General Questions

Business incubators nurture the development of entrepreneurial companies, helping them survive and grow during the start-up period, when they are most vulnerable. These programs provide their client companies with business support services and resources tailored to young firms. The most common goals of incubation programs are creating jobs in a community, enhancing a community’s entrepreneurial climate, retaining businesses in a community, building or accelerating growth in a local industry, and diversifying local economies.

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.

The earliest incubation programs focused on a variety of technology companies or on a combination of light industrial, technology and service firms – today referred to as mixed-use incubators. However, in more recent years, new incubators have emerged targeting industries such as food processing, medical technologies, space and ceramics technologies, arts and crafts, and software development. Incubator sponsors have also targeted programs to support microenterprise creation, the needs of women and minorities, environmental endeavors and telecommunications.

No. The term “business incubator” gained popularity in the media with the explosion and subsequent demise of so-called Internet incubators between 1999 and 2001, but the business incubation model traces its beginnings to the late 1950s. Visit the National Business Incubator Association at www.nbia.org for more information about the history of business incubation.

As of October 2006, there were over 1,400 incubators in North America, up from only 12 in 1980. Of those, 1,115 were in the United States, 191 were in Mexico and 120 were in Canada. NBIA estimates that there are about 7,000 business incubators worldwide. The incubation model has been adapted to meet a variety of needs, from fostering commercialization of university technologies to increasing employment in economically distressed communities to serving as an investment vehicle.

Incubation programs come in many shapes and sizes and serve a variety of communities and markets:

• Most North American business incubators (about 94 percent) are nonprofit organizations focused on economic development. About 6 percent of North American incubators are for-profit entities; usually set up to obtain returns on shareholders investments.
• 54 percent are “mixed-use,” assisting a range of early-stage companies.
• 39 percent focus on technology businesses.
• About 4 percent focus on service businesses, serve niche markets or assist other types of businesses.
• 3 percent serve manufacturing firms.
• About 53 percent of business incubators operate in urban areas, 28 percent operate in rural areas and about 19 percent operate in suburban areas.

Source: 2006 State of the Business Incubation Industry

Incubators help client companies secure capital in a number of ways:

• Managing in-house and revolving loan and microloan funds
• Connecting companies with angel investors (high-net-worth individual investors)
• Working with companies to perfect venture capital presentations and connecting them to venture capitalists
• Assisting companies in applying for loans

Incubator graduates create jobs, revitalize neighborhoods and commercialize new technologies, thus strengthening local, regional and even national economies.

• NBIA estimates that in 2005 alone, North American incubators assisted more than 27,000 start-up companies that provided full-time employment for more than 100,000 workers and generated annual revenue of more than $17 billion.
  
  Source: 2006 State of the Business Incubation Industry
• Business incubators reduce the risk of small business failures. Historically, NBIA member incubators have reported that 87 percent of all firms that have graduated from their incubators are still in business.
  
  Source: Business Incubation Works

Government subsidies for well-managed business incubation programs represent strong investments in local and regional economies. Consider these returns:

• Research has shown that for every $1 of estimated public operating subsidy provided the incubator, clients and graduates of NBIA member incubators generate approximately $30 in local tax revenue alone.
  
  Source: Extrapolated from data in Business Incubation Works
• NBIA members have reported that 84 percent of incubator graduates stay in their communities.
  
  Source: Business Incubation Works

No. Business incubators actually contribute to the long-term viability of the local real estate market. Incubation programs graduate strong and self-supporting companies into their communities, where these companies build, purchase or rent space. Because incubated companies are more likely to succeed than nonincubated firms, landlords of incubator graduates face far less risk than they otherwise would. Also, while they’re in the start-up phase, incubator client companies can obtain flexible space and leases that are more appropriate to their stage of growth than they could on the commercial market.

Research parks (sometimes called science parks or technology parks) are property-based ventures consisting of research and development facilities for technology- and science-based companies. Research parks often promote community economic development and technology transfer. They tend to be larger-scale projects than business incubators, often spanning many acres or miles. Research parks house everything from corporate, government, and university labs to big and small companies. Unlike business incubators, research parks do not offer comprehensive programs of business assistance. However, an important component of some research parks is a business incubator focused on early-stage companies.

The U.S. Small Business Administration administers the Small Business Development Center (SBDC) program to provide general business assistance to current and prospective small business owners. SBDCs (and similar programs) differ from business incubators in that they do not specifically target early-stage companies; they often serve small businesses at any stage of development. Some business incubators partner and share management with SBDCs to avoid duplicating business assistance services in a region.

Co-working spaces offer a gathering point for independent contractors and freelancers who want to eliminate the isolation of working from home or wish to collaborate with other freelancers. Some may also offer networking opportunities and basic technical assistance. While the primary value of co-working is the interaction with other professionals, the primary value of an incubation program is its mix of business assistance services specifically targeted to emerging companies. Those services generally extend well beyond networking and basic technical assistance.

People sometimes use the term business accelerator as another term for business incubator in an attempt to differentiate themselves in the market. During the dot-com boom that occurred around 2000, numerous terms like “accelerator” emerged to describe business incubation programs. In the current market, many of these terms have fallen away, but accelerator remains a relatively popular term to describe business incubation programs.

NBIA traditionally has defined virtual incubation as the delivery of incubation services solely through electronic means. However, the term may be used interchangeably with “affiliate program” for services delivered to clients that are not in residence in an incubator. "Virtual incubation" also may be used to denote a program that offers services to clients who are located far away from an incubator, when the program does not offer any multi-tenant space.