Investing in ideas: despite budget cuts and a decline in venture investing, some university business incubators continue to grow—with novel approaches - Business Incubators

University Business, April, 2003 by Tim Goral

Education funding is not the only casualty of the poor economy. Money earmarked for research and business incubation at colleges and universities is also on the chopping block in a number of states. In New Jersey, for example, the agency that has funded university research for nearly 20 years is slated to be abolished under the proposed budget put forth in March by Gov. James McGreevey. The entire $14 million budget of the state Commission on Science and Technology could be eliminated in an effort to close a $5 billion budget deficit. Rutgers University may lose as much as $10 million over the next four years in CST funds, but the bigger loss is what that money might have helped produce. "CST provides the seed money that gets a project started and makes it eligible for federal money," said Michael Breton, associate vice president for Research at the university. "That $10 million could easily help bring in another $50 million," he told reporters.

And Maryland's fiscal woes may mean at least a 26 percent cut to the budget of the Maryland Technology Development Corp. (Tedco), which funds incubators and research and development of university-grown technologies. If that budget is approved, Tedco will lose some $1.5 million in funding for fiscal year 2004.

Venture capital funding, too, continued its post-boom decline, ending the fourth quarter of 2002 at its lowest level since 1998, according to the quarterly Money Tree survey (www.pwcmoneytree.com) by PricewaterhouseCoopers. Venture investing in 2002 totaled $21.2 billion--approximately half of 2001's $41.3 billion.

Grow Your Own

Still, some university incubator programs grow and even thrive, despite a dry venture capital pool and a tight economy. In fact, they are relying on innovation and technology transfer to improve the communities in which they are based.

"The major issue these days, here and across the country, is creating a diversified economy; an economy that has a tot more higher-wage jobs," says Carol Ann Dykes, associate director of the University of Central Florida Technology Incubator. "Our state generally has been dependent on agriculture and tourism," says Dykes. "We have not been known as a technology state."

Recognizing a few years ago that central Florida would have a difficult time persuading technology companies to relocate to the area, UCF hatched a plan to grow and nurture its own technology enterprises. This university-driven community partnership is intended to build high-tech opportunities into successful business ventures in central Florida.

Incubators dramatically increase a start-up's chances for success. According to the National Business Incubation Association (NBIA), 87 percent of incubator-hatched companies are still in business today, and 84 percent of that number stay in the community. "That's a dramatic statistic for a university or community to think about," says Tom O'Neal, director of the UCF program. "Growing our own companies, rather than trying to recruit the ones that will go to the highest bidder, has helped our region tremendously."

The UCF incubator, which nurtures promising young firms for up to three years, has generated more than 400 local jobs in its three-year history and over $100 million in revenue to the region from licensing, venture investment, and sales. The incubator was recently named by the NBIA as one of the top 10 incubator programs in the nation. Among its graduates are a number of nationally successful firms such as Alinean LLC, which develops research, methodologies, and software tools to measure the value and ROI from information technology. Alinean has formed strategic partnerships with companies such as Dell, PeopleSoft, and HP and is growing rapidly, says Dykes.

Another UCF-hatched firm, AppliCote Associates, was awarded an important NASA contract in March to develop a process to implant atoms in semiconductors. AppliCote's technology could serve an integral role in the nation's space program and could be a key to developing manufacturing technologies aboard spacecraft.

Filling a Need

In a departure from the not-long-ago days when venture money seemed to flow from all corners (often supporting vague business plans for "hot" start-ups), UCF's approach is to build solid companies with steady revenue growth. "Most of the firms at the incubator leave when they have reached $2 million to $3 million in revenue," says O'Neal. "They've started to make money and can support themselves out in the community as good strong corporate citizens."

An entrepreneur himself, O'Neal was instrumental in launching the UCF incubator as a way to get the university and its resources involved in helping new businesses. "More and more universities are becoming aware of their responsibilities and impact on the local community from a corporate development point of view," he says.

But in the view of some, entrepreneurship and academia are opposing concepts. Indeed, says O'Neal, "One of the biggest obstacles faculty face is figuring out how to do a business in a university setting."