation activities compared to overall activities or service portfolios of their organizations; 2) business models of incubators within the overall business models of their organizations; and 3) monitoring and evaluation of incubator activities in the context of overall activities of their organizations. Methodological Challenges Exploring preconditions and challenges for incubation in the ECA region was a major objective and a key result of this assessment project. However, the research for this study had its own challenges: Lack of control group data to compare development of incubatees against start-ups and enterprises that had not benefited from incubation. Lack of data on graduates to more comprehensively measure incubators impact on clients. Inadequate data on incubatee performances due to reluctance to provide company performance data, hampering incubator effectiveness estimates. Lack of specific data on some incubators, particularly when differentiating from nonincubation services, where data was aggregated with the overall operations and development of incubation environments. Limitations of research results are highlighted throughout the report wherever appropriate. TABLE 2: Types and Incubators and Regions of Origin Type Local economic development incubators Academic and scientific incubators Corporate incubators Goal Non-profit For profit Participants in the study Mixed Main activity Mixed-use Sectorfocused Sectorfocused 2 2 (all ICT) Hybrid (non-academic or non scientific but with strong academic and scientific focus and links) Private investors incubators 1 Central Asia (1), Central Europe (1) Region South-eastern Europe and Turkey (1), Southern Caucasus (1) Central Asia (1), South-eastern Europe and Turkey (2) Eastern Europe (1) 0 0 Hybrid: Eastern Europe (1) 3 57

58 Appendix 1: Summary of Indicators Used and Expected Results TABLE 1: Qualitative Indicators for Assessment of Best Practice Business Incubation (Process) Indicator Criteria (output) Expected result 1 Selection policy 1. Selection criteria and procedure 2. Degree of innovation management by applicants 2 Exit policy 3. Exit process 4. Deal flow 5. Links with graduate ventures (postincubation) 3 Strategy and delivery 4 Skilled management team and governance Broad components of a comprehensive business incubation package: 6. Updated business incubation strategy 7. Coaching 8. Monitoring 9. Client networking 10. Business support and development services 11. Financial support 12. Seed fund activities 13. Advisory board 14. Facilities and shared admin support 15. Financial management 16. Institutional and industry link 17. Governance of the business incubator 18. Management team - The business incubator has a formal selection process - Businesses in the business incubator operate predominantly within the business incubator s target market ICT and significantly ICT-enabled - Process, service, technology, or business model innovation is an important criteria in selection, associated with developing a competitive advantage - The business incubator has a formal graduation process and criteria - The graduation criteria involves achievement of business milestones - Graduates are involved in helping incubatees - The strategy and delivery are detailed through a business plan (strategy document) which is written, regularly updated, and circulated within the core management team - Evidence will be requested for all indicators - The business incubator has a committed and effective board - The board consists of a multi-stakeholder public-private partnership and involves entrepreneurs - The board meets regularly - Major stakeholders, board, and management is agreed on the purpose, promises, and vision of the business incubator - There is an effective working relationship between the board and the business incubation manager - The business incubation program has a wellconstructed and articulated strategic plan that reflects its purpose, promises, and vision 4 58

59 PLACEHOLDER Photo: Credit TABLE 2: Quantitative Indicators for Assessment of Results Indicator Criteria Expected result (outcome) 1 Deal-flow of clients - Number of applicants in the past year - Number of applicants in the last five years - Number of applicants accepted in the past year - Number of applicants accepted in the past five years - Proportion of client companies of the business incubators that are not incubatees (ad hoc companies) - Proportion of total revenue that support to ad hoc companies represents 2 Jobs created - Number of full time equivalent (FTE) jobs at entry - Number of FTE jobs at exit - Current number of FTE jobs - Number of FTE jobs created in the last 12 months - Number of FTE jobs created to date - Number of companies graduated to date - Number of graduations in the last 12 months - Number of jobs created by companies that graduated in the last 12 months 3 Survival rates - Survival rates of companies 12 months after graduation - Survival rates of companies five years after their graduation 4 Innovation and research and development (R&D) activity - Number of patents applied for and owned in the past 12 months, and since start of activity - Number of trademarks applied for and owned in the past 12 months, and since start of activity - Number of copyrights applied for and owned in the past 12 months, and since start of activity - Number of innovative products developed in the past 12 months, and since start of activity - Number of collaborative projects with knowledgebased organizations (such as R&D organizations, research institutions, higher education (HE) and formal education (FE) institutions) in the past 12 months, and since start of activity 5 Salaries - Average salary among incubatees - Average salary among graduate companies 6 Finance raised - Number of incubatees assisted by the BI in securing finance - Number of incubatees that have secured finance - Total finance secured by the BI - Total finance secured by incubatees - Finance secured by the BI for incubatees - Amounts (and sources) of finance secured to date (graduate companies) - Selectivity ratios (yearly and over time): number of applicants accepted compared to number of applications - Average increase in incubatee staff - Number of FTE jobs within business incubator (BI) at any one time - Gross new FTE job created (per year and to date) by incubatees and graduate companies - Average increase in staff per company since graduation - Survival rate among graduate companies versus survival rate of three-year old businesses from the same industry sector in the sub-region - Survival rate among graduate companies versus survival rate of three-year old businesses from the same industry sector in the sub-region - Insight on innovation activity generated by the BI in the area/sub region - Quality of companies (incubatees and graduate companies) and their growth - Investment raised by BI for incubatees to date - Investment raised by graduate companies (continued) 5 59

60 Indicator Criteria Expected result (outcome) 7 Turnover - Annual turnover at entry - Annual turnover at exit - Current turnover - Current turnover (all incubatees) 8 General revenues and export revenues 9 Financial management of the BI and return on investment - General revenues in the last 12 months - Export revenues in the last 12 months - Taxes paid in the last 12 months - BI income in the past 12 months - BI income since start of activity - BI running costs in the past 12 months - BI running costs since start of activity - Seed capital in the past 12 months - Seed capital since start of activity - Amount (and sources) of public funding received to date - General revenues in the last 12 months (all incubatees) - Export revenues in the last 12 months (all incubatees) - Taxes paid in the last 12 months - Taxes paid to date (all incubatees) - Average turnover increase during incubation period - Annual turnover generated by incubatees in each BI - Average revenue per graduate company - Percentage of total revenue that is based on exports - Total tax contribution by incubatees in the last 12 months - Average tax contribution per incubatee (total tax contribution divided by number of incubatees) - Estimated total tax contribution (average tax contribution multiplied by number of incubatees to date) - ROI 1: Total tax contribution from incubatees to date divided by total amount of initial funding from the BI multiplied by 100 Or - ROI 2: Total number of FTE jobs created in the past 12 months against incubator expenses in the past 12 months 6 60

61 Appendix 2: Summary of Self-completed Questionnaires with Nine Business Incubation Managers 1 All data and information contained in the study was collected in September and November 2011, with the exception of BITF Belgrade (July/August 2012). Deal-flow of clients 7 Response rate Total Minimum Maximum Average Number of applicants in the past year 66.7 percent Number of applicants in the last five years 66.7 percent Number of applicants accepted in the past year 77.8 percent Number of applicants accepted in the past 77.8 percent five years Selectivity ratio in the past year (percentage 66.7 percent of applications selected) Selectivity ratio in the past five years 66.7 percent How many individuals/ businesses do you 100 percent work with other than through the BI? Current number of incubatees 100 percent Number of incubatees to date 100 percent Proportion of clients that are incubatees 88.9 percent 4 percent 50 percent 18 percent Proportion of total revenues supporting ad 88.9 percent percent 100 percent 53 percent hoc companies IP and R&D Business incubators that have established 100 percent a deal-flow of intellectual property (IP) commercialization opportunities with higher education institutions (HEI) Business incubators providing access to R&D and/or product development support 100 percent Salaries (monthly) Average salaries of incubatees (response by 100 percent BI manager): <$300 1 (12.5 percent) $300 $600 2 (25 percent) $600 $900 4 (50 percent) 8 1 Empty boxes = not appropriate 61

62 PLACEHOLDER Photo: Credit Response rate Total Minimum Maximum Average $900 $1,200 0 (0 percent) $1,200 $1,500 1 (12.5 percent) >$1,500 0 (0 percent) Average salaries of graduate companies 88.9 percent (responses by BI managers): <$300 0 (0 percent) $300 $600 0 (0 percent) $600 $900 2 (28.6 percent) $900 $1,200 3 (42.9 percent) $1,200 $1,500 0 (0 percent) >$1,500 1 (14.3 percent) Job creation and survival rates Current number of FTE jobs in all incubatees 88.9 percent FTE jobs created within the last 12 months 88.9 percent by incubatees: < FTE jobs created to date via business 100 percent incubators: <10 0 (0.0 percent) (0.0 percent) (0.0 percent) (25 percent) (75 percent) (continued) 9 62

63 Number of graduations in the last percent months: 0 1 (12.5 percent) 1 7 (median: 4) 6 (87.5 percent) 8 14 (median: 11) 0 (0.0 percent) (median: 17) 0 (0.0 percent) 21+ (median: 11) 0 (0.0 percent) N/A 0 (0.0 percent) Number of graduations to date: 100 percent 0 1 (11.1 percent) 1 7 (median: 4) 1 (11.1 percent) 8 14 (median: 11) 1 (11.1 percent) (median: 17) 2 (22.2 percent) 21+ (median: 11) 4 (44.5 percent) N/A 0 Number of jobs created by companies that 77.8 percent have graduated in the last 12 months: <10 2 (28.6 percent) (0.0 percent) (28.6 percent) (0.0 percent) (28.6 percent) DK 1 (14.3 percent) Response rate Total Minimum Maximum Average 10 63

64 Survival rates of companies 12 months after 100 percent graduation: <16 percent 1 (11.1 percent) 16 percent 32 percent 1 (11.1 percent) 33 percent 48 percent 0 (0.0 percent) 49 percent 80 percent 0 (0.0 percent) 81+ percent 6 (77.8 percent) No company has yet graduated (N/A) 1 (11.1 percent) Survival rates of companies five years after 100 percent graduation (estimated): <16 percent 0 (0.0 percent) 16 percent 32 percent 1 (12.5 percent) 33 percent 48 percent 0 (0.0 percent) 49 percent 80 percent 2 (25 percent) 81+ percent 4 (50 percent) No company has graduated and is operating five years or longer outside the incubator Finance raised Number of incubatees assisted by BI to secure finance Response rate Total Minimum Maximum Average 2 (12.5 percent) 88.9 percent Finance secured by the BI for the incubatees 77.8 percent $1,285,000 0 $615,000 $142,780 Finance secured to date by incubatees 77.8 percent $2,915,000 0 $1,500,000 $323,888 General and export revenues (incubatees) Average general revenues in the last percent months (responses by business incubator): $10, $10,000 $25, $26,000 $50, $51,000 $75, $76,000 $150, >$150, Export revenues in the last 12 months (all incubatees) $1,300,717 $75,000 $1,000,000 $216,786 (continued) 11 64

65 Business incubator: Financial management Response Rate Total Minimum Maximum Average BI income in the past 12 months 55.5 percent $3,064,053 $904,800 $612,800 BI running costs in the past 12 months 55.5 percent $2,359,107 $882,000 $471,800 Public funding received to date 55.5 percent $3,929,000 $3,100,000 $785,800 What part of running costs are covered 88.9 percent by different sources of revenues: Rent 70 percent 32 percent Service fees 30 percent 6 percent Investment (royalties/ equity) 25 percent 4 percent Consultancy and external work 40 percent 8 percent Grants 100 percent 41 percent Loans 0 percent 0 percent Other (public subsidies) 64 percent 9 percent Selection policy Do you operate a selection policy? YES 100 percent 8 (88.9 percent) Do you operate a selection policy? NO 100 percent 1 (11.1 percent) Criteria used as part of the selection procedure? Ambition for growth Ability to benefit from incubation Overall fit with BI objectives and other incubatees Strong business plan Willing to take advice Technical expertise Business experience of the applicant 88.9 percent 6 (85.7 percent) 6 (85.7 percent) 6 (85.7 percent) 6 (85.7 percent) 5 (71.4 percent) 4 (57.1 percent) 2 (28.6 percent) Capacity to pay for services 6 (85.7 percent) Exit/graduation policy Do you operate a graduation policy? YES 100 percent 6 (66.7 percent) Do you operate a graduation policy? NO 100 percent 3 (33.3 percent) Milestones and targets used for exit: 100 percent Maximum time limit Stepped rents Incentives Removal of subsidy Business targets Revenue and/or profitability targets Governing body and executive team Do you have a committed and effective governing body (board)? YES Is there an effective working relationship between the governing body and the management team? YES 3 (37.5 percent) 2 (25 percent) 0 (0.0 percent) 1 (12.5 percent) 4 (50 percent) 3 (37.5 percent) 100 percent 7 (77.8 percent) 100 percent 6 (66.7 percent) 12 65

66 Has the management team got the necessary skills and experience to help incubatees grow? YES Is the performance of the management team regularly reviewed? YES Time spent with incubatees (average percent) Business development resources General business advice Training, seminars, and/or workshops Marketing and sales services Help find grow-on space Access to specialist advice Access to management training Access to R&D and technology transfer support Internationalization services General accounting and/or financial management advice Opportunities to network with finance providers Access to investment readiness programs Access to finance providers, angel Investment, and/or venture capital Access to seed capital fund initiatives Access to an advisory board Facilities and admin services available Hot-desking Meeting rooms and/or conference facilities Reception area/reception facility Networking/communal areas Broadband connections Office equipment Telephone network and hardware Car park Security services Response Rate Total Minimum Maximum Average 100 percent 9 (100 percent) 100 percent 6 (66.7 percent) 100 percent 10 percent 40 percent 25 9 (100 percent) 8 (88.9 percent) 6 (66.7 percent) 7 (77.8 percent) 8 (88.9 percent) 8 (88.9 percent) 6 (66.7 percent) 6 (66.7 percent) 8 (88.9 percent) 7 (77.8 percent) 5 (55.5 percent) 6 (66.7 percent) 5 (55.5 percent) 4 (44.4 percent) 3 (33.3 percent) 9 (100 percent) 5 (55.5 percent) 8 (88.9 percent) 8 (88.9 percent) 7 (77.8 percent) 7 (77,8 percent) 9 (100 percent) 9 (100 percent) 13 66

67 Appendix 3: Summary of Self-completed Questionnaires for Incubatees 2 All data and information contained in the study was collected in September and November 2011, with the exception of BITF Belgrade (July/August 2012). Response rate (percent) Total (absolute) Total (percent) Minimum Maximum Average Median Market and client base (of incubatees) Extent of market: domestic Extent of market: regional Extent of market: international Location of market: urban Location of market: rural Number of customers , Customer income level: low income Customer income level: medium income Customer income level: high income FTE jobs at entry > Current number of FTE jobs > FTE jobs created within the last 12 months (incubatees) Empty boxes = not applicable 67

68 PLACEHOLDER Photo: Credit Response rate (percent) Total (absolute) Total (percent) Minimum Maximum Average Median > Staff (also see job creation, above) Skills: low-skilled Skills: medium-skilled Skills: high-skilled Gender: men Gender: women Location: urban Location rural Internationalization: What type of development opportunities are you looking for in other countries or markets? Funding Corporate partnership 97 p Regional expansion Technology transfer Joint ventures Recruitment Mentoring Internationalization services Have you contacted any international incubator or any other service? YES Have you contacted any international incubator or any other service? NO Has your BI assisted you with any international opportunities? YES Has your BI assisted you with any international opportunities? NO Financial assistance Has the BI assisted you in securing finance? YES Has the BI assisted you in securing finance? NO If YES how much? 403,100 On average 50, , ,000 62,683 64,750 (continued) 15 68

69 Response rate (percent) Total (absolute) Total (percent) Minimum Maximum Average Median Average salaries (responses by incubatees) <$ $300 $ $600 $ $900 $1, $1,200 $1, >$1, Annual turnover at entry <$5, $5,000 $10, $11,000 $30, $31,000 $70, $71,000 $100, >$100, Current annual turnover <$10, $10,000 $50, $51,000 $100, $101,000 $150, $151,000 $200, >$200, Average general revenues in the last 12 months (response by incubatees) <$10, $10,000 $25, $26,000 $50, $51,000 $75, $76,000 $150, >$150, Average exports revenues in the last 12 months (responses by BI) <$3, $3,000 $10, $11,000 $20, $21,000 $30, $31,000 $40, >$40, Taxes paid by incubatees Taxes paid by your company in the last 12 months 52 $83,800,00 $6,446 on average per incubator 0 $28,400 $4,741 $3,

70 70

71 Appendix 4: Summary of Financial Returns on Investment All data and information contained in the study was collected in September and November 2011, with the exception of BITF Belgrade (July/August 2012). UBIT Kalisz ZNTC BASTAU SODBI Mogilev EIF BITF Confidential (one incubator did not want to be named nor its data made public) Year established No public data available Number of FTE jobs created in the last 12 months Average turnover of incubatees at entry ($) Average turnover of incubatees at exit or after three years ($) Taxes paid by all incubatees in the last 12 months ($, estimated) Taxes paid by all incubatees to date ($, estimated) Average taxes paid by incubatees in the last 12 months ($, estimated) Average taxes paid by incubatees to date ($, estimated) Initial funding (capital) to set up the BI No data 25 No public data available 7,500 no data 50,000 No data 40,000 10, ,000 No public data available 52,000 no data no data 100,000 47, , , ,000 No public data available 80,000 81,996 17,000 10,000 33,000 1,100,000 No data 134,000 No public data available 520, ,961 17,000 30, ,000 No data No data No public data available 7,000 3, 279 3,400 5,000 1,100 61,111 No data 9.144,00 No public data available 40,000 34,438 3,400 15,000 No data No data No data ,00 No public data available 59,400 5, , ,000 1,200,000 1,400, No public data available 18 71

