"Startups choose between leaving the incubator or folding"


Technology incubation centers have nurtured many a company from infancy by providing entrepreneurs with mentorship, inexpensive lab space and numerous other resources that a startup company wouldn’t otherwise have access to.

Rita Zangari, executive program director for the technology business incubation program at the University of Connecticut (UConn) at Storrs, said, “We have the equipment, facilities and experts that would be unattainable for a startup company,” Zangari said. “They come to us as infants, with one or two people who are just starting out. We have companies that are nanotech, biotech, chemistry, and we have the type of labs that these companies cannot afford in their early stages.”  At UConn and other incubator centers, each tenant reaches points in time where they must decide whether to stay in the center, move off into their own facility or fold their tents.  There are now 15 companies in UConn’s six-year-old incubation program, each under a three-year lease. Some “graduate” the incubation program in that time and are ready to move to their own headquarters, but most seek more time, especially if they are awaiting FDA approvals, which can take many years to obtain, Zangari said.

One such company moving out is AllerQuest LLC, which is now transitioning from the incubator and into its own headquarters. AllerQuest president Louis Mendelson said he turned to UConn’s incubator program because he needed laboratory resources to test and manufacture the company’s product for U.S. Food and Drug Administration approvals while the new manufacturing facility was being built.

“Using the incubation program at UConn, we were able to access lab facilities and use them at a lower cost (than other similar lab spaces),” Mendelson said. “We worked through the kinks and were able to show the FDA that we can make Pre-Pen.”   In 2004, Pre-Pen (penicilloyl polylysine), which was made by Hollister-Stier Laboratories LLC of Spokane, Wash., and was used to test patients for penicillin allergy, was withdrawn from the U.S. and Canadian markets after years of manufacturing instability.  Mendelson, who also runs a private practice, took the initiative to bring Pre-Pen back. He and associates started AllerQuest, and invested more than $1 million of their own money to build the manufacturing plant. For Allerquest, which is moving into the new plant in West Hartford this month, one of most important factors in deciding where to house AllerQuest in the long term was location. “We wanted something close to (UConn Medical Center) and close to where we live,” Mendelson said. “We also looked for someplace with good highway access and access to shipping facilities.” Mendelson and his team also looked for a location that was priced affordably and that could be built to FDA specifications.
Time to go?  Like AllerQuest, startups typically stay in their first space for two or three years while they gain capital and improve products, according to Tim Rowe, president of the Cambridge Innovation Center (CIC) in Cambridge.

“Companies tend to move in as a one- or two-person idea, and the successful ones usually move out with 20 or more people, significant financing, and a significant growth curve,” Rowe said. “The average stay is two years, but that includes some that fail early. Successful ones tend to stay and grow for a bit longer, say, three years, though there is a lot of variation around that.”  CIC, which houses about 170 companies, has incubated successful companies including Maven Networks Inc, which was acquired by Yahoo Inc. in February; Great Point Energy Inc., which raised one of the region’s largest venture capital rounds recently with $100 million from investors; and Google Inc.’s local offices, Rowe said.  “In total, we have tracked about $750 million that has been invested over the past five years in companies that grew up at CIC,” Rowe said.  Being in a technology hub, as CIC is, gives young companies access to people, transportation and new technologies. “This makes for a very valuable combination, since it translates to smart, low-cost labor interested in being part of startups, be they from MIT or other area schools such as Harvard and Boston University,” Rowe said.  In addition, “there is a high concentration of strong startup CEOs and leaders in one building. These exceptional people open doors for each other, introducing each other to sources of capital and other key resources, and they provide invaluable advice to each other,” Rowe said.
 
Incubator facilities also allow startup businesses to appear much larger and more established by being in Class A spaces with conference rooms and laboratories, according to Richard C. Mullins, Jr., executive assistant to the president for community business programs at Central Connecticut State University. CCSU’s Institute of Technology and Business Development has 30,000 square feet of mixed-use incubation with resources such as mail services, copiers and fax access. Incubators are relatively cheap. At CCSU, it costs $10 per square foot, compared to $15 or more per square foot at nearby facilities, Mullins said. CIC’s prices range from $750 to $1,000 per month per person. 

However, incubator facilities don’t want to be used just for low rent, and most require entrepreneurs to show some forward momentum. “When we see that a company is participating in the program and doing their best to go to market, we will let them stay longer. Others are just comfortable and find it advantageous to be here, and we limit their length of stay,” Zangari said.

At CCSU, companies in the incubator facilities sign a one-year lease and are expected to take part in a program that includes business counseling every other month to gain skills like marketing, finance and human resources.
“We discourage companies from being here if they aren’t going to attend our seminars and meetings and network, because that is the path to success,” Mullins said. “Success isn’t always the measure of how a business performs long term — some come in with fantastic ideas, products and good intentions, but if after a year they aren’t going in the direction they need to, they have to make a big decision about whether to keep going,” Mullins said.


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