When heavy-equipment manufacturer Massey Ferguson pulled out of Batavia, New York, in 1959, leaving behind a hulking 850,000-square-foot facility, it seemed like the end of the line for the town. But nearly 40 years later, it turns out it was only the beginning, not just for Batavia but for thousands of entrepreneurs struggling to fund their businesses and get them off the ground.
After Massey's exodus from Batavia, local resident Joe Mancuso bought the building the company left behind in hopes of using it to bring new businesses and jobs to the area. One of the first businesses he attracted, a hatchery, was prophetic: Thanks to the hatchery, the building came to be known as an incubator, and as the nation's first business services provider of its kind, started a revolution in how emerging companies are formed and financed.
Today, increased entrepreneurship, emergence of new technologies, corporate downsizing, universities seeking a greater return on technology transfer, and economic globalization are just a few of the trends that have boosted the popularity of business incubators, according to Dinah Adkins, executive director of the National Business Incubation Association (NBIA). "Business incubators typically offer comprehensive support to fledgling businesses in the form of reduced rents, flexible space, shared services, access to professional services and, perhaps most important, an environment of energy and entrepreneurial spirit," says Adkins.
But there's one other vitally important benefit that business incubators often provide: access to the kind of early-stage capital that emerging companies desperately need. For instance, according to a recent survey of NBIA members, 83 percent of incubator owners and directors provide access to seed capital. Seventy-six percent provide assistance with obtaining federal grants, 74 percent assist with preparing financing proposals, 60 percent can help obtain royalty financing, and 57 percent can lend a hand in obtaining purchase-order financing.
Adkins says it should not come as any surprise that angel investors tend to hover over business incubators. In virtually all incubators, she says, client companies, as they are called, are carefully pre-screened. "The fact that a business has been accepted into an incubator offers due diligence value to potential investors," says Adkins. "They have already passed an important litmus test by simply being there."
Another reason business incubators attract sources of capital has to do with the simple economics of convenience. Rather than searching high and low for potential deals, investors can easily find a multitude of investment opportunities under one roof.
Finally, the fledgling businesses an investor is likely to find inside an incubator can make whatever dollars he or she is prepared to invest go much further. "With low rents, shared services and access to professional services and training at low, and sometimes no cost," says Adkins, "investors can get a real sense of comfort that their investment will last longer and take the business further than might be true within a conventional business environment."