72 PLACEHOLDER Photo: Credit UBIT Kalisz ZNTC BASTAU SODBI Mogilev EIF BITF Confidential (one incubator did not want to be named nor its data made public) Initial funding (revenue) to set up the BI Total initial funding to set up the BI Running costs of BI for the last 12 months ($) Estimated income of the business incubator for the last 12 months ($) Estimated running costs of the business incubator since start of activity ($) Estimated income of the business incubator since start of activity ($) Return on investment, method 1 (total tax contributions from incubatees to date: total amount of initial funding from the BI) Return on investment, method 2: cost per job created (annual BI running costs divided by number of new FTE jobs created in the past 12 months) 190, ,000, , ,600, No public data available 249,400 5,882 3,000,000 20, ,000 1,200,000 5,000, No public data available 85, , ,000 4, , , , No public data available 85, , , , , , No public data available 585,000 No data 730,000 32,960 1,640,000 2,200,000 5,021, No public data available 546,000 No data 770, ,200,000 2,500,000 9,301, No public data available No data No data 2,26 No public data available 8, , , ,000 3, No data No public data available 19 72

73 Appendix 5: Measuring Performance of Business Incubators and Impact of Business Incubation: Overview of the Literature Review and Methodology 1. Introduction In practical and policy terms, business incubation is an invaluable tool to stimulate enterprise and develop businesses with growth potential. Studies by academia and others (such as UK Business Incubation, National Business Incubation Association, European Business and Innovation Center Network, and infodev) have highlighted the wider role that business incubators can play in accelerating growth and increasing survival rates of client businesses. However, very little is known at national and regional levels about the long-term return on (public) investment in business incubation. Though evaluative research on business incubation exists, it very often consists of intermittent or regular performance reviews, based on key performance indicators (KPIs) limited to public service agreements (PSAs). In other words, quantitative data that relies heavily on requirements and remits of initial sources of funding. The purpose is not so much to evaluate the impact of business incubators against best practice but to monitor their progress against fixed targets and project deliverables as set up in business plans/contracts. While benchmarks have been established, collection of data is at one point in time across a wide sample of business incubators (cross-sectional analysis). This makes evaluation of the impact of business incubation over time difficult (longitudinal analysis). This section contains a chronological and thematic overview of existing business incubation literature. It discusses challenges affecting performance of business incubators and results of business incubation. 2. Overview of Incubator- Incubation Literature No single model exists to define business incubation. The proliferation of business incubation activities over the last thirty years has led to variety in terminology used and type of incubation activities offered. Key themes have been identified by Hackett and Dilts (2004), which are detailed in table

74 PLACEHOLDER Photo: Credit TABLE 1: Overview of Incubator-Incubation Literature Research streams Research periods Main topics Research questions Incubator development studies Incubator configuration studies Incubator development studies Incubatorincubation impact studies Studies theorizing incubatorincubation Definitions Taxonomies Policy prescriptions What is an incubator? How do we develop an incubator? What life cycle model can be extracted from analysis of business incubators? Conceptual frameworks Incubatee selection What are the critical success factors for incubatorincubation? How does the incubatorincubation concept work in practice? How do incubators select incubatees? New venture development Impact of planning on development What is the process of new venture development in an incubator context? What is the impact of planning and the role of the business incubator manager? Levels and units of analysis Outcomes and measures of success Does incubation achieve what stakeholders assert they do? How can business incubation program outcomes be evaluated? Have business incubators impacted new venture survival rates, job creation rates, and industrial innovation rates? What are the economic and fiscal impacts of an incubator? Explicit and implicit use of theories (transaction cost, economics, network theory, entrepreneurship, economic development through entrepreneurship) What is the significance of relationships and how do they influence entrepreneurship? What are the critical connection factors to success? For example, settings, networks, founder characteristics, group membership, co-production value, creation process What constitutes a model for a virtual incubator? Is the network the location of the incubation process? Source: Hackett and Dilts (2004) 21 74

75 In addition to research questions about incubatorincubation impact studies, 3 the following questions were considered for this study: What results does business incubation produce when implemented effectively? What is the cost effectiveness of business incubation in the region? What are the critical success factors to make business incubation a cost-effective tool to promote start up and growth of innovative SMEs in the ECA region? 4 3. Factors to Consider Differences Between Performance Reviews and Impact Assessment Studies Generally, impact assessment is a process that determines if planned goals and objectives were actually achieved/will be achieved. Going further, the World Bank, for example, states that: An impact evaluation assesses changes in the well-being of individuals, households, communities or companies that can be attributed to a particular project, program or policy. 5 For business incubators, performance reviews till now have focused only on monitoring. While performance reviews of a business incubator are necessary, they do not evaluate its real long-term added value. Business incubation is not cheap, and sustainability of business incubators almost 3 Do incubators achieve what their stakeholders assert they do? - How can business incubation program outcomes be evaluated? - Have business incubators impacted new venture survival rates, job creation rates, and industrial innovation rates? - What are the economic and fiscal impacts of a business incubator? (Hackett and Dilts. 2004) 4 For example, is there a unique entrepreneurial culture or a unique way of doing business in the region that requires a different model of incubation from elsewhere in the world? That is, in terms of what types of services are delivered? How governance, management, and ownership issues are handled? And how the business incubator is financed? 5 Source: TOPICS/EXTPOVERTY/EXTISPMA/0,,menuPK:384339~pag epk:162100~pipk:159310~thesitepk:384329,00.html exclusively relies on some form of public funding. Evidence of performance and results of business incubators will help policy makers and practitioners to allocate and access appropriate funding. This was highlighted by infodev in a study focusing on ICT incubators in sub-saharan Africa: More than in other environments, sustainable, replicable ICT incubators in Africa will require some path forward for those companies that grow to a point requiring graduation or which seek graduation for other reasons. Their progress must be tracked in order to develop the level of public support that will be required to sustain the program. (infodev, 2009) Multiple Stakeholder Analysis/Sources of Information Methodologies and indicators of performance reviews and impact assessments in existing literature are wide and varied. However, there is general agreement that a 360 degree perspective is necessary to assess the added value of business incubation over time so that data collected from different sources can be verified. The review of literature indicates that different stakeholders participated in impact studies at different times. These stakeholders may include: The business incubator (management team) Business incubator stakeholders/founders (board members, founders, and other investors when appropriate) The incubatees Ad hoc client businesses (businesses supported by the business incubator, but not through business incubation services) Local and regional business communities. A 360 degree perspective should, for instance, involve views of the business incubator manager to be verified by incubatees. According to the Regional Economic Studies Institute (RESI), in 2001, a common criticism of business incubation impact studies is that the methodologies fail to consider a control group of businesses that would allow a comparative study between companies of similar characteristics, one within the business incubator and the other outside. It was felt that finding a suitable control group was difficult as small businesses lacked data on start dates and performances. Other sources question 22 75

76 this. While agreeing that relying on empirical quantitative data from a control group is very difficult over time, they point out that collecting of data via, for instance, focus groups is possible. Further, it can be argued that: The real results (or added value) of business incubation comes after graduation as a direct consequence of inputs received during the business incubation process. The on-going relationship with and utilization of entrepreneur/business incubation graduate resources in particular for tracking their growth is where the true and unique (added) value of business incubation lies. Monitoring Companies after Graduation Empirical evidence on post-graduation from business incubators is limited, in part due to a lack of systematically recorded data (Schwartz 2009). Monitoring the activity of the business incubator is considered useful by its management team and stakeholders. But, it can also become cumbersome and erode the ability of the environment to perform to its maximum capacity. Rice (2002) said business incubation managers were less effective when distracted from core activities by excess monitoring or the need to secure funds. Alternative approaches do exist; such as an online assessment tool developed by Innovationsbron in Sweden. The tool is used by business incubators to monitor their own performances, and also enables centralized data collection for review by public bodies and, as a consequence, provides a regional/national picture of progress and success. While it is easy to criticize, in practice it is difficult to isolate the impact of business incubation on incubatees. For the reasons mentioned above, few studies explore the performance of graduate companies (post-incubator), even though graduation is easy, post-graduation survival may not be. (Schwartz 2010) Different Types of Effects Business incubation has both direct and indirect effects (Sternberg 1994; SOFIREM 2004). These effects could be positive or negative, expected or unexpected, and not always quantifiable. This has consequences in the methodology (measure, source of information) to be adopted for the assessment. Classification According to Client Base Sponsors and sources of funding influence the goals and modus operandi of a business incubator (Lalkaka and Bishop 1996; UKBI 2001; UKBI 2003). The mission, objectives, and business targets therefore need to be considered when reviewing the results of business incubators. Equally, findings from the literature review suggest that some form of classification is necessary to interpret findings. The impact assessment study in Maryland (RESI 2001), for instance, states (not surprisingly) that business incubators aimed at empowering or revitalizing neighborhoods will have far different impacts on local economies than for-profit, technology incubators. Different classifications exist and Albert and Gaynor (2001), for instance, have demonstrated that business incubators were initially classified and in many cases still are according to their legal status (private/public). Classifications have since broadened and can include location, objectives, configuration, business model, lead sponsors, and type of client businesses. Most classifications consider the following: Strategy Client base (sector focus) Sponsors/funders Additionally, the stage of development of client businesses at entry should be considered for three main reasons: Business needs vary according to the stage of development of the business (pre start-up, start-up, early stage). Business support evolves during the business incubation period with consequences on business incubator operations. Interpretation of findings based on similar indicators (job creation, for instance), will vary according to whether the business incubator targets only start-ups or includes established businesses (where jobs have been created before it joined the incubator). In this case, only incremental growth in jobs should be measured

77 5. Stage of Development of the Business Incubators Research suggests that it takes five to ten years for a business incubator to develop to the point when it can make a real and measurable impact (UKBI, 2001). In the UK, for example, it could take five to seven years for business incubators to establish themselves and become self-sustainable (UKBI and Rowe 2003). Enabling Environment As mentioned earlier, the added value of business incubation includes both direct and indirect effects. It also involves the three main stakeholders of business incubation: the management team, the clients, and the local community: An incubator will be just one component of the overall economic development required to maintain a strong business community. (Meeder 1993, cited in UK Incubation Impact Assessment Study, UKBI 2001) Equally, business incubators during their life cycle rely highly on their surrounding economic and social environment (the ecosystem), which, by nature, is constantly evolving and varies from one region/country to another. All research highlights the importance of the enabling environment, which defines the business culture and the approach to support and accelerate business growth. A study by infodev (2009) identifies a list of factors that affect the ecosystem (see table 2). 6. Challenges The previous section highlighted the essential factors to be considered when assessing business incubators for interpretation of data to be valid: classification of business incubators, mission and objectives, minimum age, and contextual factors. It identified potential stakeholders to be involved in the assessment: core management team, tenants, stakeholders (members of the board and founders), public and private investors, policy makers, business support providers, professionals, and entrepreneurs. A review of existing literature and findings from questionnaires identified a number of shortfalls/gaps in previous impact assessment studies (Lalkaka and Bishop 1996; UKBI 2001; RESI 2001; Albert and Gaynor 2001; SOFIREM 2004) such as: Lack of control groups Failure to identify a financial model that calculates/evaluates the financial and social return via an accepted and commonly used methodology Failure to identify a method to assess the impact of the business incubator on its surrounding environment Failure to define a single methodology that encompasses different types of business incubators. TABLE 2: Contextual Factors Factor Technological forces Legal and regulatory forces Economic factors Political forces Social and demographic factors Raw materials and resources required Competitive entities and forces (External) stakeholders Details Emergence of trends, devices, events that influence, etc. Includes elements such as Internet bandwidth and telecom access, growth of mobile phone access and services. Laws governing ICT; national tax systems with respect to investment; regulatory environment; deregulation and liberalization of fixed line and wireless; trend towards a free market view of business. High unemployment; limited access to social services; impact of industry; use of microfinance; trend towards collaboration between businesses. Dynamic political environment that varies by location. Birth rates; poverty levels; low life expectancy; support for free markets. Trained labor force; equipment for access to networks; test equipment, etc. Displacement of fixed-line services by mobile services. Includes banks; large companies; academia; equipment and service providers. Source: infodev (2009) 24 77

78 To overcome the gaps identified above, the methodology used for this study was based on a multi-stakeholder perspective and consisted of a cross-sectional approach. In addition, secondary research looked at the local economic context (statistics, secondary quantitative data, and analysis of regional economic strategies). Partly quantitative, this methodology included a qualitative approach: face to face questionnaires with business incubation managers and group discussions with incubatees and business incubation stakeholders to assess best business incubation processes and tease soft aspects that quantitative data could not capture. 7. Approach The methodology to capture the added value of business incubators is based on a cross-sectional analysis involving quantitative as well as qualitative approaches: Cross-sectional: the added value of business incubation is not limited just to the businesses incubated, but is long term. Data should be captured from: Business incubation executive team (management) Business incubation stakeholders (board, founders and/or main delivery partners) Incubatees Graduated companies. Quantitative and qualitative data: Analysis of the added value of business incubators is based on data from questionnaires and from focus groups during which areas and indicators are investigated (table 3). Face-to-face interviews with business incubation managers and small businesses (incubatees and, ideally, graduate companies) are conducted to discuss quantitative findings further and to collect qualitative statements of the value of the business incubators. 8. Lessons Learned from the Assessments While the indicators and methodology identified were appropriate to the objectives of this study, a number of challenges prevented the research team from obtaining the planned amount of data, as indicated in table 3. Some of these challenges are listed here: I. The number of replies from graduate companies through the self-completed questionnaire (SCQ) was very low, as was their participation in the group discussions. A number of reasons were given for this: a. Business incubation managers do not generally keep in touch with graduate companies b. Access to graduate companies was made through business incubation managers, who did not always have the time to chase them c. With no direct benefit or incentive to them, graduate companies were reluctant to spend time on a SCQ requested by a consultant they did not know, or take part in group discussions. TABLE 3: Data Collected Recipient Business incubation managers Incubatees and graduates Tool used Profile of business incubators Self-completed questionnaire Face-to-face interview (based on standardized questionnaires) Self-completed questionnaire Planned number of responses (1 per business incubator) 9 9 (1 per business incubator) 9 57 (29 incubatees + 28 graduate companies) Actual number of responses 37 (25 incubatees + 12 graduate companies) Group discussion 9 (1 per business incubator) 9 (31 participants) Stakeholders Group discussion 9 (1 per business incubator) 9 (28 participants) 25 78

79 II. While the rate of replies from incubatees was much better, the same patterns occurred in some cases: a. Access to incubatees was made through the business incubation managers who did not always have the time to follow up and confirm b. With no perceived direct benefit or incentive to them, incubatees were sometimes reluctant to spend time on a self-completed questionnaire requested by a consultant they did not know or take part in a group discussion. III. Incubatees and graduate companies were also reluctant, in a number of cases, to give any data related to their financial performance, finance received, etc. IV. Monitoring activities recording the development of businesses in the period of business incubation (and post-incubation) is not formally undertaken by business incubation managers. When formal and regular monitoring takes place with incubatees, it is generally limited to key performance indicators from the funding source (such as job creation, survival rates, and occupancy rates) and therefore provides information that is limited and/or not suitable for the study. V. Tight schedules for collection of data and language barriers were also important challenges. 9. Recommendations to Improve the Methodology I. Develop a standard methodology for business incubators in the ECA region to use as part of monitoring and performance assessment. II. The monitoring exercise should encourage incubatees to regularly (for example, quarterly) fill a dashboard during their period of incubation and then annually after graduation. III. Storage of data should involve an online platform for the monitoring to be easily accessible. IV. Although part of the assessment can be done online, an on-site visit will allow a more complete evaluation of the business incubator. V. The assessment should take the broader local socio-economic environment of the business incubator into consideration (for instance, average local salaries and survival rates in the given industry)

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81 Appendix 6: Individual Report: Enterprise Incubator Foundation (EIF) Armenia All data and information contained in the study was collected in September and November 2011, with the exception of BITF Belgrade (July/August 2012). Overview Located in Yerevan, the Enterprise Incubator Foundation (EIF) was established in 2002 under an initiative of the Government of Armenia and within the framework of the World Bank s Enterprise Incubator project to support the development of the information technology sector in the country. Mission and objectives. EIF s mission is to support the development of the information and communication technology sector through creating a productive environment for innovation, technological advancement, and company growth. Key objectives include the development of an effective ICT infrastructure to enhance transition to a knowledge economy, promotion of Armenian enterprises in the global markets, encourage foreign direct investment (FDI) flow into Armenia, foster formation of start-ups and their further development, develop a managerial and professional workforce, and foster productivity improvement in Armenian companies. Background information. Over the years, EIF has become the national flagship for ICTrelated industries and serves as a bridge between the ICT sector, the Government of Armenia, and the international community. It catalyzes creation of small ICT-enterprises in close cooperation with global IT giants such as Microsoft, Cisco Systems, National Instruments, HP, Intel, and Sun Microsystems. In addition to business incubation services, EIF also provides assistance to start-ups and small and mediumsized enterprises (SMEs), including business development services, networking, and finance advice. Typically, the business incubator focus is on building an information environment for ICT business development through a series of donorsupported projects including research, information dissemination, consultancy, and training. Its premises (1,200 square meter gross area) include 1,000 square meters divided into 40 business units, one workshop, and one laboratory. Hot-desking facilities are not provided. Assessment of Business Incubator Practices and Processes Selection Policy EIF does not have a formal selection policy. It accepts all applicants involved in ICT-related industries. Space, however, is limited. Applicants selected for tenancy at EIF operate predominately in the ICT sector. They must demonstrate the competitive advantage of their business idea and provide evidence of innovation. Products/services developed by EIF incubatees include: Design, development, installation, and maintenance of information systems and customized software. Integrated development environment to interface with measurement and control hardware, analyze data, publish results, and distribute systems using a graphical programming approach Modular and easy-to-use solutions for a wide variety of applications, ranging from simple data logging to high-performance automated testing, industrial control, and embedded design

