What happened a few years back, was there were a lot of bad models that were developed, based on erroneous information about the fact that you could take a company and get financing without business plans, that you could take business plans without revenues, and that you could flip the company on the market in nine months. You can’t grow businesses like that. So a lot of money went down the wrong place.
N. American Incubators Gradually Nurture New Generation of Biotech Firms: NBIA
SAN ANTONIO — Incubators in the US, Canada, and Mexico are slowly nurturing a new generation of early-stage life-science businesses.
According to figures released late last year by the National Business Incubation Association, 33 percent, or 72, of North America’s incubators can support at least one biotechnology startup, while 27 percent, or 59, could support medical device businesses; and 18 percent, or 39, plant-biotech businesses.
The data came from responses made by 218 North American incubators that participated in an NBIA survey about their operations. Fifty-four percent, or 118 incubators, support a mix of uses, while another 39 percent, or 85 incubators, specialize in one or more technology sectors, according to 2006 State of the Business Incubation Industry, which the NBIA released last summer.
That compares with 47 percent and 37 percent for the mixed-use and all-tech incubators, respectively, the previous time the survey was conducted in 2002. However, that survey did not ask incubator owners to detail which types of businesses their incubators could support, precluding a comparison with the 2006 survey.
BioRegion News last week spoke with NBIA President and CEO Dinah Adkins during a break between breakout sessions at the association’s 22nd International Conference on Business Incubation, held in this city, about the progress made by life-science incubators and the challenges they face as they pursue future growth.
How much of a presence do life-science companies have within North America’s incubators?
Thirty-three percent of incubators have biotech companies among their tenant businesses.The reason I pointed out bio is because among all the service-specific incubators, there are more biotech incubators than any other specific sector – biotech and life sciences.
How many incubators are limited to biotech or other life sciences businesses?
Bioscience, life sciences only, it may be around 50 or so, but it could be more.
What’s been the trend since the 2002 study? Are broadly mixed-use incubators more inclined to attract bio tenants than the life sciences-only incubators are?
We got involved in biotech incubation at Ohio University back in 1982-83. We don’t have enough critical mass to have it just biotech companies, but there have been biotech companies ever since that time. I think most of the biotech incubator development occurred in the 1990s. But now, we see more emphasis than ever before, because there are the big institutes, the accelerators.
I’ll tell you one thing: When you talk about broader incubators, it is really — in some cases, bio is a very significant cluster within these incubators. For example, the University of Alabama’s Innovation Depot has been formed by the merger of two incubators: One initiated by the University of Alabama Birmingham, and one that was a set of independent incubators receiving city help. And they merged several years ago under the same management, and now they have one building instead of two buildings. But even though they also have IT and other tech specialties, bio-life sciences is a major cluster there.
And it is increasingly so elsewhere, like the San Jose BioCluster that opened up a few years ago [see San Jose BioCluster feature, this issue]. There is continued growth, and it is still the largest sector. And it has been the largest single sector since at least the early to mid 1990s, because of the needs of bio and life sciences companies.
What is driving that growth?
A lot of it is university-generated spinouts and new technologies coming out of the universities – not entirely, but a lot of [the growth] is that. And also, of course, incubators may be in places where there is a lot of overall bio activity.
How have those factors challenged biotech and other life sciences incubators? What extra money or initiatives have they had to pursue to accommodate growing demand from biotech companies?
Because they’re focused exclusively on bio, they are so different from other types of incubators. They take longer to get going. They take more money. There needs to be more up-front investment, market research. They have additional regulatory approvals required of them, depending on the kind of work being done there, whatever it is. And they have to have extra people to run them that have expertise in doing bio companies, in looking at the technology, and understanding how to get funding for those companies, as well as understanding the needs of those companies as they progress.
And there are facility issues: The clean rooms, biohazard disposal, all that kind of stuff. So those are really specific issues that you have to be familiar with if you are running a biotech incubator.
How have life-science incubators been able to overcome all those challenges? Do they seek out more private investors or more government money?
In terms of the buildings, it’s being done in so many different ways that I can hardly come up with one standard. The way they did it in San Jose was that they partnered with a private developer and the city.
But the way they did it in Birmingham was raising the $17 million through a capital campaign. They got money from the county, they got money from the city, and they got money from the university. But they also raised a lot of money from private corporations. So because people see there that bio and the other stuff that the Innovation Depot was doing is the future of the city, it has had major impact, even in terms of redevelopment in one of the areas of the city that has been a little bit distressed.
