May 21, 2007
By Keith Regan, Freelance Writer

Nurture Trail Incubators: Locally focused incubators thrive
in favorable state climates

Melinda Ailes (photo right), a senior business adviser with the UMass Amherst-based Massachusetts Small Business Development Center, knows that local policy efforts are vital to incubating high-value startups.

While federal and state funding and incentives can help get startups off the ground, the key to creating a favorable climate for successful incubation, just as in politics, may lie at the local level. "Successful incubation is all about connections, and those happen best at the local level," said Melinda Ailes, a senior business adviser at the Massachusetts Small Business Development Center. "States do their part, but when you look at the best incubators, they break down more by region."

Still, Ailes and others say states can help create the right environment for incubation to take place through favorable tax policies and through direct investment in research within universities. "Government has a role in encouraging early-stage investing and giving venture capitalists the confidence to invest in those very early ideas that aren't really businesses yet," said Abigail Barrow, founding director of the Massachusetts Technology Transfer Center.

Ailes said incubators serve three main functions, with function No. 1 being to provide cheap space for startups and function No. 2 to provide a range of support services. Both are often provided through links with area universities. "The third and most important is providing connections or access to capital. Not necessarily capital itself, but those important connections," she said. "There are so many government and quasi-government agencies out there that are offering funding, it takes a concerted effort to connect the right source with the company that qualifies and needs the funding. That's one place where government can definitely play a role."

Not just a N.E. phenomenon
Outside New England, many states have seen the value of supporting incubators and partnering with private sector parties to help them thrive.

The Georgia Research Alliance, for instance, has helped create 125 new companies in recent years, with some $400 million in direct state funding helping to attract nearly $2 billion in federal and private funds. The North Carolina Research Triangle Park, often seen as a competitor with the Boston region in the life sciences, also has a number of thriving incubators supported by public and private partnerships.

While some states have put direct financial incentives in place, Barrow said tax incentives may have limited value for the earliest stage businesses. One popular technique, offering a tax break for investing in research and development, for instance, may not help a business that is still too new to have revenue and therefore tax exposure.

One innovative twist on that idea is a program in place in Canada and some states that makes R&D tax credits transferable, enabling startups to use them to help gain operating capital by selling them to larger companies. Such a plan has been floated in Massachusetts and is gaining momentum once again.

Barrow, meanwhile, agreed that with incubators, location is key. "Having regional incubators in the right places is a must," she said. "Starting a new incubator in Cambridge might not make that big of an impact because there's already a considerable critical mass there, but having incubators in places like Worcester and Fall River -- there they can be far more important."

The importance of being local is seen in incubator growth elsewhere in New England, as well. In Vermont, for instance, the Vermont Business Incubator Network will eventually consist of 10 different local incubators, a network covering most of the state and anchored by the Vermont Center for Emerging Technologies (VCET), located on the campus of the University of Vermont in Burlington.

VCET director Thomas Rainey said in addition to low-cost but high-tech lab and office space, the incubators provide early-stage support and access to a range of government and private programs -- many of which a firm would be hard-pressed to tap into on its own -- with funding and assistance coming from the Vermont Technology Council, the Department of Economic Development, the Vermont Business Roundtable, federal resources and universities and colleges.

"Incubators are most effective when everyone is on board," Rainey said, including state agencies, the private sector and higher educational institutions.

Ailes, whose work takes her into contact with incubator firms in the Fall River-New Bedford area as well as one in Springfield, said states can also help by providing a pool of funding to get companies to the point where venture capitalists will take a stake. This gap funding comes from many sources and states that offer the assistance often found in incubators are those that grow the most new businesses, she added.

Barrow, meanwhile, said in the end, any business-friendly policy will help assist in the creation of new startups. Large companies are more likely to invest in and partner with local startups and can become the vehicles for commercializing technology transferred out of research labs.

"You need to be able to attract as many of the big businesses as you can because when you have them in the area, that's when the connections start to get made," she said. "You need that ecosystem of large companies that can make deals with startups and network with them and help them start to grow."

Keith Regan is a freelance writer in Grafton.

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