82 PLACEHOLDER Photo: Credit Comprehensive repository of historical and pricing data for the global equities markets. Since EIF is recognized within the country for its innovation and ICT related activities, demand for incubation is not a problem. Sources of deal-flow include: Universities, enterprises/industry channels Word-of-mouth EIF promo events, including various market development activities, publications (survey reports and guides) Direct contacts with the executive team Website. Exit Policy EIF does not have a formal graduation process as a large number of incubatees are not located within the building. Strategy and Delivery Strategy. EIF s operations are based on a business plan that is regularly updated by the executive team and approved by the board, which includes representatives of: Ministry of Economy Ministry of Finance Union of Information Technology Enterprises Educational institutions Donor community. EIF s mission Is to support the development of the InFormatIon and communication technology sector In armenia through creating a productive EnvIronmEnt For InnovatIon, technological advancement and company growth. Operations are not limited to business incubation as EIF also operates as an ICT-related business development agency, providing services to individuals and businesses other than incubatees. EIF also serves as a model incubator for national incubation development programs. It coordinates activities related to the creation of business incubators in other regions of Armenia. EIF s business model focuses on networking and cooperation; with donor funds that provide project-based finance aimed at specific industryrelated issues. EIF serves as a platform for implementation of donor initiatives in the ICT sector. Most business incubation services and staff salaries are subsidized through donor-funds and public-private partnerships. EIF reached break even in The table below provides general financial figures, sources of revenues, and their contribution towards running costs. General financial figures Initial capital funding received to set up the business incubator $1,400,000 Initial revenue funding received to set up the business incubator $3,600,000 Estimated running costs of the business incubator in the last 12 months $882,000 Estimated income of the business incubator in the last 12 months $904,800 Estimated running costs since start of activity $5,021,172 Estimated income since start of activity $9,301,471 Percentage of Sources of revenue running costs covered Rent 24 Grants

83 Delivery. EIF provides business and financial support services internally and/or externally through the executive team s network of contacts. Its services include: General business advice Training, seminars and/or workshops Marketing and sales services Access to specialist advice Access to management training Internationalization services General accounting and/or financial management advice Opportunities to network with finance providers Access to seed capital funds Access to an advisory board. The following facilities and shared admin services are also available at EIF: Meeting rooms and/or conference facilities Reception area/reception facility Networking/communal areas Broadband connections Telephone network and hardware Car park Security services. EIF s business culture and IT-focus (reflected in the infrastructure and image of the premises) was valued by end-users as part of this study. Infrastructure accessibility was valued highly for three participating companies as their services are delivered to overseas customers. Incubatees noted the professional attitude of the executive team and easy inter-communication on specific issues with other incubatees and residents. Coaching. Coaching within the business incubator is provided by an external provider and delivered on request from clients (both physical and virtual incubatees). The service is described as responsive to immediate needs of the incubatees. Depending on type of support required, the executive team facilitate contacts with external organizations on specific issues (for instance, technology-related issues), thus acting as a signposting agent, a key role of the executive team according to best practice business incubation. The business incubator also has a team of professional trainers and advisers available to clients. Communication and exchange are initiated from both sides. Besides specific research exercises undertaken by EIF, incubatees approach the executive team for advice on business-specific issues, that is business or strategy planning, human resources management and contact-making (the last is the most popular request). Incubatees usually receive the full range of services required to resolve their issues. Monitoring. EIF cooperates with several donor organizations and Armenia s Ministry of Economics, which funds the annual state of industry reports generated through a detailed survey of Armenian ICT-related enterprises. For this, EIF obtains data from incubatees regularly, although there is no dedicated procedure to monitor the incubatees. The reports are published online and in print. Specific issues are also communicated on a case-by-case basis through coaching activities. Networking. EIF facilitates networking with the Armenian diaspora worldwide. It has, for instance, set up of sales offices in Canada and Austria to promote ICT services in other countries. EIF also organizes matchmaking events targeted at specific client needs. Since EIF hosts companies in the same industry sector, incubatees cooperate closely while outsourcing services that add-on to their main products. This reduces time taken to execute projects and has a positive effect on incubatee image and revenues. In fact, end-users likened the incubatee community to a mini-silicon Valley. Financial support to incubatees. EIF provides financial support to incubatees in several ways: EIF and/or funding partners provide projectbased financing in the form of equity (up to 30 percent), grants (using donor funds) or microloans EIF also provides access to funds, pre-seed financing and provides professional advice and support in preparing project proposals for equity and VC funding, as well as project financing (such as government and donor programs/tenders)

84 Management Team Skills and Governance EIF s dedicated executive team s ICT know-how and know-who was cited as a critical factor in making it cost-effective. The executive team s skills, as described by the business incubation manager, include: Business development Training and skills-building Marketing Productivity improvement management PPP creation. The executive team spends an average of 30 percent of their working time directly supporting incubatees. The board is also very active; providing support in lobbying, networking, and promotion. Analysis of Quantitative Data Deal-flow of clients. Any data on deal-flow of clients is limited, as EIF does not have a formal selection or exit policy. Quantitative data shows that incubatees are only a minor segment of EIF s client base. EIF currently provides services to six incubatees but, at the same time, works with approximately 150 other businesses. This highlights EIF role as a key player in supporting the ICT-related industry nationally. Survival rates. Based on data collected, survival rates of companies 12 months after their graduation (over 81 percent) is typical, given EIF s good practices. But, the number of graduated companies since 2002 has remained low: between 8 and 14 since start of activities. The rate of survival for these businesses five years after graduation is very high. Innovation and R&D activity. No quantitative data was provided by EIF or its incubatees on patents, copyrights, and trademarks owned. Anecdotal evidence provided by incubatees and the business incubator manager however demonstrated EIF s key role in innovation and R&D. Like other business incubators taking part in the study, EIF facilitates and encourages innovation and R&D, rather than provide incubatees with direct support. Labor skills and salary levels. The typical incubatee staff-member at EIF is described as a highly skilled, male employee living in an urban area. Salaries among incubatees are between $600 to 900 per month, according to the business incubator manager. Finance raised. No data on finance raised for incubatees was provided, although financial support is provided as part of EIF s services as detailed elsewhere in this individual report. General revenues and export revenues. Again, no data was provided regarding general or export revenues, but internationalization services are in place and it is assumed that export is encouraged and facilitated. Financial return on investment. The financial details for the incubator are provided here: Initial capital funding received to set up the business incubator: $1.4 million Initial revenue funding received to set up the business incubator: $3.6 million Estimated running costs of the business incubator in the last 12 months: $882,000 Estimated income of the business incubator in the last 12 months: $904,800 Estimated running costs since start of activity: $5.02 million Estimated income since start of activity: $9.3 million However, not enough data was obtained to calculate EIF s financial returns according to the two methods identified by UKBI and infodev. 6 6 Method 1: Total tax contribution from incubatees to date: Total amount of initial funding for the BI Method 2: Total number of FTE jobs created in the past 12 months: Incubator expenses in the past 12 months 31 84

85 Conclusion Since it was set up in 2002, EIF supports ICTrelated incubatees on its premises, and also acts as a business development agency. Incubatees represent only around 4 percent of its total client base (number of incubatees in the last 12 months: 6; number of businesses supported other than through business incubation: 150). EIF has been involved in developing and operating Armenia s ICT cluster and now enjoys a well-established reputation in the sector. Additionally, EIF serves as a gateway to Armenia for transnational companies that receive specific services from incubatees. Based on a success sharing business model, EIF provides project-based financing support in the form of equity (up to 30 percent), grants (using donor funds) or micro-loans as well as access to funds and pre-seed financing. It provides professional advice and support in preparing project proposals for equity financing and VC funding, thus filling a crucial gap for growing businesses. TABLE 1: Summary of Quantitative Data Indicators Quantity FTE jobs 100 FTE jobs created to date via business incubation 41+ Graduations to date 8 14 Survival rates of companies 12 months after graduation 81 percent+ Survival rates of companies 5 years after graduation 81 percent+ Average salary among incubatees $ /month Average salary among graduates $900 1,200/month Average turnover of incubatees at entry N/A Average turnover of incubatees at exit or after 3 years 0 $500,000 Taxes paid by all incubatees in the last 12 months (estimated) N/A Taxes paid by all incubatees to date N/A Average taxes paid by incubatees in the last 12 months N/A Average taxes paid by incubatees to date N/A Initial capital funding received to set up the business incubator $1.4 million Initial revenue funding received to set up the business incubator $3.6 million Estimated running costs of the business incubator for the last 12 months $882,000 Estimated income of the business incubator for the last 12 months $904,800 Estimate running costs since start of activity $5.02 million Estimated income since start of activity $9.3 million 32 85

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87 Appendix 7: Individual Report: Technology Park Mogilev (TPM) Belarus All data and information contained in the study was collected in September and November 2011, with the exception of BITF Belgrade (July/August 2012). Overview Created in 1998, Technology Park Mogilev (TPM) is a private sector initiative operating as a joint stock company. Historically, the idea of TPM was articulated by the local community of knowledgebased organizations and higher education institutions (HEIs). Mission and objectives. Designated by the government as an example of best practice, TPM s mission is to support and offer small innovation businesses the full range of instruments to translate creative human potential into innovative development of the region. Objectives of the technology park include promotion and encouragement of entrepreneurship and job creation, as well as support to commercialization of research. Background information. The idea of developing a technology park was supported by the local government. The regional executive council provided the building in downtown Mogilev as well as seed-funding for the launch of the business incubator/technology park. TPM is recognized as the first business incubator (1998) and as the first technology park (1999) in the country. Created with the support of the Belarus government and TRANSFORM, a German technical assistance program, TPM s key partners include Mogilev State University, the Institute for Technology of Metals of the National Science Academy of Belarus, Mogilev City Council, and Mogilev Regional Executive Council. The technology park is targeted at start-ups, early stage, and established businesses from ICTrelated industries, as well as other sectors such as advanced engineering, chemistry, health care and medicine, fiberglass products, optical devices, and environment. Incubatees mainly come from the local community or from the university (spin-outs). The technology park premises covers 3,439 square meters divided into 64 business units, three workshop units, and ten laboratory units. Hot desking is not provided. The executive team (12 employees) benefits from strategic direction given by the board: formal reporting meetings are held annually. In addition, informal meetings were recently initiated with members of the board to stimulate discussions and buy-in from the executive team on business incubation strategy and activities. Assessment of Business Incubator Practices and Processes Selection Policy TPM operates a formal selection policy that includes the following criteria: Ambition for growth Ability to benefit from incubation Overall fit with the BI s objectives and other incubatees Strong business idea/plan Willing to take advice Technical expertise of the applicant Capacity to pay for services. A business idea is first assessed through a faceto-face interview with the business incubation manager. The key admission criterion is evidence of innovativeness of the business idea/product/ service. The applicant must demonstrate that market research was undertaken to identify competitive advantages and niche markets for the 34 87

88 PLACEHOLDER Photo: Credit business idea. The application is also submitted to a selection panel, comprising representatives of the executive team. A team with expertise on subjects such as physics, engineering, sciences, economics, and entrepreneurship will weigh in if appropriate. These experts can be academics, from graduated companies (former incubatees), and/or representatives of the government. Exit Policy TPM previously applied a time-based graduation policy, with an incubation period limited to four years. This model was proven to be inefficient for most incubated businesses, depending on their nature, scale, and focus. The terms were therefore revised. Currently, TPM does not have a formal exit policy. However, due to the limited size of the business units, priority is given to new companies. Incubatees that have grown in size can possibly relocate elsewhere in the technology park. The government of Belarus has set a time limit of three years for business incubation. Extensions are allowed since TPM is both a business incubator and technology park. Movement of companies in and out is stable. All incubatees and graduate companies said they were asked in the beginning by the executive team if they would be ready to leave the business incubator in three to four years. However, that was not set as a goal or a condition on which the applicant was accepted. All incubatees are growth oriented and hope to own a private facility in the future. The main sources of deal-flow at TPM include: Referrals from partners, stakeholders, incubatees or graduates Publicity events (innovation competition, workshops, trainings, seminars, exhibitions) Word-of-mouth Website. designated by the government as an ExamplE of best practice, tpm s mission Is to support and offer small InnovatIon businesses the Full range of InstrumEnts to translate the creative human potential Into InnovatIvE development of the region. Referrals account for the largest number of applicants (up to 70 percent). Also, public awareness is created through regular events conducted in cooperation with local government and the business community. The most popular events are innovation competitions and exhibitions. Importantly, graduated companies are used as a source of deal-flow (referrals) but, as mentioned above, they are also involved in selection of new generations of incubatees (as advised by business incubation best practice). Graduated companies also take part in events conducted by the business incubator and workshops where they provide training to incubatees or exchange experiences. Since incubatees can remain on-site after graduation, it must help the executive team to keep in touch with them. Strategy and Delivery Strategy. TPM s operations are defined in a document (The TPM strategy) produced by the incubation manager, with buy-in from the rest of the team and from the board. The purpose, promises, and vision are articulated and agreed to by all board members and the executive team. Reporting and planning processes are standardized, thus facilitating communications at various levels. The TPM charter describes the functions of both management and board, with its operations strictly regulated by government decree. The board is involved mainly in strategic management, but sometimes in delivery of support, directly or indirectly. Examples include: 35 88

89 The regional executive council, for instance, is not directly involved in working with incubatees. However, it indirectly provides financial and administrative support in arranging marketing and publicity events that are attended by incubatees and graduates. It also provides funding to winners of annual innovation competitions initiated by the local government. The Institute of Technology of Metals directly cooperates with some incubatees/graduates on student internships. Some incubatees are graduates of the institute. TPM is considered a model of best practices in Belarus. Its positioning is its focus on innovation. This is underlined through numerous events co-organized by TPM and its stakeholders. With its highly experienced and qualified team of managers keen on entrepreneurship development, TPM has a good number of ad hoc clients that provide stable revenues. Financially, the business incubator is self-sustainable as owner of the premises, and as a professional organization with a strong team of managers and experts, large partnership network, and strong image in local and regional markets. TPM broke even in Support from the public sector is administrative only (for instance, co-organization of public events). The table below provides general financial figures, sources of revenues and their contribution to running costs: General financial figures Initial capital funding received to set up the business incubator $1.2 million Initial revenue funding received to set up the business incubator 0 Estimated running costs of the business incubator for the last 12 months $160,000 Estimated income of the business incubator for the last 12 months $200,000 Estimated running costs since start of activity $2.2 million Estimated income since start of activity $2.5 million Percentage of running Sources of revenue costs covered Rent 45 Service fees 15 Investment (royalties/equity) 0 Consultancy and external work 40 Grants 0 Loans 0 Delivery. Business and financial support services are provided internally and/or externally via the executive team s network of contacts. These services include: General business advice Training, seminars and/or workshops Marketing and sales services Help in finding grow-on space Access to specialist advice Access to management training Access to R&D and technology transfer support Internationalization services General accounting and/or financial management advice Opportunities to network with finance providers Access to investment readiness programs Access to finance providers, angel investment and/or venture capital Access to seed capital fund initiatives Access to an advisory board. In addition to business units, the following facilities and shared admin services are available: Meeting rooms and/or conference facilities Reception area/reception facility Networking/communal areas Broadband connections Office equipment Telephone network and hardware Car park Security services

90 Coaching. Coaching within the business incubator is provided internally by the executive team (enterprise general management, business planning, marketing, etc.) and by external companies for specific issues raised by incubatees (legal, technological, etc.). There is a formal procedure for semi-annual monitoring to identify gaps in enterprise development, and provide support to eliminate these gaps. Coaching is also provided to incubatees on request. Coaching, as described by the business incubation manager, is responsive to the immediate needs of incubatees. Monitoring. TPM regularly collects data from its incubatees. The executive team has developed a distance learning tool available online to help start-ups plan business revenues and expenditure. The tool is available for free on TPM s website Networking. TPM organizes and/or co-organizes public events, has initiated a CEO club (an informal cooperation platform), and conducts educational programs involving graduate companies as speakers and co-trainers. TPM also shares first-hand information on government-supported programs aimed at SME development. Anecdotal evidence by incubatees indicates that TPM has provided incubatees with opportunities to participate in industrial exhibitions to build awareness and extend contacts. Internationalization services have allowed incubatees to make international contacts with Latvia, Germany, and Russia. Financial support to incubatees. TPM supports enterprises in preparing documentation and business plan to apply for bank loans, to access loans and subsidies for job creation (as part of local and national government), R&D subsidies (regional government subsidizes knowledge-based companies). Interest rates vary depending on the types of banks and availability of co-subsidized (by the government) loans. Skilled Management Team and Governance The 12 members of the executive team have professional backgrounds in technical fields, economics, and humanities. The team also has practical business experience, knowledge of self-development approaches, experience in knowledge-based organizations, international studies (study-tours, internships), and are trained business-incubation employees. The executive team spends around average 40 percent of its working time directly supporting incubatees. In addition to daily informal contacts, meetings with the executive team take place monthly over various business-related issues (as part of coaching). The board is also active with its members providing support in lobbying, networking, and promotion. Analysis of Quantitative Data Deal-flow of clients. In the last five years, TPM received 27 applications for business incubation, of which 13 (48 percent) were accepted. This ratio aligns with business incubation good practice. TPM currently deals with 250 individuals and businesses, in addition to its 24 incubatees, which is 8.7 percent of its clients. Clearly, TPM is now a key national player in the SME field and in innovation development. Survival rates. Based on data collected, survival rates of companies 12 months after graduation (81+ percent) is typical for good practice. At 81+ percent, the rate of survival five years after their graduation is also very good. Although not explored further in this study, relocation into bigger units within TPM and the resulting support from and relationships with graduate companies could be reasons for this. Innovation and R&D activity. Being located within a technology park could considerably help incubatees in innovation and R&D. Over eight innovative products were developed by the 24 incubatees in the last 12 months. Equally, over eight joint projects were initiated between incubatees and knowledge-based organizations (such as R&D organizations, research institutions, HE and FE institutions) in the past 12 months. TPM benefits from the HEIs within its network of contacts. The board has established a deal-flow of IP commercialization opportunities with HEIs. Like other business incubators in the study, TPM s role is to facilitate and encourage innovation and R&D activity, rather than provide direct support. Labor skills and salary levels. TPM s staffmembers are described as typically highly skilled male employees living in urban areas. Salaries amongst incubatees are between $300 and $600 per month. Salaries among graduate companies are between $600 and $900 per month

