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Incubators in the New Economy. MIT Sloan MBA Thesis 2000 By O. Mac Chinsomboon. October 30-31, 2000. What I Did. Personally interviewed 80 incubators and related variances 35 VCs (all stages and verticals)

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Incubators in the New Economy

MIT Sloan MBA Thesis 2000

By O. Mac Chinsomboon

October 30-31, 2000

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What I Did

  • Personally interviewed

    • 80 incubators and related variances

    • 35 VCs (all stages and verticals)

    • Visionaries such as George Gilder, John Hagel, and Warren Buffet

    • Analysts

    • Entrepreneurs

    • Investors (angel, public, private)

  • 136 page MIT Sloan MBA Thesis

    • 4 Sustainable Values

    • Few incubators provide these values to the fullest, and they’re evolving

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What’s my Perspective?

  • Electrical and Computer Engineer by training

  • Management Consultant in US (Chicago, Silicon Valley)

  • Investment Banker in Europe (London)

  • Founder/Director of a New Economy Internet firm (Silicon Valley)

  • Founder of a boutique management consultancy in Asia (Bangkok)

  • MIT: Significant exposure to the venture community

    136 page, MIT Sloan MBA Thesis, conducted over 100 interviews, of incubators, VCs, angel investors, analysts, visionaries, entrepreneurs

  • Currently an advisor to VCs, incubators, other financial institutions, startups, and professional services firms

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What’s your Perspective?

Sustainable Value in today’s New Economy as it changes

Real value OR are they in it for the money/cachet?

?Question is then

------> What are those values?


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Are Incubators Meeting a Need?

What it takes to Build Firms in the New Economy


Network: Synergies and Partnerships

Disruptive Technology Innovation and Development

Talent Cultivation

Going Global

Building Defensible and Scalable Technologies

Incubators can Help Facilitate This!

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Is there a Need for Incubators?

  • Capture potentially successful deals missed by venture capitalists

  • Facilitate idea creation (ideation)

  • Enhance product and services

  • Accelerate speed of implementation

  • Ensure proper execution

  • Provide supplemental management

  • “hand holding”

  • Give access to expertise in marketing, operations, human resources, technical, management, strategy, business development, financial, and others

  • Facilitate business development and partnerships

  • Help in finding clients and others requirements

  • Facilitate sources of funding, early and later stage

  • Portfolioize seed-stage ventures

  • Provide additional deal-flow and vetting of deals for later-stage investors

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Incubator Categories

  • Venture Incubator

    • Full-service organization that provides everything a venture could need

  • Venture Accelerator

    • Venture Accelerators are services firms that accelerate the process of starting a new venture. Also included are VC with with active partnerships

  • Venture Portal

    • Venture Portals are online websites or extranets that create a network of entrepreneurs, advisors, and investors

  • Venture Network

    • Mix between a venture capital firm and an operating company -- operate at later-than-seed stages

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Services Offered by Incubators

  • Infrastructure

    • Legal counsel, for incorporation and IP issues

    • Accounting staff

    • Human Resources

    • Recruiting

    • Business Development

    • Marketing and Sales

    • Healthcare

    • Website Design

  • Technology

    • Research Labs

    • In house Engineers and Scientists

    • Access to Corporate R&D

    • CIO and CTO

  • Facilities

    • Real Estate

    • Internet access/Telecom

    • Databases

    • Servers

    • Computing

    • Network Access

      • Venture Capitalists

      • Investors

      • Strategic Partners

      • Fortune 500/1000 companies

      • Other Start-ups

  • Experienced Management Team

    • Former Entrepreneurs

    • Specialists in their field

  • Organizational

    • Community

    • Networking

    • Synergy across Portfolio

  • and more …

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    4 Sustainable Value Assets

    • Brand Equity: recognized name in their industry, important to maintain reputation in the market.

    • Network Affiliations: a large and meaningful Rolodex of contacts, as well as established partnerships with VC’s, complimentors, and corporations

    • Experience of Management: Experience with operations and execution as well as a deep knowledge of the industry

    • Ideation Process: A process for coming up with new business and technology can save an incubator from falling into the Darwinian Theory of Entrepreneurs*

    • (Office/Lab/Tech Space: sustainable asset in some areas)

    *From MIT Thesis available at

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    Industry Trends

    • Greater vertical specialization

    • Greater “true” strategic partnerships

      • Corporate

      • Service organization

      • Name brand VCs

      • University, research institute, and community

    • Service consolidation: full-service entity

    • M&A between service organizations

      • Combining best of bread with true startup “operators”

    • Backward- and forward- integration by VC and incubators

    • Incubators without the four factors of sustainability will disappear (or perhaps get lucky)

    • More Fortune 500/1000 companies will partner with incubators to incubate spinoffs/outs (incubators will facilitate the transformation of New and Old Economy)

    • In a softening market, rethinking plans to IPO the incubator as well as companies

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    Risks and Pitfalls

    • Darwinian Theory of Entrepreneurs

    • Proximity within the incubator could enable poaching talent and ideas between incubatees

    • One venture affecting another

    • Risks in the public markets

    • Busy going public

    • Building to “flip” or to “last”

    • Adverse development of the organization

    • Competency trap

    • May be seen as unnecessary intermediaries (hinges on execution/structure)

    • Backward integration by venture capital firms increases competition

    • Globalization of venture funds

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    Other Questions Answered in the Report

    • Why are more incubators going vertical?

    • How does an incubator ensure good deal flow?

    • Why would an entrepreneur go to an incubator?

    • How does an incubator accelerate a venture?

    • Are incubated companies inferior?

    • Are incubators good investments?

      • How about in a softening market?

    • What’s next? (see “In a Nut Shell”)