So people are doing it in different ways. There are also a lot of partnerships. In Cincinnati, for example, the bio incubator there was the result of a consortium, an effort of different groups, industry people, university people, other people in the community. The state has helped to fund it. There are a lot of people getting together to help those programs, I think.
NBIA’s report found that the median size of all North American incubators rose slightly between 2002 and 2006, from 26,000 to 28,000 square feet. The median area of incubator tenants rose from 4,900 to 5,000 square feet. Does that augur later stage companies staying a little longer?
No. It’s primarily a case of very successful incubators growing. For example, when the Innovation Depot started out in 1987 as the Birmingham Business Assistance Network — it has gone through several different names — it started out in 10,000 square feet of space. And now they have 120,000 square feet of space.
Look at places like the Akron [Ohio] Global Business Accelerator. It started in a small amount of space, and then it went into 60,000 square feet. Now, they’re much bigger than that [growing from 30,000 square feet when founded as the Akron-Summit Industrial Incubator in 1983, to 320,000 square feet today—Ed.]. So the thing is that programs that are successful and sustainable tend to grow. The University of Central Florida has a really strong incubation program. They are so successful that the city has wanted them to develop six or seven other incubators in different parts of the city to incubate companies. So they’re growing. In some cases, incubators start out small and grow. Or they start out with one building, and then they add another building. That’s basically what’s been happening.
And then, because there are fewer manufacturing incubators, [growth] is not coming in that area, where they needed a lot of space, or they were maybe in an old building that had been manufacturing and not been highly efficient, and all that kind of stuff. It’s really coming from growth and success of all the programs.
You spoke of partnerships earlier. What if any changes have there been in those partnerships over time?
There’s more money. There’s a lot of interest in biotech. Did you hear David Spencer [chairman of the Texas Emerging Technology Fund Advisory Board] talk about how everybody was wanting to be in biotech, and sort of deriding that [see NBIA Notes feature, this issue].
The fact is, everybody wants to be in biotech — so many cities. But it’s also that there’s continuing interest in the development of the businesses and research centers that will generate them. Look at what’s happening with Scripps [Research Institute] in Florida, what happened with the Donald Danforth Plant Science Center in St. Louis. There’s the Stowers Institute in Kansas City. Look what happened in Seattle with Alexandria Real Estate Equities, and the Institute for Systems Biology. Here are these big research institutes developing in the United States as well, and that is pushing the development of more biotech business incubation. That’s a change. I think those are significant developments in the biotech field within the last 10 years.
Alexandria announced in March the spinout of a seventh company from its Seattle facility, called Accelerator. What will happen to all the companies spawned by the Accelerator? Will they all able to go out and make it on their own?
They will. In Seattle, that’s going to be a real easy play because Alexandria does what Alexandria does, so they’ll just be in the aftermarket. And if the space isn’t there, they’ll provide it. And Alexandria is working in North Carolina and the Boston region [Cambridge], San Diego, and Florida. They’re working in Toronto. And they’re working in Edinburgh [Scotland], and China. So basically, all that stuff is new; it has happened just in this decade. And all those institutes have either opened, or they have significantly expanded. And all that accelerator stuff, in terms of biotech.
NBIA’s report recorded a sharp drop in the percentage of for-profit incubators, from 30 percent in the late 1990s to 16 percent in 2002 and 6 percent in 2006. Can incubators work as for-profit ventures?
Ten to 12 percent are for-profit incubators. What happened a decade ago was the dot-com bust, that’s all that was. There were a zillion dot-com incubation efforts that were pushed by that market bust. Every attorney, accounting firm and [Internet service provider] seemed like it was trying to develop an incubator. And all those guys who had 10 years worth of a good economy and money, and they thought that they were geniuses and had great Rolodexes and they all created incubators, and then the market fell apart, and they were gone. That’s what happened in the for-profit space.
I have a former chairman who has a terrific program and it’s for profit. She’s with a publicly-traded holding company, and they make investments in a lot of different businesses, so they have an investment portfolio, which is where most of their money comes from. And they have an incubator as well. The incubator is a place where they can put some of those companies and watch them, and decide whether they’re going to invest more. So it can work.