91 Finance raised for incubatees. This indicator has not been tracked by the business incubator, although financial support is provided as part of its services. General revenues and export revenues. Data on general and export revenues indicate the following: General revenues in the last 12 months: $.6.3 million Export revenues in the last 12 months: $1 million This is a general pattern among business incubators. Export activities are limited, but internationalization services are in place at TPM to encourage and assist expansion of incubatees in foreign markets. Financial return on investment. The following financial information was collected during the survey: Taxes paid in the last 12 months (all incubatees): $1.1 million Taxes paid to date (all incubatees): Data not provided Average taxes paid by incubatees in the last 12 months: $61,111 Average taxes paid by incubatees to date (estimated): Data not provided Initial capital funding received to set up the business incubator: $1.2 million Conclusion Created in 1998, TPM is a successful private sector initiative operating as a joint stock company. More than just providing support to its incubatees, TPM is recognized as the first business incubator (1998) and as the first technology park (1999) in the country. It is considered a trigger for enterprise and innovation by end-users and as a model of best practices by many. Although core to its activity, incubatees represent only 8.7 percent of its total client base, demonstrating TPM s wider impact over the SME community in Belarus. The data identifies a strong job creation profile with extremely good survival rates and a good level of R&D activity. TPM provides efficient business and financial advice to incubatees, including investment readiness programs and access to finance providers and different sources of financing. Internationalization services are also available. Finally, the business incubator benefits from a proactive governing body that actively takes part in operations

92 TABLE 1: Summary of Quantitative Data Indicators Quantity Applicants in the past year 6 Applicants in the last five years 27 Applicants accepted in the past year 4 Applicants accepted in the past five years 13 FTE jobs at entry 2.5 FTE jobs at exit 30+ Current FTE jobs (amongst incubatees) 225 FTE jobs created in the last 12 months via business incubation 41+ FTE jobs created to date via business incubation 41+ Graduations in the last 12 months 3.5 Graduations to date 21+ Jobs created by companies graduating in the last 12 months 41+ Survival rates of companies 12 months after graduation Survival rates of companies 5 years after graduation 81 percent+ 81 percent+ Patents applied for and owned in the past 12 months <2 Trademarks applied for and owned in the past 12 months <2 Copyrights applied for and owned in the past 12 months <2 Innovative products developed in the past 12 months 8+ Collaborative projects with knowledge-based organizations (such as R&D organizations, 8+ research institutions, HE and FE institutions) in the past 12 months Incubatees assisted in securing finance 5 Average salary among incubatees $300 to $600 Incubatees that have secured finance Data not provided Total finance secured by the BI Data not provided Finance secured by the BI for the incubatees Data not provided Finance secured to date by incubatees and graduated companies Data not provided Annual turnover at entry (average) <$10,000 Annual turnover at exit (average) $250,000 General revenues in the last 12 months $6.3 million Export revenues in the last 12 months $1 million BI income for the past 12 months $200,000 BI running costs for the past 12 months $160,000 BI income to date $2.5 million BI running costs to date $2.2 million Seed capital raised in the past 12 months N/A Seed capital raised to date NA Public funding received to date $100,000 Taxes paid in the last 12 months (all incubatees) $1.1 million Taxes paid to date (all incubatees) Data not provided Average taxes paid by each incubatee in the last 12 months (estimated) $61,111 Average taxes paid by each incubatee to date (estimated) Data not provided Initial capital funding received to set up the business incubator $1.2 million Initial revenue funding received to set up the business incubator

93 Appendix 8: Individual Report: SODBI Kazakhstan All data and information contained in the study was collected in September and November Overview Set up in 2000, SODBI business incubator is a subdivision of the SODBI private fund, an NGO targeting SME development in the region. SODBI s activities include providing educational services to SMEs and start-ups and the delivery of business incubation services. Mission statement and objectives. SODBI s mission is to promote SME development in the region, and to support development of production, processing, and service companies at start-up and development stages. Its main objective is to assist start-ups and young innovative entrepreneurs by stimulating and fostering entrepreneurial activities, promoting competitiveness, and helping them adapt to the local economic environment. Background information. SODBI Private Fund provides the business incubator with space and funding. Additionally, stakeholders include two entrepreneurs involved in delivery of services (training and consultancy). A majority of incubatees at entry are start-ups and early stage businesses (new ventures, possibly seeking first round of finance, or trying to make a first sale). Although targeted at knowledge-based businesses, SODBI does not focus on a specific industry sector; most incubatees are academic or corporate spin-outs. Previously, SODBI s approach was limited to delivery of business advisory and training services to incubatees. Currently, the economic crisis has shown that financial support in the form of access to finance, equity, and partner searches is also required.sodbi s premises consist of 3,362 square meters of rentable area (gross area: 4,000 square meters) divided into 39 business units, ten workshop units, and two laboratory units. It also provides one shared work station and an information center with access to business literature (library) and the Internet. The business incubator is seen as a business setting with a pool of organizations delivering advisory, training, and financial support to SMEs, while providing facilities that meet their needs. This positioning attracts a steady stream of companies entering the business incubator. However, financial sustainability is dependent on market conditions, specifically surrounding competition in the business space leasing market, rather than business nurturing services. Spinning out SME support services makes these services self-sustainable, but not subsidized. SODBI was set up without any financial support from the public sector other than infodev and reached break even in It is not dependent on any grant or subsidies. SODBI is self-sustainable to the extent that rent covers current expenses. SODBI s operations were revised in 2009 because of the economic crisis. SODBI is looking at providing financial services (such as microloans and equity funds), which is still at an early development stage. Additional funds are required so that financial services too can become selfsustainable. SODBI s management is working on attracting additional investments required to achieve this. Assessment of Business Incubator Practices and Processes Selection Policy A board and selection panel were in operation until 2009, when SODBI s management structure and functions were reviewed, including its selection and exit policies. Although still in operation in practice, the selection policy is not identified as part of the business incubation process anymore

94 PLACEHOLDER Photo: Credit SODBI does not focus on any specific sector, although the following eligibility criteria have been set out: Ambition for growth Ability to benefit from incubation Overall fit with business incubator objectives and other incubatees Strong business idea/plan Willing to take advice Capacity to pay for services Ability to benefit from cooperation with other incubatees. With a strong selection ratio (2.5 incubatees for every 7.5 applicants), demand for business incubation services remains strong. Applicants must be start-ups or small businesses involved in the production, processing, or services sector. Priority is given to innovative enterprises; the current client base is represented mainly by ICTrelated companies. Applicants are interviewed by the business incubation manager to ensure that they meet basic admission criteria and the internal non-competitiveness principle to ensure favorable business climate and cooperation among incubatees. Applicants do not have to provide evidence of innovation at entry. Exit Policy SODBI does not have a formal application process, although incubatees could sign equity/royalty agreements with it. Incubatees and graduate companies highlighted its advantages: a growth strategy was discussed at inception, adequate support leading to steady development was planned, and SODBI s share in the business was acquired by the company at a certain maturity stage. The growth of businesses was monitored, and exit discussed three months before the actual graduation. The movement of incubatees in and out of SODBI is described as stable, reinforcing the perception of a strong demand for business incubation. A stable deal-flow is also evidence of the business incubator having a strong and established reputation. The common sources of deal-flow identified by the executive team include: Public awareness Word-of-mouth Recommendations from incubatees and graduates Website. sodbi private Fund provides the business Incubator with space and FundIng, and stakeholders IncludE two EntrEprEnEurs InvolvEd In the delivery of services (training and consultancy). Strategy and Delivery Strategy. SODBI s mission is to promote SME development in the region and support development of production, processing, and service companies at start up and development stages. The core objectives are the same now as they were at its early development stage. This is despite changes in delivery (outsourcing), after the global economic downfall in , aimed at maintaining financial sustainability. As stated by the business incubation manager, it had failed to remain sustainable over those three years. The revised strategy, focusing on financial services for its clients, was started in late While the previous approach was limited to delivery of business advisory, training services, and coaching to incubatees, the new strategy is based on current needs of the clientele (most start-ups have no or limited access to finance, and lack market knowledge)

95 The crisis period showed that financial support was required, apart from traditional business incubation services. SODBI now provides shortterm micro-loans to incubatees and SMEs beyond the business incubator at the monthly rate of 2.5 percent. The fund is working on increasing its loan portfolio to meet the needs of incubatees. The table below provides general financial figures as well as sources of revenues and their contribution in covering running costs. General financial figures Initial capital funding received to set up the business incubator $400,000 Initial revenue funding received to set up the business incubator $400,000 Estimated running costs of the business incubator in the last 12 months $180,000 Estimated income of the business incubator in the last 12 months $240,000 Estimate running costs since start of activity $1.64 million Estimated income since start of activity $2.2 million Percentage of running Sources of revenue costs covered Rent 65 Service fees 5 Investment (royalties/ equity) 5 Consultancy and external work 25 Grants 0 Loans 0 Delivery. Most services, including marketing, IT, and training, are outsourced and delivered on request. Business and financial services include: General business advice Training, seminars and/or workshops Access to management training Access to technology transfer support General accounting and/or financial management advice Access to finance providers, angel Investment and/or venture capital. SODBI s original objectives included internationalization services and focus on innovation. Due to the market situation in the region, there was and still is low demand for internationalization. The local business and environment, including lack of R&D in the region, and lack of government incentives does not create a good climate for innovation. As a result SODBI expanded its services. SODBI also offers the following facilities and shared admin services: Meeting rooms and/or conference facilities Reception area/reception facility Networking/communal areas Broadband connections Office equipment Telephone network and hardware Car park Security services. Coaching. Coaching is provided internally to incubatees on an informal basis to meet their immediate needs. Most companies (both incubatees and graduates) ask for business advice concerning smaller issues involving legal, accounting, marketing, or for contacts. These are resolved promptly. Monitoring. Formal monitoring procedures were cancelled after a review of operations in Progress reports of incubatees that have signed equity agreements with SODBI are still updated. The added value for these incubatees is access to finance, not rent, as it was earlier. Companies that have received financial support from or share equity with the BI provide performance data on request

96 Networking. Networking between incubatees is strongly encouraged and a no-competition policy is in operation among them. However, since there is no real industry focus on the premises, incubatees do not see opportunities for professional cooperation. Networking was identified by end-users as an area that needed to improve. Some of them, however, appreciate that SODBI has facilitated business-to-business (B2B) linkages among companies incubated at SODBI, thereby supporting the development and deployment of their services/products. Being within SODBI did not help incubatees and graduate companies link up with other trade and business networks. Financial support to incubatees. Based on selfcompleted questionnaires and qualitative data collected during the on-site visit, financial support is one of the main strengths of this business incubator. There are three ways that the BI secures finances for its clients: Consulting on business planning, partner search, and negotiations with financial institutions and SME support funds Providing micro-loans to clients through the micro-credit organization, SODBI Finance, at annual interest rates of up to 36 percent Taking up to 49 percent of equity shares. However, these financial services are at an early stage and require additional funds to become self-sustainable. SODBI s management is working to attract additional investments to make it selfsustainable. Management Team Skills and Governance As explained previously in the report, SODBI s management was recently restructured and the board stopped operating. Currently, the SODBI s management is delivered by the director, who also provides weekly feedback to stakeholders. The director spends approximately 10 percent of his working time directly supporting incubatees. This is done monthly or on request and is an opportunity for incubatees to get advice on accounting, taxation, and contacts, or general business advice. Analysis of Quantitative Data Deal-flow of clients. No quantitative data was provided to allow an analysis of client deal-flow. Qualitative data collected during the on-site visit however indicated strong demand for tenancy despite the absence of formal selection and exit policies. SODBI provides support to 33 incubatees (it has supported a total of 71 incubatees since start of activity in 2000), which is approximately 21 percent of its total client base. SODBI also works with 136 businesses located outside its business incubation program. Like other business incubators in the study, SODBI is perceived as a key organization in the development of entrepreneurship and innovation in the area. Survival rates. Based on data collected, survival rates of companies 12 months after graduation (90 percent) is slightly higher than defined by good practice. At an 85 percent survival rate, the situation after 5 years of graduation is also very good. Innovation and R&D activity. As already mentioned, evidence of innovativeness of the business idea is a criteria for selection. However, the business incubator has not established dealflows involving IP commercialization with higher education institutions. The reasons for this are according to the business incubation manager a general lack of R&D in the region and lack of government incentives that does not create a good climate for innovation. This was highlighted by the quantitative data related to innovation in the last 12 months. Labor skills and salary levels. The typical incubatee staff-member at SODBI is described as a highly skilled person living in an urban area. Interestingly, all three incubatees in the study were women entrepreneurs. Salaries in incubatees range between $300 and $600 per month, while salaries in graduate companies are between $600 and $900 per month. Finance raised for incubatees. Quantitative data collected indicate that at least 38 incubatees have received some form of financial support from the business incubator. A total of $70,000 was secured by the business incubator for incubatees. It is assumed that this was from 2009 onwards, when a policy regarding equity and other forms of shares 43 96

97 was implemented. In addition, SODBI has raised a total of $150,000 seed capital fund since start of its activities. Financial return on investment. The financial details for the incubator are provided here: Taxes paid in the last 12 months (all incubatees): $33,000 (except anchor tenants) Taxes paid to date (all incubatees): $300,000 Average taxes paid by incubatees in the last 12 months: $1,100 Average taxes paid by incubatees to date: Data not provided Initial capital funding received to set up the business incubator: $400,000 Initial revenue funding received to set up the business incubator: $400,000 Conclusion Established in 2000, SODBI business incubator is a subdivision of the SODBI private fund, an NGO targeting SME development in the region. SODBI s activities include providing educational services to SMEs and start-ups and delivering business incubation services. SODBI was set up without any support from the public sector and reached break even in It is not dependent on grants or subsidies. SODBI is self-sustainable as the rent covers all expenses. SODBI s operations were revised in 2009, following the economic crisis. While its main source of income was (and still is) rent of space, SODBI is developing a success sharing model involving shares and equities in incubatees. These financial services are at an early development stage, and require additional funds to become self-sustainable. SODBI does not have selection or exit policies and support services are mainly outsourced. SODBI s management is working to attract additional investments to make the fund self-sustainable

98 TABLE 1: Summary of Quantitative Data Indicators Quantity FTE jobs created in the last 12 months via business incubation 10 FTE jobs created to date via business incubation 250+ Graduations in the last 12 months 2 Graduations to date 31 Survival rates of companies 12 months after graduation Survival rates of companies 5 years after graduation 90 percent 85 percent Number of patents applied for and owned in the past 12 months <2 Number of trademarks applied for and owned in the past 12 months <2 Number of copyrights applied for and owned in the past 12 months <2 Number of innovative products developed in the past 12 months <2 Collaborative projects with knowledge-based organizations (such as R&D organizations, <2 research institutions, HE and FE institutions) in the past 12 months Incubatees assisted by the BI in securing finance 34 Average salary among incubatees $300 to $600/month Incubatees that have secured finance 28 Total finance secured by the BI $70,000 Finance secured by the BI for incubatees $70,000 Annual turnover at entry (average) $40,000 Annual turnover at exit (average) $47,000 BI income in the past 12 months $240,000 BI running costs in the past 12 months $180,000 BI income to date $2.22 million BI running costs to date $1.64 million Seed capital raised in the past 12 months $80,000 Seed capital raised to date $150,000 Taxes paid in the last 12 months (by all incubatees) $33,000 Taxes paid to date (by all incubatees) $330,000 Average taxes paid by incubatees in the last 12 months (estimated) $1,100 Average taxes paid by incubatees to date (estimated) Initial capital funding received to set up the business incubator $400,000 Initial revenue funding received to set up the business incubator $400,

99 Appendix 9: Individual Report: BASTAU STBI Student Technological Business Incubator (BASTAU STBI) Kazakhstan All data and information contained in the study was collected in September and November Overview BASTAU Student Technological Business Incubator (BASTAU STBI) was created in 2007 as part of the framework of the National Innovations Fund to establish innovative business incubators in Kazakhstan. It is a part of the East Kazakhstan State University complex. Mission and objectives. BASTAU STBI s objective is to promote and teach entrepreneurship and job creation to students, add on to the existing Technology Park Altai (where it is located), and help develop knowledge-based businesses through support to R&D. Its larger mission is to help create supporting businesses for large corporates in the local market (mainly large industrial companies in the metallurgy sector). Background information. The university and Technology Park Altai are the main stakeholders of the initiative. The university provided the initial investment, the 150 square meter premises, and manages the business incubation program (including support to incubatees). Technology Park Altai is involved in services delivery (product commercialization). The business incubator is based on an open plan with potential for up to 20 hot-desking units. Targeted at pre startups (product testing, pre sales, business plan development), the incubator does not provide business units to incubatees. Managed by staff (teachers and researchers) from the university, it provides a special curriculum based on a set of workshops with an emphasis on enterprise management. Activities at the incubator are steered by a governing body whose members include university directors, representatives of Technology Park Altai, and representatives from the National Innovations Fund, and the Science and Technology Council. Assessment of Business Incubator Practices and Processes Selection Policy With access limited to students and research staff, BASTAU STBI operates a formal selection policy based on innovation competitions conducted in October-November. Members of the business incubator s governing body are directly involved in the selection of applicants through the competitions. Winners also go through an interview with the business incubation director. Criteria for selection include: Ambition for growth Ability to benefit from incubation Overall fit with BI objectives and other incubatees Strong business idea/plan Willing to take advice. Applicants must give evidence of the innovativeness of their business idea/product/ service. Applicants must also demonstrate that market research work was undertaken to identify the competitive advantage of and niche market for the business idea

