The Idea Factories

Nonprofit incubators have been quietly nurturing fledgling companies since 1959. And they don't demand a huge ownership stake in your company.

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Incubators that actually work? You won't find them only in Internet space

When you hear the word incubator, you may think "Internet." and for good reason. What you see trumpeted in the news are names like Idealab and CMGI, incubators that have been moving aggressively to capitalize on the Internet economy. Those for-profit hothouses for start-ups are part of a growing trend. In just the past year, about 200 new fast-paced, Internet-oriented incubators have opened for business in the United States.

The first incubator, a for-profit entity, is said to have emerged 41 years ago in Batavia, N.Y. Because one of its first tenants was a poultry producer, it hatched not only chickens but the buzzword incubator. Since then, the industry has expanded to a nationwide total of 950 incubators. And though the for-profit luminaries may attract the most attention, they make up only about a third of the country's incubators, according to the National Business Incubation Association, based in Athens, Ohio. The rest -- the nonprofit workhorses -- have been quietly nurturing fledgling companies for decades. For a long time the quietly plodding nonprofit incubators escaped widespread notice, according to Dinah Adkins, executive director of the National Business Incubation Association. "That has changed abruptly," she says, because interest in the for-profits has raised the profile of the entire industry.

The nonprofit incubators may have stayed in the background until recently, but they have their admirers. Typically affiliated with a university or a government agency, the incubators are particularly popular with entrepreneurs who aren't creating Internet companies or who recoil at the idea of parting with a large chunk of their equity. (The for-profit incubators usually take as much as 70%.) In contrast, the nonprofit incubators demand little or no equity for their services, which include providing financing, rental space, office equipment, mentoring, and access to accountants and other professionals.

In an Inc. survey conducted this past summer of more than 30 incubator-savvy CEOs and experts in the field, eight nonprofit incubators stood out. (See chart, below.) Those incubators are scattered across the country and range from the Advanced Technology Development Center (ATDC), which is affiliated with the Georgia Institute of Technology (Georgia Tech) and is dedicated to fostering high-tech business in Georgia, to the Entergy Arts Business Center, a catalyst for arts-related endeavors in New Orleans.

The CEOs extolled the nonprofit incubators for, among other things, offering nuts-and-bolts assistance, networking opportunities with other company founders, and access to outside mentors. "In normal business building, you have to form your own network," says Danny Day, who incubated two companies at ATDC, in Atlanta. "Here, you're all at the same stage, and advisers are there to help the start-ups."

For Victoria Eckes, CEO of Yakalo Solutions, a provider of real estate software, the greatest plus of being at the Boulder Technology Incubator's office in Longmont, Colo., has been receiving marketing advice. Eckes started her company at the incubator in April 1999. Before she sought help at Boulder Technology, she invested countless hours knocking on real estate agents' doors to promote Yakalo's product. "But then our marketing adviser said, 'Why don't you see who else is selling to real estate agents and leverage their sales force?'" recounts Eckes. The tip prompted her to affiliate with local newspapers, which now market Yakalo's software on their Web sites.

In exchange for the incubator's services, Eckes pays rent of $600 a month for each of two offices that the incubator provides. That's "pretty cheap" by local standards, she says. The screening process of the Boulder incubator, which accepts only 10% of applicants, has the advantage of enhancing her company's credibility with investors. Acceptance represents a kind of Good Housekeeping seal of approval, Eckes explains. She is scheduled to leave the incubator early next year. A two-year stint is typical for a start-up residing at a nonprofit incubator; the maximum duration at a for-profit incubator is usually only about half as long.

As for why she chose the Boulder incubator over a for-profit model, she says, "I wouldn't give away 70% of the company's equity."

Rifka Rosenwein is a senior writer at Inc.

Cradles with a Twist

Most of the country's roughly 650 nonprofit incubators exist to promote local business development. But a few fulfill a mission that's even more highly specialized, even exotic.

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