Catalyst for Growth: The Role of Incubators and Other Support Entities in the Life of Start-Ups and Emerging Companies

Entrepreneurship, as channeled into the formation and operation of start-up companies, is a fast-growing avenue of technology transfer, particularly for commercialization of technologies in the life sciences and biotechnology areas. Traditionally, university-developed technologies have been developed for commercialization through licenses to government or corporate entities for applied research directed to specific commercial uses. However, the increasing importance of technology as a component of corporate/enterprise value (as opposed to the traditional emphasis on tangible assets) has fueled an increase in entrepreneurial activity directed to start-up companies. Government, industry, universities, and their surrounding communities also are paying attention to the related economic potential, by materially supporting the development of emerging companies. For example, university technology transfer and licensing offices are increasingly providing business-related support such as business planning and marketing directly to start-ups companies focused on commercializing technology developed in the university’s labs. In addition, technology “incubators” and other entities such as Technology Ventures Corporation, and San Diego’s CONNECT organization (which receive state, university, and corporate support), nurture and support the growth of start-ups. This article explores the role of incubators and these types of organizations as well as related legal considerations.

To be sure, the concept of technology incubators is not new. Many have been founded as outgrowths of the support provided to university startup companies by university technology transfer and licensing offices. Traditionally, university technology transfer and licensing offices have worked with academic researchers to provide resources and support for the identification, marketing, and licensing of their innovations. In contrast to these broader duties and responsibilities of university licensing and technology transfer offices, incubators are focused on providing an environment conducive to the growth of start-up companies. Start-ups often require access to capital and business-related services, particularly at the early product and customer development stage. Incubators can help fill the gap by leasing customizable office space and research facilities such as “wet labs.” In addition to physical facilities, incubators attract partners such as angel investors, venture capitalists, and providers of business services such as legal and accounting (which start-ups require), especially in connection with the protection and management of intellectual property (IP) and the procurement of funding, the lifeblood of emerging companies. The close-knit nature of an incubator environment allows for ease of networking between start-ups, technologists, investors, and service providers throughout the life cycle of a start-up company.

This type of environment provides other benefits as well. Many incubators are located in close proximity to university research facilities, thus allowing for useful intellectual exchange during the innovation process, and the sharing of services. University technology transfer and licensing offices also can provide marketing support by showcasing technologies and companies that are “in the pipeline.” Numerous universities have been involved in founding and operating incubators. Examples include: the IC2 Institute in Austin, near the University of Texas, the University of Florida’s Sid Martin Biotechnology Incubator,¹ and the Entrepreneurial Research Laboratory (ERL) at Boston University. The ERL offers a unique program under which it provides free incubator space to young entrepreneurs who give back to the school by presenting guest lectures on their innovative work.² Many states also have taken notice of the potential for regional economic benefits provided by incubators, and thus provide financial and other support to such incubators. Additional support/partnership often is provided by industry, venture capitalists, and business service providers, thus rounding out the start-up support network that incubators provide.

In addition to incubators, industry and even regional geographic communities have aggregated resources to create environments conducive to start-up growth. For example, the San Diego area’s CONNECT, which describes itself as a “public benefits organization,” specifically catalyzes, accelerates, and supports the growth of promising life sciences businesses.³ CONNECT facilitates networking between start-ups and CONNECT “partners” that are able to provide high-level expertise in the fields of life sciences, law, accounting, investment banking, marketing, and communications. Interestingly, CONNECT was founded by the University of California, San Diego, in 1985, and due to its success, has been replicated in other cities, such as St. Louis, and other countries, such as Scotland, Denmark, Norway, Sweden, and Taiwan.

Technology Ventures Corporation (TVC) is an example of industry playing a role in start-up support. It provides training and support to start-up companies in connection with forming, planning, financing, operating, and expanding technology-based businesses.⁴ TVC also has developed a unique model to connect inventors, entrepreneurs, and investors for the purpose of creating companies and taking laboratory inventions to the marketplace.⁵ TVC was founded by Lockheed Martin Corporation in 1993, in conjunction with a proposal to manage the U.S. Department of Energy’s Sandia National Laboratories. TVC has certainly proven its unique technology commercialization model: since 1993, TVC has been involved in funding events totaling $817 million, and the formation of 93 new businesses.⁶ More specifically, it has helped start-up companies such as Arcxis,⁷ a privately held biomedical device firm, and VeraLight,⁸ a privately held medical device company, raise multiple millions of dollars in financing. These resources are invaluable to emerging companies in the development, testing, and introduction of new products based upon technology.

An important aspect of entities such as CONNECT, TVC, and incubators, in general, is the networking opportunities that they provide, particularly with business service providers. Start-ups and their financiers face a number of significant events and milestones early in the existence of an emerging company. Start-ups should be careful to avoid losing or damaging their existing or potential intellectual property rights, which can result from taking an action without the knowledge and consideration of the consequences. It also is important to consider how IP portfolios will be protected and managed as a start-up grows, especially in light of financing transactions, potential public offerings, or merger, acquisition, and licensing transactions. In addition to these types of events, startups should carefully consider how to set up corporate governance and structures and funding agreements as well as employee and confidentiality agreements to protect IP. Identifying experienced and knowledgeable advisors and counselors can smooth the path of rapid start-up growth.

In conclusion, entrepreneurship in the life sciences and medical device industries, particularly as embodied in start-up companies, has become a significant mode of commercializing technology products in the industries. Incubators and “incubator-like” entities can help get start-ups “over the hump,” particularly by offering physical research facilities and access to business support and development networks. To be successful, technology start-up companies require capital and related corporate services such as accounting and legal. Incubators and other support entities are set up to provide resources needed by start-up companies as well as an environment conducive to growth.

¹ The Sid Martin Biotechnology Incubator is a 40,000 square foot facility with 19 “wet” laboratories, and $1,000,000 in equipment. It is presently fully occupied by 12 start-ups, including Banyan Biomarkers, Pasteuria Bioscience, and AxoGen Nerve Regeneration. Source: Business Week, May 21, 2007, Innovation: “MIT, Caltech-And The Gators?”

² Computerworld, June 26, 2007: “Boston University Unveils Technology Incubator With a Twist”

³ www.connect.org/about/index.htm

⁴ www.techventures.org/whatwedo/entrepreneurs.php

⁵ www.techventures.org/whatwedo/index.php

⁶ www.techventures.org/

⁷ www.techventures.org/news/index.php?releaseID=065

⁸ www.techventures.org/news/index.php?releaseID=063

This article is a part of the October 2007 edition of The Pulse, a newsletter for leaders in the Medical Device Industry.