100 PLACEHOLDER Photo: Credit Exit Policy BASTAU STBI operates a formal exit policy which, like the selection policy, is detailed in its business plan. The exit strategy is linked to objectives as set up in the business plan and is discussed with applicants at the outset. The policy is based on business targets to be achieved. There are time limits, removal of subsidies or other disincentives. The movement of companies in and out of the incubator is not steady or stable. This is probably because of its narrow client base (students from the university) and fact that the business incubator has been in operation for just five years. Being part of the university, deal-flow and financial sustainability are not part of its strategic objectives. Nevertheless, the business incubator has incubated 38 projects since it started activities. Incubatees represent 50 percent of its clients; it currently works with six incubatees and six ad hoc clients. Main sources of deal-flow include: University website Faculty (teachers, professors) Newsletters produced by the university Word-of-mouth. Companies graduating from the business incubation program can move into business units within the technology park. They are not generally involved in assisting new generations of incubatees. In practice, there is the feeling that the business incubator mission has not been fully fulfilled. In three years of operation, only one company has been created. Other incubatees/ideas have not been commercialized. Strategy and Delivery Strategy. BASTAU STBI s operations are defined in a document produced by the incubation manager. The purpose, promises, and vision are bastau stbi s objective Is to promote and teach EntrEprEnEurshIp and job creation to students, to add on to the ExIstIng technology park altai, and help develop knowledge-based businesses through support to r&d. articulated and agreed to by all board members and the executive team. The reporting and planning processes are standardized, facilitating communication at various levels. The board is involved in strategic management of the business incubator, but is also involved at the operational level. It participates in the innovation competition selection panels, thus selecting potential incubatees every year. It also provides support to incubatees (idea working groups) by way of access to laboratories, facilitating contacts, conducting classes for students participating in the working groups, and providing financial incentives to teaching staff supporting the working groups. The main idea behind creating a business incubator was to teach job creation to students and to promote innovation. According to the director of the incubator, while BASTAU STBI achieves this goal there still is the challenge of commercializing innovative products developed by incubatees. With limited government support, this challenge could be addressed by developing international networks, information exchange, and cooperation with funding agencies and venture funds. These will be goals for the future. BASTAU STBI s core objectives do not (in any way) depend on its financial sustainability, as it is a part of the East Kazakhstan Technological University. The incubator is fully funded by the university (it provides space, the director s salary,

101 and incentives to lecturers and students for participating in innovative projects). The long-term vision of the university management is to make it a profit center as a business incubator. The table below provides general financial figures, sources of revenues and their contribution to running costs: General financial figures Initial capital funding received to set up the business incubator $20,000 Initial revenue funding received to set up the business incubator No data provided Estimated running costs of the business incubator in the last 12 months $4,320 Estimated income of the business incubator in the last 12 months The BI does not generate any income Estimate running costs since start of activity $32,960 Estimated income since start of activity The BI does not generate any income Percentage of running Sources of revenue costs covered Rent 0 Service fees 0 Investment (royalties/ equity) 0 Consultancy and external work 0 Grants 100 Loans 0 Delivery. Business and financial support services at BASTAU STBI are mainly provided internally. External support is available from Technology Park Altai (product commercialization) and/or via the network of contacts of the business incubator. Business and financial services offered include: General business advice Marketing and sales services Help to find grow-on space Access to specialist advice Access to R&D and technology transfer support General accounting and/or financial management advice Opportunities to network with finance providers Access to investment readiness programs Access to finance providers, angel Investment, and/or venture capital Access to seed capital fund initiatives Access to an advisory board. In addition to hot-desking units, the following facilities and shared admin services are available: Meeting rooms and/or conference facilities Networking/communal areas Broadband connections Office equipment Telephone network and hardware Car park Security services. Coaching. Coaching within the business incubator is provided internally by the executive team on an informal basis. When a project (business idea) begins, BASTAU STBI creates a working group consisting of experts at the university. The working group agrees on the format of work, a work plan, and business targets. The regularity of coaching depends on the type of activity carried out by the group. In most cases, groups contain experts in specific fields, but lack business skills and knowledge. The business incubator s executive

102 team fills these gaps by helping incubatees prepare documentation for submission to funders/ investors. The business incubation director monitors the project and provides guidance. Coaching is responsive to the immediate needs of incubatees. Monitoring. Monitoring is carried out by the business incubator director who monitors and reports progress of clients based on coaching. The executive team then discusses projects and issues and provides necessary advice or coordinates consultations with experts, shares contacts, etc. The university staff involved in the business incubation program has developed a monitoring and assessment methodology that helps evaluate the potential of the ideas submitted during the innovation competitions. The university has created a working group to adapt this methodology to regularly monitor incubatees. Networking. BASTAU STBI is well positioned within the university environment. It is part of the innovation promotion chain maintained by the university (Student Design Bureaus > Innovation Competition > Business Incubation Program > National Innovation Fund and/or Technology Park). One of the top development goals is international outreach and promoting innovations to market. Internally, the executive management monitors current project flows and facilitates relationships and networking among the different project teams (incubatees). Project teams also benefit from the university s network of contacts. Finally, the university s knowledge pool serves as a basis for innovative ideas and permanent and comprehensive support for idea-groups during their business planning processes. Financial support to incubatees. BASTAU STBI does not provide direct financial support but assists incubatees in securing finance. Part of the business incubation program is to complete an application package for funding from the National Innovation Fund. The business incubator plays an important role as a sign-poster for access to the following services: Access to investment readiness programs Access to finance providers, angel investment, and/or venture capital Access to seed capital fund initiatives. The business incubator does not have an equity/ royalty policy. Management Team Skills and Governance The executive team of the business incubator comprises the business incubator director, marketing manager, client relationship manager, adviser on intellectual property rights, records management adviser, and directors of the five student design bureaux. Staff-members spend approximately 30 percent of their working time directly supporting incubatees and combine their functions within the business incubator with teaching and research. The executive team s performance is reviewed regularly, but its relationship with the governing body is limited to writing and providing progress reports on request. Although best practice recommends tight links between the executive team and the governing body and regular contact, the situation at BASTAU STBI is typical for initiatives where financial sustainability is not part of the prime strategic objectives. This is often to the detriment of their corporate image. Analysis of Quantitative Data Deal-flow of clients. Quantitative data on dealflow of clients is limited and difficult to analyze. Evidence collected during the on-site visit however indicates that there is no stable churn of companies moving in and out as demand is low. As explained elsewhere in this individual report, deal-flow as well as building up the business incubator s identity is often an issue for university-based business incubators. Survival rates. The incubator has been developing 38 business ideas since its inception in 2007, but only one business has so far successfully exited to become a viable business. Quantitative analysis of survivals rates of graduates is therefore not possible. Based on data collected, survival rates of companies 12 months after graduation is very poor, only 16 percent. Innovation and R&D activity. Innovation and R&D activity at BASTAU STBI is high as all business ideas selected for business incubation are R&Dfocused collaborative projects with knowledge

103 based organizations (R&D organizations, research institutions, HE and FE institutions). BASTAU STBI benefits from the presence of HEIs within its network of contacts and has established a deal-flow of IP commercialization opportunities with them. Unlike other business incubators in the study, the executive team here is a lot more involved in supporting incubatees with R&D activities. Labor skills and salary levels. Despite being highly skilled, salaries among incubatees remain low with an average of $300 per month. However, given the client base (pre start-ups by students and/or university lecturers), salaries are related to incomes from their main activities (teaching at the university). Most students do not have an income, and have not yet commercialized their products. Finance raised for incubatees. No data was provided regarding finance raised for incubatees. Financial support is provided as part of the services on offer, as detailed elsewhere in this individual report. General revenues and export revenues. No data was provided regarding general and export revenues. Both stakeholders and the executive team confirmed their willingness to develop internationalization services to encourage and assist expansion of incubatees into foreign markets. Financial return on investment. The financial details for the incubator are provided here: Taxes paid in the last 12 months (all incubatees): $10,000 Taxes paid to date (all incubatees): $30,000 Average taxes paid by incubatees in the last 12 months: $5,000 Average taxes paid by incubatees to date (estimated): $15,000 Initial capital funding received to set up the business incubator: $20,000 Initial revenue funding received to set up the business incubator: Data not provided Conclusion BASTAU STBI has developed a unique business model targeted at spin-outs and pre start-ups (business ideas) by university staff and students. The model is based on collaborative projects with knowledge-based organizations. The business incubation program is structured, and a rigid selection process based on annual innovation competitions is applied. An experienced executive team provides incubatees with appropriate business and financial support based on coaching and monitoring. While its role within the university as a catalyst to promote innovation and entrepreneurship is clear to both stakeholders and end-users, commercialization of business ideas remains limited and demand for business incubation services remains low. However, the business incubator has been in operation for just under five years; its reputation and identity still require further development for its strategic objectives and mission to be fulfilled

104 TABLE 1: Summary of Quantitative Data Indicators Quantity Applicants accepted in the past year 8 Applicants accepted in the past five years 38 FTE jobs created in the last 12 months via business incubation FTE jobs created to date via business incubation Graduations in the last 12 months 1 Graduations to date 1 Jobs created by companies graduating in the last 12 months <10 Survival rates of companies 12 months after graduation Survival rates of companies five years after graduation <16 percent percent Patents applied for and owned in the past 12 months 4 5 Trademarks applied for and owned in the past 12 months 1 Copyrights applied for and owned in the past 12 months 1 Innovative products developed in the past 12 months 1 Collaborative projects with knowledge-based organizations (such as R&D 8+ organizations, research institutions, HE and FE institutions) in the past 12 months Incubatees assisted by the BI in securing finance 38 Average salary among incubatees <$300 Incubatees that have secured finance 3 Annual turnover at entry (average) 0 Annual turnover at exit (average) $100,000 BI income in the past 12 months The business incubator does not have an income BI running costs in the past 12 months $4,320 BI income to date The business incubator does not have an income BI running costs to date $32,960 Seed capital raised in the past 12 months N/A Seed capital raised to date N/A Taxes paid in the last 12 months (all incubatees) $10,000 Taxes paid to date (all incubatees) $30,000 Average taxes paid by incubatees in the last 12 months (estimated) $5,000 Average taxes paid by incubatees to date (estimated) $15,000 Initial capital funding received to set up the business incubator $20,

105 Appendix 10: Individual Report: Kalisz Innovation Center Poland All data and information contained in the study was collected in September and November Overview This business incubator was founded in September 1994 as part of a larger foundation and nongovernmental organization that includes an entrepreneurship development fund and small business assistance center. Mission and objectives. The incubator supports development of entrepreneurship in the Kalisz city and the region, aiding entrepreneurs and the unemployed who wish to start their own companies. Background information. The incubator was funded initially under the World Bank Employment Promotion and Services Project and its small business development project component, which supported the establishment of 24 incubators across Poland. The Kalisz business incubator received $230,000 in addition to the donation of the building from the Kalisz local authority on a 20-year lease. Further investments of $270,000 were secured from local funds in to extend the incubator to a second floor, incorporating a new conference center and training facility. Overall, incubator has received funding of $950,000 to support its development and activities over a 17-year period. Now, the foundation is a self-financing non-profit organization. The business incubator has been in existence since 1994 and is located in the center of Kalisz. The town is located centrally between the larger centers of Wroclaw, Lodz, and Poznan. Starting with 4,700 square meters of space, it was expanded to cover 5,408 square meters, of which 3,375 square meters is available for business incubation. The business incubator is divided into offices and production facilities, with a small number of offices having their own front door access into the building. The building has broadband infrastructure and offers telephony services, car parking, in-house security, a library, a computer training suite, and access to free meeting rooms. The business incubator offers rooms on rent, charging 10 to 20 percent lower than similar commercial environments in Kalisz. A conference center with a 200-seat conference room and a smaller room for 40 delegates is available. Assessment of Business Incubator Practices and Processes Selection Policy Selection of tenants is based on an interview with the president of the board (director) of the business incubator and three incubator staffmembers. The incubator seeks technology-based and innovative businesses. Selection is based on ambition for growth, the ability to benefit from the incubator, the willingness of the tenant to take advice, the capacity to pay for services, and the expertise of the entrepreneur. Exit Policy The incubator previously had an exit policy of graduation in three years for office-based companies and five years for production-based companies. This is now flexible and based on factors such as job creation, business growth, and the availability of business units within the incubator. The average period per business is 4.5 years, based on 24 current tenants and 76 businesses over 17 years. Strategy and Delivery Strategy. Historically, the incubator s mission was to develop a strong sector of small and mediumsized enterprises that would contribute to the development of the middle class in Poland and the continuation of democratic development. In delivery, the incubator has focused on supporting regional economic development through its support for entrepreneurship, access to finance, access to lower cost premises, and business counselling and training

106 PLACEHOLDER Photo: Credit The center has 24 tenant businesses in various sectors: media, accountancy, a regional chamber of commerce, catering, textiles, fire protection, security, education, travel, furniture production, and design. Sector specialization is not part of the strategy. While there is a focus on businesses with innovation potential, this is balanced against the need to maintain occupancy levels, recognizing the wider economic profile of Kalisz, and local demand for business space. This localization of the business incubator is evident from the fact that the tenants interviewed for this study had all moved in from other locations in Kalisz. While several of these companies had been created outside of the incubator environment, the incubator helped them develop new products and services and enhance business growth during their period there. They cited the central location of the incubator, access to central services and facilities, free legal advice, incubator profile, access to national and international networks, and the low rent as the key reasons for them to move into the incubator. Delivery. The most valuable services provided by the incubator, according to the tenants interviewed, were the access to legal services, business support including networking, access to business loans, and access to conference and seminar rooms. Cooperation with international companies was highlighted as a key future requirement, with 50 percent of tenant companies accessing services of the Enterprise Europe Network. Business support and monitoring is undertaken on a needs basis with regular monthly business breakfasts providing the main forum for engagement between the management team and tenant businesses. When business needs are identified, they are addressed promptly and efficiently by the incubator management team. Given the diverse range of businesses within the incubator, opportunities for networking and joint development of products and services are limited. Internal collaboration and support is based on traditional customer-supplier relationships with the accountancy and marketing companies within the incubator receiving the most benefit from the business Incubator supports the development of EntrEprEnEurshIp In kalisz and the region, aiding EntrEprEnEurs and the unemployed who wish to start their own companies. this. Linkages to external networks through the incubator are limited to the Enterprise Europe Network. Graduation from the business incubator was not an option for two of the companies interviewed as they were relatively new tenants. In line with the policy and findings outlined in section 2.2 of this report, a mature tenant (10 years) said he did not want to leave, while a graduated company had left after six years to build its own premises, incorporating a showroom and production premises. Apart from providing space, the incubator through its foundation provides loans for SMEs and startups, training courses, seminars and conferences, start-up information, and access to technology transfer and partnership development through the Enterprise Europe Network. Since 1994, the incubator provided loans to SMEs and new businesses through its entrepreneurship development fund. In particular, it has supported the unemployed with gaining access to finance, advising, guiding, and counselling them on the implications of loan funding. The foundation offers loans at rates below those of commercial banks and with interest rates of 5.26 to 8.26 percent to SMEs (depending on the company, profitability, and the type of guarantee) and 6 to 8 percent for the unemployed. The foundation has supported (2011 data) 306 SMEs and 263 individuals who would otherwise be ineligible for traditional bank finance. The incubator also provides support for small business development including training in management, marketing, finance, law and business

107 Transnational cooperation, particularly within the European Union, has been a strong differentiator and one of its core components. In 1999, it became one of 13 Euro Info Centers in Poland and part of a network of 320 centers across Europe, supported by the European Commission. Subsequently in 2008, it became the local node for south Wielkopolska Voivodeship (Greater Poland Province) in the Enterprise Europe network, which encompasses over 40 countries and 600 partners. Through Enterprise Europe, the incubator provides information on EU legislation, business funding opportunities, and access to grant programs such as structural funds, European Commission research funding, and support for the application of new technology. The current and longer-term vision for Kalisz is to become a technology incubator where science, industry, and entrepreneurship meet and to be a link between science, education, and the local economy. This vision is included within the innovative development strategy for Wielkopolska with plans to incubate new industrial technologies (such as energy efficiency, low carbon technologies), develop socioeconomic science, create a new seed capital fund, and extend cooperation with European and international partners through European-funded programs and funds. Management Team Skills and Governance The foundation is governed by a council (board of trustees) of five members from the local industrial and educational sectors appointed by the Mayor of Kalisz. The council has an oversight role in the development and management of the business incubator, deciding on the projects and programs that the incubator will pursue. An annual plan is presented and discussed in January each year and a minimum of four meetings is held in a year. The board of directors has two members, including the president, Mr. Piotr Sadowski, who is responsible for day-to-day operations of the foundation and the business incubator. With him, is board member Mr. Kazimierz Mochalski. Together they manage the 14-member staff. The foundation staff includes technical personnel, loan officers, and innovation and technology specialists who conduct day-to-day activities. The President, Mr. Piotr Sadowski, is experienced in business incubation, having managed the Kalisz incubator since its inception in 1994 and having been involved in its planning, financing, and development in his previous role working with the Kalisz local authority. The development of the incubator with loan funding through the World Bank TOR-10 program, included training in establishing a network of Polish business incubators in which Mr. Sadowski was a participant. In addition, Mr. Sadowski was a consultant for the Polish Agency for Enterprise Development and has been involved in numerous projects focused on SME development. Analysis of Quantitative Data The business incubator in Kalisz has helped nearly 80 companies through the incubation processes and supported the wider business and city community through loans, access to training, information, advice, and guidance. The incubator has provided over 306 loans to SMEs (at different interest rates each year) and over 263 loans for unemployed people (also at different interest rates each year) since its inception. With its financing and support to businesses, the incubator is an integral part of the Kalisz business community. The incubator was uniquely positioned in Kalisz as a business support organization with partnerships with 23 local authority councils. However, increased competition in the business support market place, not only in Kalisz but across Poland, from business and technical consultants has created a situation where there is limited access to public funding. This has created a complex situation in which organizations appear on the support landscape and then disappear when funding has ceased. Sustainability of an incubator is therefore of critical importance and this business incubator has managed to survive and grow. This sustainability has been managed without the need for direct

