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A world phenomenon

Congress demonstrates the vigor of the company incubator system which, over fifteen years worldwide, has grown from 200 to 3,000 units

brazCompany incubators of the world, unite! This could well have been the final rallying cry of the first world congress for this type of enterprise that took place in Rio de Janeiro, between the 23rd and the 25th of October. The representatives of thirty countries and the presence of 500 Brazilian participants, restated the importance of incubators in a world which the importance of technology based companies has clearly settled into – the main clients of incubators and those that need more time to grow – as the driving thrust of the development of each and every country. Incubators made up part of the technological research and development at the end of the twentieth century and enter into the new century as a powerful force.

In common, they have the offer of administrative, technological, marketing and production care for newly born companies, always of a small size, which strengthen themselves in the incubator so later they can take their place in the market. In the opinion of professor Rustam Lalkaka, an evaluator for the United Nations Development Program (UNDP) and president of Business & Technology Development Strategies, a consulting firm in the United States, in 1985 there were 200 incubators throughout the world, generally linked to technology centers or industrial parks. Today that number has grown to 3,000. The major number is in the United States that has almost 800 incubators. Brazil possesses 159, which is not all that small when one remembers that in 1986 there were only two. The average growth rate of the installation of incubators has been some 30% per year up to now.

Support in Asia
The spread of incubators in Asian countries has also been exponential. In 1995 in China, there was not a single incubator. At the end of this year 2001, the Chinese are close to inaugurating their two hundredth incubator. “In China, the incubators are helping in the adjustment of the socialist economy towards capitalism”, reports Lalkaka, who has given courses for the development of managers both for companies and for Chinese incubators. The Chinese are very humble and want to learn.”

The Chinese incubators are highly subsidized by the government. Standardized buildings with five floors and of 10,000 m² in area, have been built – on average, in the United States, the incubators have an area of some 2,000 m². In this manner, the Chinese government wants the incubators to stimulate the culture of entrepreneurs and the development of technology. Subsidies for incubators are also incentive factors in countries traditionally capitalistic such as Japan and South Korea.

“Two years ago the Japanese government created an association of incubators with the objective of creating 200 enterprises of this type within five years”, recalls professor Luís Afonso Bermúdez, president of the National Association of Enterprise Promoting Entities in Advanced Technology (Anprotec), an entity that brings together all of the Brazilian incubators. According to Lalkaka, in South Korea the incubators also strongly depend on government subsidies. “The majority are linked to universities, and they are among the most advanced on the planet in technological and commercial areas.”

Malaysia is another example of a government of a developing country that is betting on incubators. The Federal government of that country will be distributing during from 2001 to 2005, US$ 52 million for the formation and expansion of clusters (groups) of companies in technological developments linked to universities, as a form of shortening the gap between the production of technology within the academic environment and the market. In Israel, both government and private support was decisive in establishing one of the most successful examples of incubation. Over a ten year period, of the 824 company projects, 643 graduated and reached the market. The operation has already brought in some US$ 150 million in sales, 90% of them in exports. This for a government support program of US$ 258 million and private capital investments of US$ 525 million.

Public buildings
The relationship between subsidies and efficiency in developing countries, in the specific case of incubators, seems to be the answer for the initial success for these enterprises. In this, Brazil has not fallen behind. “Of the 159 incubators in existence, 70% have a technological stamp, formally linked to research institutes and public universities”, informed Bermúdez. In these cases, the building and the installations to house the companies have been ceded by public entities and city halls. The most recent example is that of the State University of Campinas (Unicamp), which is installing an incubator in its campus and is currently choosing the eight companies that will make up the enterprise.

The maintenance of these incubators is paid for, in part, by institutions such as the Brazilian Support Service for Micro and Small Companies (Sebrae) and through the system of the National Confederation of Industry (CNI) with the National Service of Industrial Learning (Senai) and the Euvaldo Lodi Institute. “The average of the annual cost of an incubator in Brazil varies between R$ 150,000 and R$ 250,000, and includes the salaries of the managers, consultants and the infra-structure such as telephone and light”, explains Bermudez. However, the incubation or for the company is not free of charge. The Brazilian average is of R$ 10,00 per m² as the cost that the entrepreneur pays the incubator. This is the cost to be paid during the two or three years that the company takes to reach graduation and to stand on its own two feet in the economic sector that it has chosen.

