C HAPTER 4: I NCUBATORS : A N A NGEL I NVESTOR ’ S B EST F RIEND ?
growth was fuelled by a desire to find an active way for companies, government and the financial community to stimulate innovation and new business creation. Over 80 per cent of the incubators created in North America were “not for profit,” created as a tool of government economic development or linked to research organizations eager to see the benefit of their research work applied to the marketplace. In the late 1990s, the dot-com boom created what appeared to be a major opportunity for a new generation of incubators in the private sector. Many saw this approach as providing a superior route to business success, as compared to traditional venture capital funding. Unfortunately, this business model was based on the false premise that money ploughed into start-ups in the first 12 months could be returned within 12 months, due to the high valuations that the stock market and acquisitions were placing on these companies. The collapse of market capitalizations for such companies resulted in a reappraisal of this model, not to mention the spectacular collapse of some incubators, such as NRG and Itemus in Toronto. Incubators created by large corporations, such as Nortel or OnX, which were seeking to capitalize on innovation from within their companies, have met similar fates. It has become obvious that current market conditions will not support such enterprises in the private sector. Given this experience, universities and governments have begun experimenting with new “not for profit” models. These approaches are based on links between a community and a mixed-use incubator, and between a strong research organization, such as a university, and a technology incubator. Each of the new incubators has a different agenda, with different models achieving varying levels of success and sustainability. Today’s incubator manager needs to build on the most successful practices of other incubators, while fully engaging the local business community in fostering new enterprises. Angels, too, are making an important contribution to creating regional wealth and, under certain circumstances, facilitating the growth of technology hubs. The fundamental needs of new businesses remain the same – access to resources and support to help them survive the critical first phase of development. Indeed, the importance of business fundamentals and strong early stage development are being re-emphasized in the post-dot.com world. Incubators can play a critical role, not just as providers of space and equipment, but as a real axis of business advice and services and an environment of mentoring and encouragement.
Incubators can also fulfill four important functions for angel investors: • Supporting and developing angel investments in early stage companies. • Providing a source of high-potential, qualified deal flow.
• Facilitating the creation of win-win relationships between angels and entrepreneurs. • Accessing a large community of interested parties who can provide networking opportunities for the new company.
Each of these roles is examined below. SUPPORTING AND DEVELOPING AN ANGEL INVESTMENT IN EARLY STAGE COMPANIES
The traditional model of incubators is changing. In addition to offering inexpensive and flexible space, as well as technology infrastructure and support equipment, incubators are also providing start-up companies with many value-added services and a much more comprehensive development
30
Powered by FlippingBook