HIGHER EDUCATION H-9, Islamabad (Pakistan) Phone :(051) 90400000 Paper on Business Incubator Framework 1
Table of Contents Background 3 Advantages of Academic Affiliated incubator 4 Incubator Structure 5 Services Offered 6 Selecting the right Incubate 8 Incubation Selection Process 10 Keeping the Incubate focused 11 Graduation or Exit criteria 12 Revenue Generation for the Incubator 12 Project Monitoring System 13 Training for the Incubator Staff 13 2
1. Background Business incubation is a business support process that accelerates the successful development of start-up and fledgling companies by providing entrepreneurs with an array of targeted resources and services. These services are usually developed or orchestrated by incubator management and offered both in the business incubator and through its network of contacts. A business incubator s main goal is to produce successful firms that will leave the program financially viable and freestanding. These incubator graduates have the potential to create jobs, revitalize neighborhoods, commercialize new technologies, and strengthen local and national economies. Critical to the definition of an incubator is the provision of management guidance, technical assistance and consulting tailored to young growing companies. Incubators usually also provide clients access to appropriate rental space and flexible leases, shared basic business services and equipment, technology support services and assistance in obtaining the financing necessary for company growth. Incubators vary in the way they deliver their services, in their organizational structure and in the types of clients they serve. Highly adaptable, incubators have differing goals, including diversifying rural economies, providing employment for and increasing wealth of depressed inner cities, and transferring technology from universities and major corporations. Incubator clients are at the forefront of developing new and innovative technologies creating products and services that improve the quality of our lives in communities around the world. In short Incubators nurture young firms, helping them to survive and grow during the critical start-up period when they are most vulnerable. Incubators provide hands-on management assistance, access to 3
financing and orchestrated exposure to critical business or technical support services. They also offer entrepreneurial firms shared office services, access to equipment, flexible leases and expandable space all under one roof. 2. Advantages of Academic Affiliated Incubator It is apparent that incubators have a greater impact on the economy when they maintain ties with the university because of the impact on three important groups i.e. entrepreneurs, students, and universities: Academic-affiliated incubators provide entrepreneurs with wellequipped laboratories, extensive libraries, powerful computer systems, technology expertise, a well-educated workforce, and subject-matter experts from the faculty; Academic-affiliated incubators provide students with internship or part-time job opportunities, real-world examples for case studies or class projects, opportunities to apply their knowledge to real business problems, and an introduction to entrepreneurship early in their professional careers; and Academic-affiliated incubators provide colleges and universities with opportunities to strengthen ties between the educational institution and the local business community, a system for bringing technological advances and products to the market, a recruiting tool for faculty members and students interested in entrepreneurial opportunities, an opportunity to fulfill research academic, and community service missions 4
Higher Education Commission has taken this initiative to form model Incubation Center at University of Veterinary and Animal Sciences, Lahore Stakeholders 1. HEC 2. UVAS, Lahore The funds for the incubator will come from HEC. Funds will be given to the incubator supervisory committee/consortium. 3. Incubator Structure: Incubator will have the following staff and they will be responsible for the operations of the incubator. 1. Incubator Director 2. Dy. Director 3. Business Coordinator 4. Research Fellow 5. Office Boy 6. Janitor 7. Security Guard Director s Profile Director will develop an organizational plan and recruit the necessary resources to grow the operation. The ideal candidate will have three key attributes: First is a proven track record of entrepreneurship either as a start-up entrepreneur, or working in an environment supporting entrepreneurs. Second, strong ties with the local government, business, entrepreneur, university and social communities. Finally, proven leadership experience in managing and growing non-profit organizations. He will implement the strategy and business development plan required 5
to execute program initiatives that will enhance the reputation of the Incubator. Successful candidates will have a MBA Degree or equivalent with 10 years relevant experience Dy. Director s profile: The position manages the operational aspects of the Incubator Program and works with member companies in aiding them in achieving their goals and objectives. The ideal candidate will have three key attributes: First is a proven track record of entrepreneurship either as a start-up entrepreneur, or working in an environment supporting entrepreneurs. Second, strong ties with the local government, business, entrepreneur, university and social communities. Finally, proven leadership experience in managing and growing non-profit organizations. Successful candidates will have a MBA Degree or equivalent with 7 years relevant experience Incubator Supervisory Committee/Consortium Incubator will be supervised by a committee/consortium which will consist of the following personnel: Head of the Committee VC of the University Director Incubator Representative of Industry Representative of HEC VC will assume the overall responsibility of incubator and will send reports to the funding agency (HEC). This committee will sign an agreement with funding agency i.e. HEC. 4. Services Offered Physical Infrastructure: 6
Incubates will be provided well furnished offices. All offices will be readyto-use and come with hassle-free services, including Reception services Shared meeting rooms Dedicated internet access Business centre services Technical & Management Assistance: Technical & Management Assistance accelerates the development of entrepreneurial companies. This service will allow incubates to access university faculty resources and gear up their engineering and managerial capability. A total of 40 dedicated hours per month of consultancy will be provided by the Incubator against which the Incubator will pay the relevant faculty Rs. 800 1200 per hour depending upon the rank and experience. Any additional consultancy required by the Incubate will be charged. Access to Labs: Incubates will also have access to dry and wet labs of the university. A nominal fee can be charged for that service by the university. Access to Venture Capital Firms: High technology entrepreneurs usually have more financing difficulties because startup funds must be raised for several years of technology development before a product is ready for the market. Formal and informal venture capitals are complementary sources of funding for high tech new ventures. The access to Venture Capital Firms will encourage the growth of high-tech firms and will act as a catalyst for the creation of 7