The Brazilian prospects for the development of new incubators are good. During the congress in Rio, Sebrae announced investments for the creation of 42 new incubators throughout the country by the end of the coming year. States such as Piauí, Sergipe and Tocantins, who have no incubators, will now be included. Sebrae also announced investments in another 57 incubators that are already working. In total there will be R$ 5.4 million in direct financing towards incubators. Among the new ones, ten are going to bring together technology based companies, such as those to be installed at the Federal University of Piauí and at the University Foundation of Tocantins.

Also included within this category is an incubator requested by the Association of Friends of the Science Station, an institution linked to the Center of Scientific, Technological and Cultural Diffusion of USP (Science Station). The idea is to concentrate, in an business form, the initiatives in the area of production of the material for the teaching and diffusion of science. “Lots of talented and experienced people exist – the majority of them professors – whose knowledge could result in companies”, says professor Ernst Hamburger, the director of the Science Station.

Other incubators are in the so-called traditional area of the economy in which technology is not preponderant such as the Commercial, Industrial and Services Association of Arapiraca (AL). In this category are the agricultural incubators, in which the emphasis is on the processing of agricultural products. Another category, a mixture, brings together technological development enterprises and at the same time companies from the traditional economy. An example is that which is about to be formed at the School of Economic Sciences of the Mineiro Triangle in the town of Uberaba (MG).

The importance of incubators for small companies is clear in the statistics provided by Sebrae. Within the number of small companies that go on to exceed a life span of three years, 56% will have definitely closed their doors. In the incubators, only 20% don’t survive for the same period of time, or that is to say, there is a success rate of 80%.

Excluding the United States, where only at the beginning of the activities of the incubator movement there was Federal funding, a large part of the incubators throughout the world exist, and well, with public money. However, the situation with companies is not the same. Only in some European countries and in the United States, there is a culture of private investment in small enterprises of high technology. The best known example is still Silicon Valley, a region in the State of California that brings together very successful companies in the area of information technology and telecommunications.

A Culture of gathering
For the president of the American Association of Seed Money and Venture Funds (Nasvf), Robert Heard, “the culture of the gathering of entrepreneurs and investors leads to investments”. For him “it is important to spread knowledge (generated in companies) not only for the investors, but for all of the community”. As well, he stated that the change of culture occurs with the training of entrepreneurs and with a strong information network which makes it possible for the investor to understand the enterprise and vice-versa. Heard said that this network is still fragile in the United States. “This is one of our problems”, said the investor who directs Nasvf, an entity founded in 1997.

“In the last three years, the perception of the investors in high technology in considering incubators as important sources of investments in business, has grown”, said Rina Pridor, the coordinator of the Company Incubator Program of the Ministry of Industry and Commerce of Israel. In that country, 59% of the graduated companies had raised private investment funds. The approximation between venture capital and entrepreneurs seems to be the key to the fulfillment of this symbiosis so necessary for the implanting of new companies and new technologies. In Brazil, the Financier of Studies and Projects (Finep) of the Ministry of Science and Technology, through the Inovar Project, has been sponsoring meetings between the two sides in round table meetings of entrepreneurs with representatives of foundations and investment companies.

Fleeting capital
The performance of foundations and venture capital companies in Brazil into technologically based companies is still considered to be low. “Venture capital in Brazil should be called fleeting capital”, summed up Sílvio Meira, president of the Center of Studies and Advanced Systems (Cesar), a non-governmental organization that brings together recently formed companies at the Information Technology Center of the Federal University of Pernambuco (UFPE), during a symposium at the National Conference of Science, Technology and Innovation, that took place in Brasilia during September last.

“In Brazil there is a lack of good examples of successful cases supported by venture capital, an activity still treated as ‘putting money into something dangerous’, and not as an opportunity investment as the concept exists in the United States”, stated professor Carlos Henrique de Brito Cruz, the president of FAPESP, who spoke during the Incubator Congress at the round table on Models and Experiences in the Financing of Innovations and Business. Brito also spoke of the Program of Technological Innovation in Small Companies (PIPE), through which many cases are being generated that could, within a short space of time, serve as examples of economic efficiency and the generation of research and development in small companies.

Of the 181 PIPE projects that the Foundation supports, 24 are companies installed in incubators, totaling R$ 3 million. The financing, without the necessity of a return to FAPESP, is pegged for the purchase of equipment and for the payment of services necessary for the company to develop the project. The difficulties in obtaining greater attention of venture capital founds is also a European concern. In Europe the culture of subsidies is well developed, while in the United States the culture is of investment and of risk”, explained the Spaniard Luís Sanz, the director of the International Association of Science Parks. For Heinz Fiedler, of the incubator of the Technical University of Berlin in Germany – a country with some 300 incubators -, the solution to attract venture capital is in a well humored inversion of  “values”.

