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Incubators in the New Economy. MIT Sloan MBA Thesis 2000 http://chinsomboon.com/incubator. 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

Incubators in the New Economy

MIT Sloan MBA Thesis 2000

http://chinsomboon.com/incubator

By O. Mac Chinsomboon

October 30-31, 2000

what i did
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
what s my perspective
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
what s your perspective
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?

HOW WILL YOU KNOW?

are incubators meeting a need
Are Incubators Meeting a Need?

What it takes to Build Firms in the New Economy

Speed-To-Market

Network: Synergies and Partnerships

Disruptive Technology Innovation and Development

Talent Cultivation

Going Global

Building Defensible and Scalable Technologies

Incubators can Help Facilitate This!

is there a need for incubators
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
incubator categories
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
services offered by incubators
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 …
4 sustainable value assets
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 http://chinsomboon.com/incubator

industry trends
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
risks and pitfalls
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
other questions answered in the report
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”)
download from the web
Download from the Web

http://chinsomboon.com/incubator

omac@alum.mit.edu

omac@chinsomboon.com