new products and services. Incubator center will try to tap the local investors and will try to form venture capital funds. Entrepreneurship Development Centre This objective of this centre will be development/up-gradation of entrepreneurial skills and techniques of incubate companies. This objective will be achieved through various short courses and workshops. University faculty will play an integral role in course development and instruction. These courses will be optional for the Incubate companies and they may enroll into courses which can benefit them in running the company. University will conduct these courses on not for profit basis and will charge incubates. 5. Selecting the right Incubate The incubate selection is a critical activity. Business Incubation centers must exercise extreme caution in inducting the right incubates based on its established criteria, resources and availability of services necessary for efficient and successful completion of the project. A typical incubate selection process flow chart is shown below. Evaluation of strengths and weaknesses of potential incubate is key for determining fields which require special assistance by the incubator and extremely critical for the incubate success. SELECTION CRITERIA FOR INCUBATING COMPANIES The following Criteria should be taken into consideration for selecting Incubating Companies: THE BUSINESS Good understanding of the market and competition 8
Pre-Feasibility Strong growth potential Demonstrate scalable business potential Financial Condition Industry growth rate Significant market size Identification of marketing, financial or management deficiencies THE TECHNOLOGY Involves around an innovative concept Potential for IPR Technical expertise and edge GENERAL At least one full-time person committed to company Relevant professional experience and education 9
6. INCUBATEES SELECTION PROCESS Receiving of Applications Log the application Screening Business and Technical Consultants Meeting/Presentation by the potential Incubate(s) Selection Committee The Potential incubate will present the product concept and business feasibility Internal Meeting Yes Need more information No Selection Decision Applicant Informed Applicant Selected Yes Tenancy Agreement (Define Milestones and Timeline) Monitor Project Progress and assist incubate with future actions Selection Committee will include: 1. Director Incubator 2. Faculty Member from the relevant field 3. Rep. of HEC 4. Rep. of Industry 10
7. Keeping the Incubate focused A business like discipline, team work effort and attention to details of every aspect of the project is necessary for the success. This demands developing and managing project milestones such as product concept refinement, product design, prototype development, product testing in the laboratory and actual service conditions. Incubates must prepare and present for review a project plan describing each milestone and corresponding activities along with resources needed for each milestone. The project plan must be adhered to strictly and corrective actions carefully designed and implemented to correct any deviation. Incubator Management will ensure that the plan is followed properly. Once the product has been tested and approved to meet the quality and reliability standards, the Incubate may opt to sell it at a lump sum price or engage in serial production. Option 1: Transfer of Technology Under this option the project can be sold against a lump sum amount. Option 2: Pilot and Serial Production Under this option the incubate company can find an investor or venture capital firm to do the pilot and serial production. Incubator Management will help the incubate in locating the right financial sources. The incubator management has to be consulted before making any legal arrangement with the investor or VC firm. An example of a possible collaboration is where the VC firm can become an equity partner in that incubate company. The percentage of partnership will vary from case to case basis. Funding for Prototype Development for Incubating companies 11
A provision of PKR 1 million will also be kept for the incubating companies for the matter of assisting them in developing prototypes for their respective project. The disbursement of this prototype development fund to the incubating company will be at the discretion and evaluation of the supervisory committee. The cap for this fund for each incubating company is approximately PKR 0.2 million with flexibility of increasing this limit after requisite evaluation of the project by the supervisory committee. 8. Graduation or Exit Criteria The incubate company will be graduated out of the incubator once it meets the following criteria Incubate has spent 18 months at the incubator and the project hasn t completed yet. An additional 2-6 months could be given by the incubator management if they feel that the project can be completed by then. Incubate has successfully developed the prototype and has found an investor or Venture Capitalist to either buy it or take it to the production stage If incubate fails to meet the quarterly targets twice in a calendar year If the review committee decides that the project is no longer viable If incubate violates the tenancy agreement. 9. Revenue Generation for the Incubator Incubator will charge 15% of the costs to each incubate. Cost charged will include utility, internet, telephone, building rent, stationary and building maintenance. 12
Incubator will keep recurring budget for the on-going quarter in its current account and the rest of the money will be deposited in a savings account. Interest accumulated from that savings account will also be considered as revenue generated for incubator. 10. Project Monitoring System It will be the responsibility of the Incubator Management to successfully implement and monitor the Incubate projects. However they will send a quarterly report to the funding agency (HEC), highlighting the progress made in that specific quarter. The report will include the following: Goals set for the existing quarter Achievements made against the set goals Activities made to achieve the goals Factors that contributed to the success/failure of goal achievement Financial resources consumed during quarter Goals for next quarter along with the corresponding activities and financial means required to achieve the goals This report will be handed in by the Incubator Management and the Director Incubator will also make a presentation on that progress report. The audience will include the funding agency (HEC). Other members of the incubator supervisory committee can also attend the presentation. 11. Training for the Incubator Staff The incubator staff will get the training from foreign incubation experts. Note: The 2 years budget for the incubator has been enclosed in separate spreadsheet. 13