2nd Annual Million-Dollar Ideas

High-Tech Incubator

If your answer to the chicken or the egg question is "the chicken," then starting an incubator may be right up your alley. The National Business Incubation Association (NBIA) estimates there are more than 900 incubators in North America today, compared to 12 in 1980. But we're not talking about your parents' incubators; we're talking about hatching high-tech companies.

The NBIA estimates 40 percent of all incubators have a technology focus. One of these is San Francisco's Venture Frogs. Located in a 15,000-square-foot historic Cadillac showroom, Venture Frogs was founded by Tony Hsieh, 26, and Alfred Lin, 28, after they sold their previous company, LinkExchange, to Microsoft for $265 million in 1998.

Hsieh explains the basics of a good incubator in this way: "In addition to office space, it's also important to create an environment where companies being incubated can interact and share ideas and stories. We have a break room where people play foosball or talk shop while relaxing with people."

Aiming your incubator at a niche is as important as having expertise in your area. If you choose to operate as a for-profit incubator, that usually means charging a monthly fee for space and services as well as taking equity stakes in the companies being raised. And of course, remember you're there to help. Says Hsieh, "We started Venture Frogs so that we could invest in and advise other early-stage Internet companies and [hopefully] help them make fewer mistakes."

Starting your own tech incubator means keeping your eyes on the prize, particularly given the harsh climate for dotcoms. Says Hsieh, "We like people who work well together and have an opportunity to be No. 1."

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Contributors: Staff writers Michelle Prather, Gisela M. Pedroza and Nichole L. Torres; assistant editor Peter Kooiman; assistant technology editor Amanda C. Kooser; and Loveland, Ohio, freelance writer Geoff Williams

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This article was originally published in the January 2001 print edition of Entrepreneur with the headline: 2nd Annual Million-Dollar Ideas.

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