108 public funding, since support services are funded through local, national, and European programs. A key dimension has been the establishment of the incubator within the framework of a foundation and as a non-governmental organization making it non-political and able to provide a range of essential services. A meeting with the Kalisz local authority highlighted the high opinion with which the incubator is held, in particular because of its support for entrepreneurship promotion, enterprise support, and economic development. In the Kalisz context, the incubator is a critical organization, given the focus on the delivery of key services. The image of the incubator has been enhanced through the role of the president who has been with the incubator for 17 years and through its financial model in which pre-accession funds have been used to develop the incubator, but with the council retaining ownership of the building. Its strong history combined with its linkages to regional authorities, access to European networks, and funding knowledge and expertise gives it a strong presence in the regional economy. The center provides an environment in which business realities are communicated to entrepreneurs and business owners, particularly issues involved with taking loans and its potential impact on the recipients and their families. This is particularly important; since 2012, business support is no longer provided free of charge. Deal-flow of clients. The incubator is seeking technology-based and innovative businesses. Selection of tenants is based on ambition for growth, the ability to benefit from the incubator, the willingness to take advice, the capacity to pay for services and expertise of the entrepreneur. Only one in four businesses that applied during the last year were chosen, while over a five-year period this is closer to one in five. It can be argued that there is unmet demand for space in the business incubator, which has to be balanced with the graduation policy. As highlighted earlier, the exit policy is now flexible and is based on the development of the incubator business, including job creation, business growth, and the availability of business units within the incubator. The average incubation period per business is 4.5 years, based on 24 current tenants and 76 businesses over 17 years. Jobs created. Based on data provided, 760 jobs have been created by the incubator over 17 years. This represents a job creation rate average of 50 per year over the lifetime of the incubator. Considering that the center has 24 incubator units, this represents a significant return on investment. Survival rates. Based on the data provided, the identified business incubation survival rates are in excess of 80 percent, in line with established business incubation best practice. Innovation and R&D activity. Innovation and R&D activity in the incubator is relatively strong with a good number of patents, trademarks, and copyrights applied for and awarded since its inception. Over the last 12-month period, more than eight innovative products were developed by its 16 incubatees. Five are from collaborative projects with knowledge-based organizations. This is despite the incubator having no sector focus. Financial return on investment. The financial details for the center are provided here: Taxes paid in the last 12 months (all incubatees): $82,000 Taxes paid to date (all incubatees): $861,00 Average taxes paid by incubatees in the last 12 months:$3,275 Average taxes paid by incubatees to date (estimated):$34,500 Initial capital funding received to set up the business incubator: $5,800 Initial revenue funding received to set up the business incubator: N/A

109 Conclusion The business incubator in Kalisz is a strong case study on sustainability, having been in operation without direct public funding since The data provided identifies a strong job creation profile, high survival rates, and a good level of R&D. Given its geographical location between three larger cities, this is a good achievement. This incubator also has a strong profile in providing loans to SMEs and in providing international technology transfer and trade support through the Euro Info Centre and the Enterprise Europe Network. The companies in the incubator are mature and deliver services beyond what is expected from companies within an incubation environment. While there is good practice in access to legal services, breakfast workshops, and the provision of ad hoc support, the overall level of expected business incubation support is limited. This is reflected in the diversity of the businesses in the incubator and the period they stay there. However, an incubator must exist within a local context, support entrepreneurial development, and be sustainable. The business incubator in Kalisz has shown that it supports local economic development and growth within the city in a sustainable way

110 TABLE 1: Summary of Quantitative Data Indicators Quantity Applicants in the past year 24 Applicants in the last five years 120 Applicants accepted in the past year 6 Applicants accepted in the past five years 25 FTE jobs at entry FTE jobs at exit Current FTE jobs (among incubatees) 211 FTE jobs created in the last 12 months via business incubation 80 FTE jobs created to date via business incubation 760 Graduations in the last 12 months 3 Graduations to date 53 Jobs created by companies graduating in the last 12 months 50 Survival rates of companies 12 months after graduation 81 percent+ Survival rates of companies 5 years after graduation 81 percent+ Patents applied for and owned in the past 12 months 1 Trademarks applied for and owned in the past 12 months 4 Copyrights applied for and owned in the past 12 months 2 Innovative products developed in the past 12 months 8 Collaborative projects with knowledge-based organizations (for example, R&D 5 organizations, research institutions, HE and FE institutions) in the past 12 months Incubatees assisted by the BI in securing finance Data not provided Average salary among incubatees $600 $900 Incubatees that have secured finance Data not provided Total finance secured by the BI Data not provided Finance secured by the BI for incubatees Data not provided Finance secured to date by incubatees and graduated companies Data not provided Annual turnover at entry (average) Data not provided Annual turnover at exit (average) Data not provided General revenues in the last 12 months $750,000 Export revenues in the last 12 months $80,000 BI income in the past 12 months $600,000 BI running costs in the past 12 months $520,000 BI income to date Data not provided BI running costs to date Data not provided Seed capital raised in the past 12 months N/A Seed capital raised to date N/A Public funding received to date Data not provided Taxes paid in the last 12 months (all incubatees) $82,000 Taxes paid to date (all incubatees) $861,000 Average taxes paid by incubatees in the last 12 months (estimated) $3,275 Average taxes paid by incubatees to date (estimated) $34,500 Initial capital funding received to set up the business incubator $5,800 Amount of initial revenue funding received to set up the business incubator

111 Appendix 11: Individual Report: Timisoara Software Business incubator UBIT Romania All data and information contained in the study was collected in September and November UBIT has played a catalytic role in the emergence and development of the local and regional tech entrepreneurship ecosystem. However, following research for this study, the Timisoara Software Business Incubator, UBIT as it was known during the research period, closed in July The initial partnership that had established the incubator (comprising Timisoara City Council, Timis County Council, and the Polytechnic University of Timisoara) could no longer be sustained due to varying motivations of the three partners: Timisoara City Council opted to establish its own IT-focused incubator while Timis County Council set up a non-specialized/ mixed use incubator. With both councils pulling out, the university was unable to finance UBIT by itself. It however, allowed tenants to remain on former UBIT premises with favourable contractual conditions. The Timisoara Start-up Hub, a privately developed and run start-up support infrastructure for tech and creative industry, was launched in December 2012 and took over the community development functions and initiatives previously run by Timisoara Software Business Incubator. It also offers support services for the Timisoara Software Business Incubator tenants. The overall tech entrepreneurship ecosystem in Timisoara was not disrupted with the closing of the UBIT project. On the contrary, notable achievements were recorded in 2013 (former UBIT clients won the Next Web Romania Start-up Award for the best mobile app, SlickFlick), and the Best Business Angel Investment Award, 123contactform). A Timisoara Start-up Weekend was organized by the Start-up Hub, and various other activities are ongoing in the Timisoara ecosystem. Overview The Timisoara Software Business Incubator (UBIT) is located within the Politehnica University of Timisoara. It covers an area of 700 square meters divided into 17 business units, a training/ conference room, and the executive team s office. UBIT is a partnership (limited company) between three shareholders: Timisoara City Council, Timis County Council, and The Polytechnic University of Timisoara. Mission and objectives. UBIT supports Timis county companies that specialize in software development. UBIT was developed as part of a strategic concept for the economic and social development of the Timisoara area. It aimed to benefit from the arrival of global players such as Siemens and Alcatel in the area while retaining and exploiting local know-how in the software industry. Background. Plans to develop the business incubator were initiated in 1999 by its stakeholders with support and expertise from the German

112 PLACEHOLDER Photo: Credit Society for Technical Cooperation (GTZ). In 2003, the partnership obtained capital as well as revenue funding for three years. In 2004, the BI was officially launched with six incubatees. UBIT also hosts the Romanian Association of Software and Electronics on its premises. Applicants to UBIT are start-ups and very early stage businesses primarily related to the software, telecoms, and mobile industries. The executive team is composed of one part-time director and one full-time assistant director. UBIT s board comprises representatives of the three shareholders. The person involved in the UBIT s design, a former GTZ employee, is regularly consulted on operational and strategic management issues. Assessment of Business Incubator Practices and Processes Selection Policy The business incubator operates a formal selection policy that involves the following criteria: Ambition for growth Ability to benefit from incubation Overall fit with BI objectives and other incubatees Strong business idea/plan Willing to take advice Technical expertise of the applicant Business experience of the applicant. developed as part of the strategic concept For the EconomIc and social development of the timisoara area, the bi was conceived with the objective to gain benefit From the arrival of global players such as siemens and alcatel In the area and to retain and ExploIt local know-how In the software Industry. In addition, applicants must: Have a turnover of not more than 10,000 ($13,750) at entry Have been in operation for a maximum of two years Have a maximum of seven employees Provide evidence of innovation management (competitive advantage and niche market identified) Be incorporated as a company. Applicants are scored on the above criteria. In practice, the selection policy is quite flexible and the executive team guides applicants to the point when they are ready for incubation. The process may involve more than just one interview with the executive team. The team helps applicants draw up a three-year business plan and business targets. Applicants must provide evidence of innovation either in the process, service, or technology. They must also demonstrate that market research work was undertaken to identify their competitive advantage and niche market. When ready for business incubation, the director submits a report to the admission committee. The average duration of the selection process is two months. The selection process is detailed in the business plan and only minor changes were made to it over time

113 Exit Policy The incubator has a formal graduation process that is detailed in the business plan and discussed with applicants at the outset. Criteria involve: Maximum time limit Stepped rents (rent which increases over the period of the lease) Removal of subsidy Business targets Revenue and/or profitability targets. Graduation criteria involve achievement of business milestones. Graduates are involved in helping new generations of incubatees through, for instance, a network of mentors or by taking part in events, seminars, and other workshops at UBIT. Strategy and Delivery Strategy. UBIT s operations are based on a business plan that was updated twice by the executive team since start of operations in Objectives in the business plan align with the wider objectives of the stakeholders (financing partners). The document does not take into consideration the extra work by the executive team for downstream and upstream activities (involvement in ICT cluster development). In addition to the incubation services described below, UBIT also takes part in a number of activities to foster entrepreneurial spirit in and around Timisoara and develop the ICT cluster. Examples of this include: How to Web: Mobile Monday Timisoara: mobilemonday.ro/chapters-2/timisoara/mobilemonday-timisoara-%e2%80%93-chapteropening/ Timisoara Mobile Development Group: Geek Meet Timisoara: Fully funded by the public sector, achieving financial independence is not a strategic objective of the incubator. The business model is largely dependent on subsidies and grants and there is no policy regarding equity stake and/or royalty agreements with incubatees. The table below gives details of sources of revenues and their contribution to covering running costs. Sources of revenue Percentage of running costs covered Rent 26 Consultancy and 6 external work Grants 4 Other subsidies 64 Delivery. Most business and financial support services at UBIT are provided externally via the director s network of contacts. Business and financial services include: General business advice (internal) Training, seminars and/or workshops Marketing and sales services Help to find grow-on space (internal) Access to specialist advice Access to management training Access to R&D and technology transfer support Internationalization services General accounting and/or financial management advice Opportunities to network with finance providers (internal) Access to investment readiness programs Access to finance providers, angel Investment, and/or venture capital. UBIT charges very low rents, about half the local market price. It also provides the following basic admin and facilities-related services: Hot-desking Meeting rooms and/or conference facilities Reception area/reception facility Broadband connections Office equipment Car park Security services. Coaching. Coaching was recently started at UBIT. It is provided on a pro-bono basis by an external provider. Coaching sessions take place every two weeks, and are based on need assessment exercises during the selection process and periodic reviews by the coach. Incubatees say coaching is responsive to their immediate needs. The BI plans to obtain regular performance data from clients

114 and implement an effective feedback mechanism on the quality of coaching. The idea is to make coaching a full part of the program in the near future. Monitoring. The incubator requests information from incubatees every six months. The indicators used for monitoring are defined by incubatees together with the board. There is the feeling in the executive team that the board s vision for UBIT is limited: UBIT needs to be more than just a managed workspace, it should act as an economic regeneration and development tool. Links with graduated companies are maintained but their performance is not monitored. Networking. Networking is perhaps the main strength of the BI, largely due to the director s involvement. This was clearly highlighted during the focus group discussion with end-users (incubatees and graduated companies). In a country where support from government to start-ups and SMEs is very limited, UBIT provides incubatees with visibility and credibility in the market place. UBIT, for instance, introduces incubatees to industry networks and clusters. This is done in two ways: Top down approach championed by the regional development agency Bottom up approach championed by the Romanian Association of Software Industries, located on the premises. UBIT regularly organizes training, seminars, and other workshops on the premises and has a network of external support it can call on. These activities are not part of the original business plan or part of the director s job description. They do not generate revenues, but contribute to the reputation of the BI as a key player in cluster development. Financial support to incubatees. No funding was secured for incubatees and this is an area that requires investigation. UBIT is currently in discussion with Doug Richard ( schoolforstartups.ro/wp/). The plan is to develop an investment readiness program that can be followed by investment pitch sessions Management Team Skills and Governance UBIT has a management-incubatee ratio of 2:12. Team-members have good ICT know-how and know-who in Timisoara. They spend an average of 30 percent of their working time directly supporting incubatees. The director is perceived as a key asset; he performs duties beyond his job description. A lot of his personal time is invested in developing and maintaining UBIT. While the board has funded the initiative since start of operations, the executive team believes it could be more effective, extend UBIT s vision, and work towards developing the BI as a solid gateway for enterprise in the area. Analysis of Quantitative Data Deal-flow of clients. Since 2003, 30 applications were received for business incubation, of which 24 were accepted. This applicant-incubatee ratio seems high, but the executive team generally assists applicants to develop their business idea up to the point when it is ready for incubation at UBIT (see section related to selection policy). Despite the presence of an ICT cluster in Timisoara, demand for business incubation and sources of deal-flow are a major issue as the entrepreneurial spirit is still lacking in Romania and the structure to support start-ups and SMEs remains limited. The director is leading or is involved in a number of activities to promote and foster innovation and entrepreneurial spirit in the region. Consequently, the BI is involved in supporting over a hundred individuals, in addition to services provided to incubatees. UBIT is, for instance, currently in discussion with Doug Richard to develop his School for Start-ups concept in Timisoara. It is clear that UBIT is a gateway for enterprise in the ICT industry in the Timisoara region even though demand for business incubation remains low. Survival rates. Survival rates of companies 12 months after graduation (81 percent) and five years after graduation (49 to 80 percent) is typical for good practice. Innovation and R&D activity. While two or three innovative products were developed on UBIT s premises in the last 12 months, innovation and R&D activity remains moderate. This was confirmed by qualitative data collected for the study. While UBIT plays a key role in the development of the local and regional ICT cluster, its focus is not on innovation and R&D. Salary levels. Salaries of incubatee staff are between $600 and $900 a month. The staff are predominately male, urban, and highly skilled

115 Finance raised. It is not part of UBIT s remit to raise funding and no analysis can be done. Data indicates that one incubatee raised $130,000. General revenues and export revenues. Figures for only the last 12 months were provided. General revenues by incubatees are between $51,000 and $75,000. Total revenues of all 12 UBIT incubatees in the last 12 months were over $680,000. Export revenues by incubatees for the last 12 months were between $31,000 and $40,000. Total export revenues for all 12 UBIT incubatees in the last 12 months were over $450,000. Unlike most other business incubators in the study, UBIT s export revenues are relatively high. Financial return on investment. UBIT s financial details are provided here: Taxes paid in the last 12 months (all incubatees):$80,000 Taxes paid to date (all incubatees): $520,000 Average taxes paid by incubatees in the last 12 months: $7,000 Average taxes paid by incubatees to date (estimated): $40,000 Initial capital funding received to set up the business incubator: $59,400 Initial revenue funding received to set up the business incubator: $190,000 Conclusion Since its inception in 2003, UBIT s activities were not limited to supporting start-ups and early stage businesses on its premises. A number of activities have been developed and operated by UBIT s director, mainly upstream, to foster entrepreneurial spirit within the area and also to generate client deal-flow (demand for business incubation is an issue in Timisoara). UBIT has played an important role in developing and operating the ICT cluster in Timisoara. UBIT has, over the years, worked with more than 100 individuals other than through business incubation (over 300 according to the director). Quantitative data demonstrates that the added value of the business incubator over time is moderate. However, in the Romanian context (where the structure to support start-ups and early stage businesses in general and support from government are both limited) entrepreneurial spirit only now emerging, and the limited human and financial resources available need to be considered. Return on investment is therefore difficult to evaluate quantitatively

116 TABLE 1: Summary of Quantitative Data Indicators Quantity Applicants in the past year 4 Applicants in the last five years 30 Applicants accepted in the past year 2 Applicants accepted in the past 5 years 24 FTE jobs at entry FTE jobs at exit Current FTE jobs (among incubatees) 40 FTE jobs created in the last 12 months via business incubation <10 FTE jobs created to date via business incubation 41+ Graduations in the last 12 months 1 7 Graduation to date Jobs created by companies graduating in the last 12 months Survival rate of companies 12 months after graduation 81 percent+ Survival rate of companies 5 years after graduation percent Patents applied for and owned in the past 12 months <2 Trademarks applied for and owned in the past 12 months <2 Copyrights applied for and owned in the past 12 months <2 Innovative products developed in the past 12 months 2 3 Collaborative projects with knowledge-based organizations (for example, R&D <2 organizations, research institutions, HE and FE institutions) in the past 12 months Incubatees assisted by the BI in securing finance 0 Average salary among incubatees $600 $900 Incubatees that have secured finance N/A Total finance secured by the BI $100,000 Finance secured by incubatees $130,000 Annual turnover at entry (average) $7,500 Annual turnover at exit (average) $52,000 General revenues in the last 12 months $680,000 Export revenues in the last 12 months $450,000 BI income in the past 12 months $85,000 BI running costs in the past 12 months $85,000 BI income to date $546,000 BI running costs to date $585,000 Seed capital raised in the past 12 months 0 Seed capital raised to date 0 Public funding received to date (sources) $303,000 (subsidies) Taxes paid in the last 12 months (all incubatees) $80,000 Taxes paid to date (all incubatees) $520,000 Average taxes paid by incubatees in the last 12 months (estimated) $7,000 Average taxes paid by incubatees to date (estimated) $40,000 Initial capital funding received to set up the business incubator $59,400 Initial revenue funding received to set up the business incubator $190,

