It’s often hard to tell whether a government-sponsored initiative is worthwhile from a pure returns, or even more nebulous, ‘doing good’ point of view.
Accountants and economists can work magic with numbers, making you none the wiser, while any half-decent writer can justify anything.
However, given the Ministry of Economic Development’s penchant for killing anything that doesn’t deliver, the fact that New Zealand’s start-up company incubators are still in existence must mean something.
Those nine incubators (see end of story for list), are surviving, even thriving, after almost 10 years operation, and as well as MED’s stay of execution, some metrics around their performance seem to indicate there’s good reason to keep them going.
New Zealand Trade and Enterprise is responsible for the money and support side of the technology incubators, and last year’s appropriation was $4.5 million
In theory a start-up company is meant to spend two or three years getting themselves to a stage where they can leave the incubator nest and survive on their own feet. There’s been about 150 graduations since the incubator programme was set up in 2001 says NZTE manager of incubator development, Richard White.
Naturally, NZTE keeps a track of their progress, and last year 90 companies reported back on their performance at a very basic level, around three key metrics for 2009/10 White says.
1. Revenue. Collectively, $130 million, with 45% being export derived
2. Employment (full time employees) – 1100 people
3. Investment capital raised – $30 million
Anyone of those metrics would be considered a good return on investment White says. Using an economic impact formula (so beloved by economists), the multiplier effect of those 90 companies adds up to about $450 million during the year, though he is reluctant to use this figure for fear of a type of cooking of the books (sticK’s interpretation).
Beyond those pure numbers, White also notes the effect of the incubators is to help bring about changes in business culture within the country.
“There’s more awareness and acceptance of benefits of entrepreneurship and innovation,” he says. “More young people are graduating not simply determined to lead a corporate life. They want to work for themselves, and take their great ideas and do it themselves or with others.”
Part of this is helped by the fact that the incubators often sit alongside universities, with its invariable cross-fertilisation of faculties and scientists, as well as the wider campuses and community.
Another cultural change has been the rise of the angel investment community, particularly their role in helping early stage companies achieve an international presence. The payback history for angel investors doesn’t yet have enough history to provide a reasonable return on investment number White says.
“At the moment, angels may not be doing well, but they know they’re doing good,” he says. “They’re creating opportunities for start ups, alongside the incubators, that otherwise may not have happened.”
White says a lot of start ups would’ve happened without the presence of the incubators, but that many great ideas would’ve been too hard to kick off without the support an incubator gives.
The trick will be to use incubators (among other things) to transform to a knowledge economy that is more weightless and more value-added compared to the commodity-oriented primary sector.
Moving the start ups into internationalised companies is the next step, and NZTE is well-aware of the investment ‘valley of death’ funding issue from about $2 – $10 million White says.
“There’s also an acknowledgement that growing beyond start up is hard,” he says.
The tyranny of distance and cultural divide often sees companies a long way away from their natural partners (unlike say a European company whose partners may speak half a dozen languages for example).
“We’re also told more and more that we’re not well-prepared when trying to tackle new markets. We have to get better at being geared up, better at doing market validation work, at understanding markets and better at selling ourselves.”
This also means recognising Kiwi differences to other cultures, and taking steps to deal with it White says.
MED regularly evaluates its programmes, including incubators, and “so far the results have been encouraging,” he says.
“We expect the metrics to get better, because the companies themselves are getting older and are growing,” White says. “We’re also getting a better understanding of what the issues are for incubators and for start up, and are wrapping better solutions around them.”
For the record, the incubators are (starting at the south for a change):
• Upstart (Dunedin)
• powerhouse Ventures (Christchurch)
• CreativeHQ (Wellington)
• Biocommerce Centre (Palmerston North)
• SODA Inc (Hamilton)
• WaikatoLink (Hamilton)
• The Icehouse (Auckland)
• AUT Business Innovation Centre (Auckland)
• e-centre (Enterprise Centre) (Albany/North Shore)