In the Washington region and across the country, the number of government-backed business incubators and accelerators has grown as public officials look for ways to support entrepreneurs, spur innovation and bolster their local economies.
However, not every space employs the same business model, uses taxpayer dollars in the same manner or offers the same resources to its companies. And this leaves plenty of room for debate over what works and what doesn’t when the government tries to support start-ups.
“A lot of cities and a lot of community leaders want to grow a better start-up scene and want to create these incubator and accelerator programs,” David Zipper, who oversees the programming at 1776, a business incubator and technology hub in the District, said in an interview. “But what do these spaces look like, and how do you make it work? Everyone’s looking for that special sauce.”
It’s a debate that has been thrown into the spotlight by a decision in Montgomery County, where officials recently decided to transform one of the region’s largest biotech incubators into a cybersecurity center. What started as an outcry over the county’s commitment to its biotechnology sector has since turned into a broader dialogue about what is needed to nurture young businesses.
The two most commonly used models have some fundamental differences. Accelerators, for one, take applications from early-stage companies, and the ones they accept typically receive work space, capital and intensive mentoring in exchange for a small slice of equity in the venture. Commonly, start-ups stay in the program for a matter of months and then “graduate” out of the space.
Incubators, on the other hand, have traditionally offered low-rent work space to entrepreneurs, usually in a group setting surrounded by other companies. And while they tend to offer some basic counseling and other resources, they do not generally take equity in businesses, and companies often stay put for several years.
Success can be fleeting, pushing officials to look for new models. The lines between traditional approaches are starting to blur as public officials experiment with hybrid models, offering incubators that incorporate some of the intensive mentoring programs and financing options traditionally offered by accelerators.
Take Montgomery County. It started its first incubator in 1998, and has since added four more, all of which the country owns and operates. The centers are about 70 percent self-sustainable through rent and other fees collected from the companies, and the county covers the other 30 percent — about $600,000 per year.
The oldest and largest among them is the William Hanna Innovation Center at Shady Grove, which has for the past 15 years housed biotechnology start-ups. However, the county recently announced plans to convert the space into a large cybersecurity center, which will house a small federal agency and beckon early-stage cybertech firms. All the current tenants must find a new home by the end of June, and some worry the move will set back their fragile enterprises.
Many in the local biotechnology community have blasted the county for turning its back on a sector that has long held top billing in the region. Montgomery Economic Development Director Steve Silverman, though, says the county “isn’t getting out of the life sciences incubation arena,” but rather adding support for a new and rapidly growing sector by devoting some of its resources to cybersecurity.
Moreover, he says, losing the physical space should not be nearly as crippling to those biotech firms because of new and different forms of support the county intends to provide. Silverman’s team has recently begun devoting more time to crafting targeted business mentoring programs and partnering with investment groups.
“The model is evolving, and over the next few years, we will be much more focused on providing programming, not just co-working space,” Silverman said.
It’s a transition that is already happening in other parts of the state, according to Phil Schiff, chief executive of the Tech Council of Maryland. Many of the state’s incubator programs, he said, have already started adding more robust mentoring services in areas such as finance, business law and intellectual property.
“Historically, the model was based on real estate and simply offering a collaborative environment,” Schiff said. “Going forward, it’s going to be much more program-driven.”
It’s happening in Anne Arundel at the Chesapeake Innovation Center, which receives most of its funding from the county. Laura Willoughby, the center’s executive director, says her team has in the past worked with incoming entrepreneurs one-on-one to determine which services they will need — what she called a “tailored but unstructured” approach. The group is now in the process of updating its model by designing courses and programs that will provide more structured, step-by-step programs.
In addition, CIC borrows from the accelerator model’s financing structure. If a company that spent time in the center ever goes public or gets acquired, the center received a one-percent equity stake in the business, potentially providing additional revenue that funnels back into the program.
“In setting up the CIC, the county was focused on long-term sustainability, and the equity stake was a key part of that,” Willoughby said, noting that the county has exercised that equity clause twice in the past. “They wanted to make sure the program would always be around.”
In Northern Virginia, some technology leaders say the move away from location-based programs to flexible mentoring and training programs is beneficial for entrepreneurs. The Northern Virginia Technology Council has started offering an intensive 10-week training program designed by the Kauffman Foundation, a national entrepreneurship advocacy group.
The class meets once a week at borrowed law firm space in Tysons Corner, after which many of the entrepreneurs return to their garages, offices or wherever they are building their companies.
“You need a community and collaboration, but that doesn’t necessarily mean you need a physical space,” said Kristin D’Amore, president of NVTC’s entrepreneur center. “Some need that space that they go to every day, whereas others just need the networking and advice and those type of resources.”
At 1776 in the District, which opened last year with the help of a $200,000 grant from the city, the leadership team is taking a similar approach. Zipper, who previously served as the city’s director of business development and strategy, said the group has been “extremely focused” on its various mentoring programs, hoping to offer value beyond just the natural interactions between its in-house entrepreneurs.
Most recently, the group began what it calls 1776 Labs. Under this program, the incubator will link entrepreneurs with a long-term business coach who will help them identify customers, run product trials and scale their businesses.
In part, that type of program is possible, Zipper said, because the District has elected to “provide some initial support and then step back and let the entrepreneurs lead the way.”
“When you see problems with these types of venture is when elected officials can’t let go,” Zipper said. He pointed out that one of the city’s programs, called CAPCO, under which the city sets aside some funds from car insurance fees to invest in young companies, has not taken off “because city officials are seen as playing too much of hands-on role in the program, not letting entrepreneurs lead the way.”
In addition, Zipper said that public officials sometimes drive incubators into the ground by trying to force them into areas where entrepreneurs do not want to go. George Mason University researchers have found that public officials across the country are much more apt to place incubators in distressed areas where they hope to spur economic development, rather than in areas where a vibrant business and investment community already exists to support fledgling businesses.
“A city can’t dictate where entrepreneurs will work,” Zipper said. “A heavy hand from the public sector just isn’t going to work. Offer some initial support, be a cheerleader and then just applaud as entrepreneurs do their thing.”