117 Appendix 12: Individual Report: Zelenograd Nanotechnology Centre (ZNTC) Russian Federation All data and information contained in the study was collected in September and November Overview The Zelenograd Nanotechnology Centre (ZNTC) was started in However, the organization was set up in 2007 and traded until 2010 as Zelenograd Innovation Technology Centre (ZITC). After three years of operations, its overall performance was considered weak and the organization restructured as a limited company under the National Research University of Electronic Technology (MIET), ZITC, and the Russian Corporation of Nanotechnologies cluster (RUSNANO). The last is a governmentowned non-commercial organization created to support nanotechnology with subsidies and training. Mission and objectives. ZNTC s mission is to become a key element of the national (Russian) nanotechnology network. ZNTC seeks to commercialize nanotechnology, organize production, and become a key player in technology transfer through business incubation of start-up companies and licensing technological processes. Background information. The business incubation program at MIET was delivered through ZITC until 2010 when it was transferred to the newlyestablished ZNTC. This allowed the incubator to offer an enhanced package of services, including working space, laboratories, consultancy, and financial support through equity (up to 25 percent) from RUSNANO funds. ZNTC s board also comprises representatives of organizations that contribute to it financially. Thus, the board tracks commitment of the business incubator to the mission and vision of ZNTC and ensures the careful allocation of funds. ZNTC was established with a grant from RUSNANO, won by MIET in an open call for proposals on creation of nanocenters. After signing a grant agreement for seven years, business and strategic plans were finalized and approved by the board. Currently, activities are implemented with funds from ZNTC, MIET, and RUSNANO. Business incubation at ZNTC is targeted at startups and early stage businesses (new ventures seeking first round of finance, or making first sales). With 150 square meters dedicated to business incubation, this is a small-scale project. The rentable space is divided into five office units, one workshop unit and five laboratory units. In addition, ZNTC will launch an open space with hot-desking facilities: previous experience has demonstrated to ZITC that a separate office is not as popular as hot-desking for start-ups due to low numbers of employees. This approach, according to the executive management, will stimulate networking and joint initiatives among incubatees. It is also envisaged that production facilities on the premises will be improved. Based on a success-sharing business model involving equity, the incubator provides space free of charge: one of the basic requirements of RUSNANO. Most of the business and financial support is also delivered for free. The introduction of paid services, the executive team feels, will improve sustainability and fit in with the business incubation concept (the fees will be set according to incubatee development stages and business needs), and reduce risk of failure. Still at an early stage, the incubator is fully dependent on public sector financing: the focus is currently on skills building (technology and consultancy), and facility enhancement. In 2011, five companies were incubated and four received investment from RUSNANO. ZNTC also became a member of the European Business & Innovation Center Network (EBN BIC) in the same year

118 PLACEHOLDER Photo: Credit Assessment of Business Incubator Practices and Processes Selection Policy ZNTC operates a formal selection policy which involves the following criteria: Overall fit with BI objectives and other incubatees Strong business idea/plan Capacity to pay for services. Applicants to ZNTC submit their business concepts for review by a selection panel comprising five representatives including technical experts, RUSNANO, and members of the executive team. The panel evaluates project feasibility, the amount and type of support required, and eligibility of the applicant. The executive team helps applicants in preparing their applications to RUSNANO, which decides whether or not the applicant should be selected. The application must clearly demonstrate innovativeness of the business idea and its competitive advantage in the market. On admission, the executive team continues to work closely with incubatees and assist them in developing their business plans. The business plans are submitted to RUSNANO or other sources for funding. In 2011, five companies were incubated at ZNTC, with another five planned for entry in Exit Policy The incubator started operations in 2008 and has a formal exit policy in its business plan, which is linked to its strategic and operational objectives. It has not yet been applied in practice. No business has yet graduated. The exit policy involves the following milestones: Stepped rents (rents which increase over the period of business incubation) zntc seeks to commercialize nanotechnology, organize production, and become a key player In technology transfer through business IncubatIon of start-up companies and licensing technological processes. Removal of subsidies Business targets Revenue and/or profitability targets. Because no incubatee has graduated, it is not possible to give a value to the selectivity ratio. Equally, client deal-flow cannot be fully analyzed yet as the incubator is still working on building up its reputation outside the university and stimulating demand for its services. Sources of deal-flow include: Referrals (MIET) Public events RUSNANO Ad hoc clients Word-of-mouth. Efforts have been made to further develop its client base by acquiring businesses outside the incubator as clients (ad hoc clients as opposed to incubatees). The business incubator currently works ad hoc with 36 individuals/ businesses. Incubatees represent 12.5 percent of ZNTC s clients. Strategy and Delivery Strategy. ZNTC s operations are defined in a business plan produced by the incubation manager, with buy-in from the rest of the team and the board. Strong links exist between the executive team and the board as the business model is based on a success-sharing element (equity shares). The board functions as an observer but also sets strategic priorities for the incubator, and reviews its performance against set targets

119 Financially, the incubator is fully dependent on public sector financing and would fail to fulfil its mission without this. In addition to equity, the executive team is looking at introducing paidfor services to achieve financial sustainability. ZNTC is planning to break even in The table below provides general financial figures as well as indications on sources of revenues and their contribution to covering running costs. General financial figures Initial capital funding received to set up the business incubator 0 Initial revenue funding received to set up the business incubator $3 million Estimated running costs of the business incubator in the last 12 months $730,000 Estimated income of the business incubator in the last 12 months $770,000 Estimated running costs since start of activity $730,000 Estimated income since start of activity $770,000 Percentage of running Sources of revenue costs covered Rent 0 Service fees 0 Investments (royalties/ equity) 25 Consultancy and external work 0 Grants 75 Loans 0 Delivery. Business and financial support services at ZNTC are provided internally and/or externally via the executive team s network of contacts. The following business and financial services are available: General business advice Training, seminars and/or workshops Marketing and sales services Access to specialist advice Access to management training Access to R&D and technology transfer support Internationalization services General accounting and/or financial management advice Opportunities to network with finance providers Access to investment readiness programs Access to finance providers, angel Investment, and/or venture capital Access to seed capital fund initiatives. The following facilities and shared admin services are also available at ZITC: Meeting rooms and/or conference facilities Networking/communal areas Broadband connections Office equipment Telephone network and hardware Car park Security services. In addition, high-tech, nanoelectronic systems equipment, with no equivalent in Russia, provides incubatees with a clear competitive advantage in their field. Coaching. Coaching is provided formally and internally to support incubatees in preparing business plans for RUSNANO investments. Incubatees work in tight cooperation with ZNTC managers, and are welcome to seek help on business plan-related or production-related

120 issues. Specific technology advice is facilitated by the executive team and provided through the university (MIET). Coaching is responsive to the immediate needs by incubatees. Monitoring. While there is no formal monitoring system at ZNTC, the activity is combined with weekly coaching sessions and consultations. It is assumed that, due to the success sharing business model, business and financial performances of incubatees are closely recorded. The performance data collected meets the needs of stakeholders (RUSNANO). The main concern is to ensure the feasibility study and development planning has been done properly by incubatees so that timely support is provided when needed. Networking. Networking is encouraged and facilitated in a number of ways by the executive team. Incubatees are introduced to industry networks and clusters. MIET regularly hosts various cluster events (conferences, forums, exhibitions, etc.), which are attended by representatives of large producers, trade unions, scientists, and government working in the nanotech sphere. The incubator is, for instance, partnering with Made in Zelenograd ( which promotes locally produced goods (mainly in microelectronics, for which Zelenograd has a national and international reputation). Internally, networking amongst incubatees is encouraged with some graduates becoming suppliers to the new generation of incubatees. There is anecdotal evidence that incubatees work together towards future cooperation, from the point of view of supplies and outsourcing. As mentioned elsewhere, the incubator is currently preparing to launch an open-space office with hot-desking facilities to further stimulate networking and joint initiatives among incubatees. Financial support to incubatees. Other than generic financial advice and access to investment readiness programs, finance providers (angel Investment and/or venture capital) and seed capital fund initiatives, ZNTC also has a policy of taking up equity. The main features of the policy are: RUSNANO picks up 25 percent share in the business for the first 3 years Incubatee gets preferential lease rates, with gradual increase of the rents Three-year business incubation period. 7 So far, the business incubator has secured $250,000 in financing for incubates. Management Team Skills and Governance The executive team (five FTE employees) at ZNTC consists of specialists in key competence areas required to support the development of incubatees (business and economics, marketing, law, technology, finance, and human resources). The team also has practical experience in manufacturing, business, and government service. With a management-incubatee ratio of 5:5, the executive team spends an average of 30 percent of its working time directly supporting incubatees. Analysis of Quantitative Data Deal-flow of clients. Deal-flow of clients is still under development at ZNTC. The plan is to introduce paid-for services to incubatees and ad hoc businesses to strengthen the business incubator s financial sustainability. Till now, all applicants were successful, resulting in a 100 percent selectivity ratio. This is in line with good practice and typical of recent business incubation initiatives. Apart from incubatees, ZNTC works with 36 other businesses. It is clear that apart from the support provided to incubatees, ZNTC s impact has been limited, although figures regarding innovation activities are positive (see below). The business model developed around equity shares and strong coaching/monitoring activity allows 7 One graduate company taking part in the study argued for more flexibility in the time limit for incubation as three years often is not enough for start-ups in this industry

121 incubatees to address an important financial gap that usually hinders start-ups and early stage businesses. Survival rates. All incubatees still operate within the incubator. None have yet graduated. Innovation and R&D activity. Being a universitybased initiative has helped the incubator establish a deal-flow of IP commercialization opportunities with higher education institutions. ZNTC also provides direct access to R&D and/or product development support by facilitating contacts with key university experts. Results in terms of innovation and R&D activity are convincing: Patents applied for or owned in the last 12 months: 2 3 Innovative products created in the last 12 months: 4 5 Collaborative projects with knowledge based organizations: 4 5 Labor skills and salary levels. The typical incubator staff-member at ZNTC is described as highly skilled, male, living in an urban area. Salary levels among incubatees are between $600 and $900 per month. Salaries in graduate companies are forecasted at $900 to $1,200 per month. Finance raised for incubatees. One of the main strengths of this incubator is its policy of acquiring equity in clients. As a result, the business incubator has raised a total of $250,000 among the five incubatees in the last 12 months. General revenues and export revenues. The following are the revenues at the incubator: General revenues in the last 12 months: $340,000 Export revenues in the last 12 months: $75,000. Since these businesses are at an early stage of growth, export activities are limited. Internationalization services are in place at ZNTC to encourage and assist expansion of incubatees into foreign markets. Financial return on investment. As mentioned earlier, the incubator currently cannot survive without support from the public sector. Revenues are generated from research orders from industrial companies (approximately 30 percent) and state funding for R&D (70 percent). The incubation manager is looking at developing other sources of income that will impact the financial model (paid for services, rent, services to ad hoc client companies, etc.). Although no formal monitoring process is in place, financial data about incubatees and the incubator s progress is kept updated: Taxes paid in the last 12 months (all incubatees):$17,000 Taxes paid to date (all incubatees): $17,000 Average taxes paid by incubatees in the last 12 months: $3,400 Average taxes paid by incubatees to date (estimated): $3,400 Initial capital funding received to set up the business incubator: 0 Initial revenue funding received to set up the business incubator: $3 million Conclusion ZNTC is still developing its business and financial models. While its impact on entrepreneurship is limited due to its young age, the factors necessary for the model to become successful over time are in place. These include selection and exit policies, a portfolio of business development resources, and an executive team with appropriate skills and experience. The selection and exit policies are described in the business plan and are in line with the wider objectives of the business incubator. However, some flexibility exists and will remain till the incubator reaches financial sustainability. There is no formal monitoring activity so far but performance of incubatees are recorded during coaching based on the initial needs assessment completed as part of the selection procedure. There is an opportunity here to develop a formal process. Financial support is a key element of the program. Networking is also encouraged and facilitated, in particular between incubatees. The objective is to encourage development of a ZNTC community and mutual assistance between incubatees, thus improving and further developing the support structure

122 TABLE 1: Summary of Quantitative Data Indicators Quantity Applicants in the past year 5 Applicants in the last five years 5 Applicants accepted in the past year 5 Applicants accepted in the past five years 5 FTE jobs at entry 0 5 FTE jobs at exit Current FTE jobs (among incubatees) 40 FTE jobs created in the last 12 months via business incubation FTE jobs created to date via business incubation Graduations in the last 12 months 0 Graduations to date 0 Jobs created by companies that graduated in the last 12 months Survival rates of companies 12 months after graduation Survival rates of companies five years after graduation Patents applied for and owned in the past 12 months 2 3 Trademarks applied for and owned in the past 12 months <2 Copyrights applied for and owned in the past 12 months <2 Innovative products developed in the past 12 months 4 5 Collaborative projects with knowledge based-organizations (for example, R&D 4 5 organizations, research institutions, HE and FE institutions) in the past 12 months Number of incubatees assisted by the BI in securing finance 5 Average salary among incubatees $600 $900 Incubatees that have secured finance 5 Total finance secured by the BI $250,000 Finance secured by the BI for incubatees $500,000 Finance secured to date by incubatees and graduated companies N/A Annual turnover at entry (average) $50,000 Annual turnover at exit (average) $500,000 (estimated for 2014) General revenues in the last 12 months $340,000 Export revenues in the last 12 months $75,000 BI income in the past 12 months $770,000 BI running costs in the past 12 months $730,000 BI income to date $770,000 BI running costs to date $730,000 Seed capital raised in the past 12 months $250,000 Seed capital raised to date $250,000 Public funding received to date $3 million Taxes paid in the last 12 months (all incubatees) $17,000 Taxes paid to date (all incubatees) $3,400 Average taxes paid by incubatees in the last 12 months (estimated) $3,400 Average taxes paid by incubatees to date (estimated) $17,000 Initial capital funding received to set up the business incubator 0 Initial revenue funding received to set up the business incubator $3 million N/A N/A N/A N/A

123 Appendix 13: Individual Report: Business Technology Incubator of Technical Faculties Belgrade LLC (BITF) Serbia All data and information contained in the study was collected in July and August Overview Business Technology Incubator of Technical Faculties Belgrade L.L.C. (BITF, was established in 2007 as a partnership between four technical faculties of the University of Belgrade (civil engineering, mechanical, electrical engineering and technological/metallurgical), the Municipality of Palilula ( and the Democratic Transition Initiative ( rs). The project was supported by the Organization for Security and Cooperation in Europe, based on international experiences and best practice examples. BITF is located on the campus of Technical Faculties Belgrade (Ruzveltova 1A) and has premises measuring 600 square meters, of which only half is useful office space. The space comprises of 12 business office units, a training room, and offices for the executive and project management team (three offices in total). BITF has provided (on occasional basis) hot-desking for few start-ups established by students from technical faculties.8 Mission and objectives The BITF Mission Statement is: Create a critical mass of well-trained young educated entrepreneurs that can create a new long-term economic core Create conditions for direct commercialization of scientific and research work of professors and associates of faculties, and knowledge and technology transfer. Apart from its mission, BITF s other main objective is to facilitate the creation of new hi-tech SMEs (ICT, med-tech, green technology, embedded systems, mechanical engineering, and automated systems). Background BITF s manager worked to prepare and initiate the project for 18 months before it was launched in March 2006 with funding from OSCE. 9 The project was implemented in three phases. The first phase was carried out through the Democratic Transition Initiative (one of the founders of BITF). The second and third phases were carried out through the Business Technology Incubator. A feasibility study was developed and in August 2006 BITF was officially registered and started working. At the end of 2006, BITF conducted the first fiveday training on how to start your own business for a group of students of the technical faculties. The training took place at the Faculty of Civil Engineering (one of the founders). In December 2007, the incubator was officially launched with its first six incubatees. Later, more space was renovated and another six incubatees moved in, including the Serbian business angel network and embedded cluster. Support students to start and develop their own businesses, thus supporting their staying in Serbia and preventing brain drain 8 Several students from electro-technical and mechanical faculties established Strawberry Energy in the second year of their studies in 2009, first as an NGO, and two years later as a registered company. They closely cooperate with the BITF management team. 9 BITF manager Gordana Danilovic-Grkovic, I was working on establishing the relationship between faculties and the municipality. The key funds during initiation of the incubator came thanks to OSCE