“Once, at a meeting with venture capital investors where we were offering them our products, I asked one of them: Why should I accept your money?” Certainly it is with this spirit that the incubators must push ahead, in order to overcome the greatest challenge that goes along with these companies: to overcome the lack of capital. Allied to this effort, the specialists who met in Rio de Janeiro pointed towards the training of entrepreneurs and incubator managers as a factor for reaching undeniable success. Another factor is the formation of information networks for exchanges of experiences between incubators.

The importance that incubators are gaining throughout the world, according to the impression left by the congress, the scientific director of Anprotec, Ary Plonski, during the closing session made the following comment: “Incubators can no longer be seen as a fashion. Incubators are transforming themselves into a new paradigm of our society in a line that favors the development of science and technology stimulated through creative energy.” “Incubators are also good business for the community into which they are inserted”, completed James Robbins, the director of the National Business Incubation Association (Nbia) of the United States. “One needs to ask how many businesses, how much taxes, and how many jobs (in Brazil they total 7,000) the incubator gives to the town in which it is installed”, asked Robbinsas.

Future high fliers
In the environment of the universities and research centers a partnership with incubators seems to be fundamental. Nevertheless, there are those who see changes in the future in the relationship of the incubators with these teaching institutions. “In the university of the future, the incubator is going to disappear, because it is going to become and integral part of each academic unit”, stated the consultant Henry Etzkowitz, of Triple Helix Network, a consulting firm in the United States.

Today, incubators are already taking up a role in the formation of the entrepreneurs, in which the learns how to carry out research in the company with the help of the universities and research institutes. A job commented upon by the conference member who was invited to open the incubator congress in Rio, the sociologist Domenico de Masi, professor at Rome University. For him, the primary function of the incubators “is to teach and transform those links into opportunities”.

Old factories, new businesses

The evolution of company incubators is a recent phenomenon. The first registered attempt to gather companies in the same line of business – and the origin of the name incubator, came about in 1959 in the town of Batavia, in the State of New York in the United States. In that year, after the town had suffered the loss of a large cloth making factory, the local community decided to invest in another type of activity. The choice fell upon the sector of chicken products, and the location taken over was the old cloth factory. From the area where they installed the egg hatchery, came the name incubator, which spread throughout the world.

Incubators, in the form in which they are known today, came about at the beginning of the 70’s. They were the result of three simultaneous movements in the United States, according to the National Business Incubation Association (Nbia): the need of finding a purpose for abandoned areas, with large warehouses and factories; the action of the National Science Foundation in encouraging innovative initiatives in the universities; and the initiative of successful entrepreneurs and groups of investors in transferring experience and knowledge to new companies in an environment favorable to innovation and to new businesses.

Another impulse came from the American Department for the Administration of Small Businesses (SBA). From 1984 until 1987, the entity promoted courses and invested in the formation of incubators throughout the country. In 1984, twenty incubators were inaugurated and by the year 1987 the number had leaped to seventy.

In Brazil, the first incubators opened their doors in 1985, at the High Technology Park Foundation (Parqtec) in São Carlos, beside the campus of the University of São Paulo (USP) and at the Federal University of São Carlos (UFSCar). In 1986, the Entrepreneurial Center for Laboring of Advanced Technologies (Celta) was established, in the city of Florianópolis (SC), incubator of the Foundation Centers of Reference in Innovative Technologies (Certi).

New options for funds
Company incubators form the base of a new program that is going to stimulate the transference of innovative projects from the university and research centers to the business environment. This new concept is the Brazil Forum of Innovation, an initiative of the Financier of Studies and Projects (Finep) that will be able to count on funding from the Sectorial Funds. The first tender linked to the Petroleum Sectorial Fund (CTPetro) is ready and has already received project proposals. The quantity of financing forecast is of R$ 10 million. The research groups will work together with the company technology based incubators, responsible for the business coordination of the projects.

The other fund coordinated by Finep is that of Brazil Venture, for the financing of recently formed companies. More than R$ 30 million will be destined towards this fund. These funds should increase the participation of venture capital in the 58 companies that have participated in the five representations of Venture Forum Brazil, which are round table meetings of the companies to a audience of investors. “After one year, four companies have signed agreements for the entrance of capital into the company through stock transfers”, informed Luciane Gorgulho, the superintendent in the Development Area of Venture Capital of Finep. Another seven companies have signed an agreement, but are still to establish the division of shares.