124 PLACEHOLDER Photo: Credit Assessment of Business Incubator Practices and Processes Selection Policy This incubator has implemented an effective screening process that identifies companies that can help it achieve its mission and vision. Prospective applicants learn about the incubation program through brochures, BITF s web site, informal interviews, training organized by BITF, and/or an incubator tour. If interested, they can submit a formal application or business plan. BITF s physical location (part of the campus of technical faculties), and proximity to students and teachers, helps spread the word about its activities and services. The incubator manager s wide network of contacts plays an important role in securing a pipeline of prospective applicants/ companies. BITF s team helps entrepreneurs during pre-incubation or their incubation application. The selection process for admission to BITF gives weightage to start-up projects. BITF has a formal (written) selection policy which is published in a daily newspaper and on its web-site. A selection committee, bound by a confidentiality agreement, evaluates candidates based on pre-defined criteria and general guidelines for evaluation. The aim is to admit only scientifically and commercially viable companies to be. Applicants are at early start-up stage, generally within the first two years of business operations, not yet profitable, and still growing. The selection panel looks for the following: Innovative technological ideas Market potential Ambition and potential for growth and job creation. The selection process has three phases: bitf IntEnds to support students to create a critical mass of well-trained young EducatEd EntrEprEnEurs who can create a new long-term EconomIc core. 1. Administrative phase: Review of documentation submitted, and check that the project complies with the objectives of incubator s program. 2. Technical and financial evaluation: Applications that meet requirements proceed to the second phase. Applications are submitted electronically. Each reviewer assesses the project within seven days of receipt and delivers his/hers marks to the management of the incubator. The type of business determines who reviews the project application. For example, an IT researcher and an intellectual property expert will evaluate a software development company applicant. The applicant must indicate what resources and services he expects from BITF, such as admin, accounting, legal, secretarial, consulting, training and mentoring, marketing and promotion, connectivity and networking, space, etc.). 3. Selection committee: A five-member committee comprising representatives of the incubator founders gives the final green light based on the quality of the application and physical and other capacities of the incubator. The selection process lasts three or four weeks, and is described in detail in the feasibility study prepared in Applicants are informed about the exit policy and the maximum duration of their stay in the incubator in their first meeting/ interview with incubator management. Even though the selection policy/procedure seems a bit bureaucratic, it does work well in practice. Nevertheless, more flexibility in communication with candidates is recommended. Before the formal admission process starts, the management team could have a few meetings with applicants. During this, applicants must provide evidence

125 of innovation either in the process, service, or technology. The goal of the selection process is to determine whether a good match exists between the incubator s resources and mission and the applicant s needs and potential. No selection process would be complete without a thorough discussion of expectations. According to standard practice, developed during work on the feasibility study, the management team usually has several meetings with applicants to address this. Discussion of expectations includes a review of any contracts that clients are required to sign. During these meetings, the management team explains graduation criteria, possible reasons for a termination, required benchmarks, and the time they have to meet them. Exit Policy The business incubator has a formal graduation process as a part of its policy, described in the feasibility study and discussed with applicants at inception. Criteria involve: Maximum time limit/duration of stay (three years, year-on-year extension of the contract) Stepped rents (rent increases over the period of the lease: 50 percent of the commercial rent in the first year, 75 percent in the second, and 100 percent in the third year) Removal of subsidy (during the third year of stay). BITF s exit policy does not involve achieving of business, revenue, and/or profitability targets as criteria to end the companies stay within the incubator. BITF offers no mentorship support and no help to new generations of incubatees from alumni or graduated tenants. Experience shows that very few graduated companies are willing to spend time mentoring new entrants. BITF is working to develop mentorship programs for incubatees by alumni or graduated tenants through the Science Technology Park, Zvezdara. Strategy and Delivery Strategy. 10 BITF s operations are based on the feasibility study written in 2007 that has not 10 Longer-range planning requires some level of organizational stability. It was difficult to plan during the past few years, since BITF staff were fully occupied carrying out functions required for survival (mainly project chasing). At that time it was unrealistic to look five years ahead. It seems there is consensus among been updated since. BITF has no formal written strategy plan for development and sustainability. Serbia does not have an incubator program and/ or strategy for incubator development. As a result, most of BITF s activities are ad hoc and aligned with the objectives set up in the feasibility study. One of the key issues to be addressed as part of the strategic planning effort is to investigate and decide whether BITF is ready for longrange planning (strategy) or whether it is best to focus on a short-term planning (perhaps a one-year plan to start with and keep extending the term with every new plan or after moving into new premises at Zvezdara). Although BITF has not worked on its strategy, the impression is that management and BITF s founders have a strategic vision that includes the transfer of BITF s operations to new premises located at Science and Technology Park, Zvezdara. 11 In addition to business incubation services, BITF conducts or takes part in a number of activities aimed at fostering entrepreneurial and innovation spirit in and around Belgrade. BITF was one of the founding members of the Serbian embedded cluster that merged with Serbian Software Cluster in 2010 to create the ICT Net cluster. Examples of BITF s activities aimed at fostering entrepreneurial and innovation spirit include: Serbian Business Incubator Network (being set up) ICT Net cluster European Entrepreneurship Network (EEN) Serbian Business Angels Network, SBAN www. sban.eu Outsourcing Centre Serbia, OCS Science and Technology Park, Zvezdara, which is designed to support small incubator companies involved in the development of ideas and their technological applications. Achieving financial sustainability is the biggest challenge and an important part of the strategic objectives of BITF. The business model is largely dependent on project grants and there is no policy the management team and BITF s board over future development, based on a well-defined mission statement and organizational goals. 11 This is conditional and dependent on future political developments in Serbia

126 regarding equity and/or royalty agreements with incubatees. Having only 600 square meters of office space does not allow BITF to achieve selfsustainability based on economy of scale. The table below gives details on sources of revenues and their contribution in covering BITF s running costs: Sources of revenue Percentage of running costs covered Rent 12 Consultancy and 3 external work Service fees (accounting) 5 Projects approximately 80 BITF has worked on establishing and supporting two other incubators in Serbia, in Vranje in 2010 and in Uzice. The Vranje project was financed by SPARK, a Dutch development organization, and lasted for a year. The Uzice project is on-going; BITF is providing consultancy and know-how for the newly established incubator. Delivery. Some business and financial support services are provided internally, and others externally via the management team s network of contacts (mainly the director s contacts). Business and financial services 12 include: General business advice/consultancy (internal) Training, seminars, and/or workshops mainly on starting a business (internal) Market research (in development, as external service) Help in finding grow-on space (ad hoc and on demand, internal) Access to specialist/expert advice (intellectual property rights) Access to R&D and technology transfer support (Centre for Technology Transfer at University of Belgrade was recently established. Deal flow of IP commercialization from University of Belgrade is planned) 12 BITF manager Gordana Danilovic-Grkovic, Services developed and offered by BITF, local knowledge (knowhow about the market conditions, local laws and regulations, etc.), and the trust tenants have in the management team are critical factors for BITF success. General accounting and/or financial management advice (internal) Opportunities to network with finance providers (internal). Access to investment readiness programs, access to finance providers, angel Investment and/or venture capital (in cooperation with the Serbian Business Angels Network) Financing of innovations: a) BITF participates in the innovation program conducted by the Ministry of Education, Science and Technological Development through which BITF has distributed 11 grants for innovation development; b) Incubatees can also access grants from the Innovation Fund of Republic of Serbia, (at the moment of writing this report, two companies have received grants). During a focus group discussion, participants said they needed more information on and help to access EU funds for SMEs, such as CIP 13 (ecoinnovation), FP7, etc. The incubator also provides the following services: Hot-desking (ad hoc) Meeting room and/or conference facilities Reception area/reception facility Broadband connections (provided for free by university) Office equipment (mostly provided by USAID) Telephone network and hardware Car parking plaza Security services. Coaching. BITF does not provide coaching. Mentoring. BITF s management team provides mentorship for tenants. This is more in terms of answering occasional questions by client 13 A technological partnership representative said, Thanks to BITF we have several opportunities to attend trainings for EU-funded projects. If you are small company and fighting to survive, to get additional commercial projects, you don t have time to learn how to apply, to take care of the formal application process, satisfying the prerequisites of the call, etc. We do not always understand the terminology, and what we are missing is maybe project preparation services that could be offered through the project team established by the incubator. We as a company do not have in-house knowledge and enough people to prepare an application

127 companies and offering ad hoc help, not as continuing/permanent guiding-relationships. 14 Monitoring. Monitoring and evaluation of company performances is mainly informal. The incubator requests basic information from client companies once a year (usually at the end of the accounting year in April). 15 Links with graduated companies are maintained, but their performances are not monitored and evaluated once they leave the incubator. Networking. Incubator clients do not meet regularly at the end of month or for Friday pizza/beer. However, incubatees and graduated companies feel that there is good cooperation among incubatees even without formal networking events. Networking with external stakeholders (such as founders, donor community, etc.) is perhaps the management team s main strength and largely due to the director s involvement. This was clearly highlighted during the focus group discussions with incubatees and graduated companies. The opinion was that in a country where support from the government to start-ups and SMEs is limited, BITF provides incubatees with visibility and credibility in the market place. BITF, for instance, introduces clients (tenants and graduates) to local and national government bodies, agencies, programs, industry networks (such as EEN), chambers of commerce, and clusters (ICT cluster, SBAN, etc.). BITF regularly organizes training and other workshops on its premises and has a wide network of external providers for this. These activities are part of the original feasibility study, but do not generate any revenues. Financial support to incubatees. Even though access to finance is crucially important for startups to grow, this was not planned during the original feasibility study. Only one company has succeeded in getting external financing. 16 The rest finance growth through internal earnings, and a very small number through loans, informal Beatgear representative, There is no strong, formal commitment from companies related to planned yearly goals. Also there is resistance from companies to many questioners, surveys, etc. 16 Teleskin owner Mr. Sava Marinkovik has succeeded in getting angel and VC financing. He repatriated from the U.S., with a Stanford degree and a promising and innovative business idea. borrowing, etc. BITF has organized several trainings for investment readiness in cooperation with SBAN. An integral part of this training was on investment pitch sessions. Management Team Skills and Governance It may appear that the management-incubatee ratio of 1:3 is high, but it is difficult to say if BITF is overstaffed. The management team consists of a director, full-time accountant, full-time business development person, part-time IT support (30 percent), receptionist, and two project staff mainly dedicated to project preparation and implementation. The team has business know-how and know-who within Belgrade. Staff-members spend on average 50 to 60 percent of their working time directly supporting client companies. The director has excellent relationships with the founders (technical faculties at Belgrade university, DTI, and Municipality of Palilula), as well with the Ministry of Science and Technological Development and with other relevant national and local institutions such as the city of Belgrade, several of Belgrade municipalities, and other relevant players. Analysis of Quantitative Data Deal-flow of clients. Since it opened in 2007, BITF has received 36 applications for business incubation of which 27 were accepted. This ratio appears to be high, but the executive team generally assists applicants in developing their business idea up to the point when they are ready for incubation. The major sources for incubation are technical faculties (four BITF founders), university spin-offs founded by students or professors, 17 and young people returning from overseas after study or work. Demand for business incubation and sources of deal-flow are not of major concern for BITF management, even though an entrepreneurial spirit is still lacking in Serbia and the support structure for support startups and SMEs remains limited. BITF leads or is involved in promoting and fostering innovation and entrepreneurship in Belgrade and other regions of Serbia (Vranje, Uzice). 17 Professors from University of Belgrade established six companies, of which three are from the Faculty of Technology and Metallurgy

128 Survival rates. Survival rates of companies 12 months after graduation from BITF is 81 percent, which indicates the effectiveness of this incubator in mobilizing resources and services for clients. Nevertheless, it is premature to say that this status will remain five years after graduation. Innovation and R&D activity. At BITF, both graduated (Teleskin) and incubatees (Strawberry Energy) can claim to have developed innovative products. BITF plays an important role in developing innovation infrastructure and R&D in Belgrade and in Serbia through a new project financed by the Swiss Agency for Development and Cooperation (SDC). It is also involved in the Science and Technology Park, Zvezdara. The SDC-financed project could support the export of innovative products sources from BITF. The project has three phases; in its first, BITF is identifying potentials and gaps in export policy. The second phase envisages development of a network to promote innovative products and services with the support of innovative infrastructure such as clusters, SBAN, Serbian Business Incubator Network, etc. In the third phase, BITF will work with Serbian diaspora to encourage and fund innovation. Salary levels. There is wide discrepancy between salaries of graduated companies and incubatees. Salaries range from $300 in incubatees to $1500 in graduated companies, which is above the national average. In some companies, male and female employees are equally balanced, but most employees are male, highly skilled and urban. Finance raised. BITF is not responsible for raising funding for client companies, but has still secured funding for 11 companies through the National Investment Fund and Ministry of Science and Education. BITF charges companies 10 percent as administrative costs, which totals $61,000. This revenue is approximately four percent of BITF s total income from its inception. General revenues and export revenues. Figures for 2011 were provided. General revenues for incubatees in 2011 were $1.06 million. Average revenues per client company were between $76,000 and $150,000. The total export revenues among incubatees were approximately $696,000. Financial return on investment. The financial details for the incubator are provided here: Cost per Job: $4,260 (This is total investment divided by number of jobs created. It measures the incubator s cost for each job produced by client companies. In this case we divide total investment of $426,000 by number of jobs in client and graduate companies, which is around 100.) Taxes paid in 2011 (all incubatees):$134,000 Taxes paid to date (incubatees): N/A Average taxes paid by incubatees in 2011 (it hard to estimate average tax paid, it could can be a few hundreds up to $20,000. Some graduates were paying up to $200,000.) Average taxes paid by incubatees to date: N/A Initial capital funding received to set up the business incubator: $260,000 Initial revenue funding received to set up the business incubator: $91,000 Conclusion BITF s activities have not been limited to supporting start-ups and early stage businesses on its premises. A number of external projects were developed and implemented by BITF s management and project team. Some of these projects had collateral objectives while fostering an entrepreneurial spirit in Belgrade they were also meant to generate deal-flow. BITF was a founding member of the Serbian Embedded Cluster that merged with Serbian Software Cluster in 2010 to create the ICT Net cluster. By getting involved with the Science and Technology Park, Zvezdara, BITF is ensuring integration of incubator operations into the wider national (technology) development strategy. Developing first-class business support services is a challenge that BITF will face in the near future. This includes acquiring a virtual dimension for firms not located in the incubator, developing internationalization services, etc. This incubator has already reduced its dependence on public subsidies and is now sustainable. Given the challenges in the Serbian context (lack of support structure for start-ups and early stage businesses, limited support from the government, nascent entrepreneurial spirit, and limited human and financial resources), BITF s achievements are quite remarkable

129 TABLE 1: Summary of Quantitative Data Indicators Quantity Applicants in the past year 10 Applicants in the last five years 36 Applicants accepted in the past year 8 Applicants accepted in the past five years 27 FTE jobs at entry < 30 FTE jobs at exit > 41 Current FTE jobs (among incubatees) 34 FTE jobs created in the last 12 months via business incubation < 30 FTE jobs created to date via business incubation > 100 Graduations in the last 12 months 4 Graduations to date 5 Jobs created by companies graduating in the last 12 months < 30 Survival rates of companies 12 months after graduation Survival rates of companies five years after graduation > 80 percent Patents applied for and owned in the past 12 months < 2 Trademarks applied for and owned in the past 12 months < 2 Copyrights applied for and owned in the past 12 months < 2 Innovative products developed in the past 12 months > 8 Collaborative projects with knowledge-based organizations (for example, R&D approximately 4 5 organizations, research institutions, HE and FE institutions) in the past 12 months Incubatees assisted by the BI in securing finance 11 Average salary among incubatees >$900 Incubatees that have secured finance >11 Total finance secured by the BI $615,000 Finance secured by incubatees $615,000 Annual turnover at entry (average) $5,000 $50,000 Annual turnover at exit (average) $10,000 $1 million General revenues in the past 12 months N/A Export revenues in the past 12 months $696,000 BI income in the past 12 months $264,000 BI running costs in the past 12 months $100,000 BI income to date $1.63 million BI running costs to date $410,000 Seed capital raised in the past 12 months N/A Seed capital raised to date N/A Public funding received to date $426,000 Taxes paid in the last 12 months (all incubatees) $134,000 Taxes paid to date (all incubatees) $625,000 + $170,000 Average taxes paid by incubatees in the last 12 months (estimated) $9,144 for 15 companies in 2011 Average taxes paid by incubate to date (estimated) $13,062 Initial capital funding received to set up the business incubator $260,000 N/A

130 130

131 Appendix 14: Core Incubation Process Survey (infodev, July/August 2012) In addition to the UKBI s research, infodev interviewed six of the nine incubator managers who participated in the study in July and August The objective was to learn about the role of business incubation within the overall context of their parent organizations. The rationale for this was that preliminary findings of UKBI s studies indicated a significant role of incubators in activities not directly related to business incubation and incubatees. According to UKBI s findings, incubatees contribute on average 18 percent to the total turnover of incubation environments. Tax contributions by incubatees, compared to initial investment for setting up business incubators, are positive in most cases. In order to separate incubation activities from other activities of organizations, incubation was defined as business activities related to incubatees. Incubatees were defined as clients fulfilling three criteria: I. Business start-ups in the country of incubation, less than three years in operation. II. Located inside (tenants) or outside the incubator. III. Receiving business incubation support services on a regular basis and based on an incubation agreement, rather than just ad hoc services. The following three questions were discussed with incubator managers: I. The share of business incubation within the service portfolio of the organization

132 PLACEHOLDER Photo: Credit II. The business model of business incubation services within the overall business model of the organization. III. Monitoring and evaluation of business incubation activities in the context of overall activities of organizations. The findings can be summarized as follows: For four out of six incubators interviewed, incubatees take up only a minor share of client portfolios. The share of turnover and revenues generated from incubatees is even smaller (maximum 15 percent in the sample). Major revenue sources of organizations include participation in projects related to SME development, but not directly related to incubatees. Rather, incubation is crosssubsidized by other revenue streams. Key benefits from incubation, as perceived by incubatees (opinion of incubator managers), is access to networks and markets. The total activity portfolio of incubators supports the development of these networks. Yet, incubators participating in the sample indicated they do not charge incubatees for these services. In case of specialized incubators, a major benefit for incubatees is related to infrastructure (such as laboratories and reliable and safe IT infrastructure). The incubators participating in the survey stated that no mechanism is in place to measure the performance of the incubation process other than the overall monitoring and evaluation system. The reason for this is the perceived lack of need for such information, both on side of the incubator and incubator stakeholders