Incubation and funding
Starting companies is tough. That’s why many entrepreneurs work in incubators, where they can share space and resources with other fledgling companies.
They also get access to some of the business expertise, networks and money they will need to succeed.
The latest evolution to the incubator model is the addition of government funding through Callaghan Innovation, which is signing three-year contracts with eight incubators.
The five founder incubators, including Auckland’s Icehouse and eCentre, Soda Inc. in Hamilton, The Bio Commerce Centre in Palmerston North and Wellington’s Creative HQ, build support around an entrepreneur who has a particular idea or business concept.
Callaghan’s grants manager Norman Evans says incubators can help people structure a business and get it ready for trading.
“They are there to take the risk out of building a business. It’s not much different to what a business would do on its own if they have all the skills and knowledge. Because incubators have access to that knowledge they can keep them from falling into traps.
“Kiwis often try to do things themselves because it is cheaper and they make the business so risky it falls over, or they talk to the wrong people and try to engage with a venture capitalist far too early before they have enough to say to them.”
He says businesses that have been through the incubation process have a much higher survival rate.
“I’m very optimistic. I think we are heading in the right direction,” Evans says.
“As a nation we are getting better at commercialising technology in particular, and in a few years we will be turning out some excellent companies.”
Power-House chief executive Dr Stephen Hampson says his incubator, which has been operating for five years, works closely with the technology transfer offices at Lincoln and Canterbury Universities.
“We work with the researchers, and if we identify an opportunity that’s worth building a company around and providing capital, part of the process is to find someone to move into that business and run the company and build up a management team. We have a role identifying those early customers, finding the capital, finding the people to run the business.”
Power House wants to turn the research into something that can be in the hands of the first customer within 12 to 18 months.
That doesn’t mean it’s a fully-fledged product. Hampson says the aim is to find a customer with a problem to be solved – by focusing on the problem, the applicability of the technology can be better understood.
“We’re offering guidance on how to innovate, how to pick the right first customer, how to make the right choice of first product.”
Hampson says Power House raises about $5 million a year to fund its companies, and the Callaghan grants will allow it to speed up the process of early-stage research, testing whether there is a business case.
Icehouse chief executive Andy Hamilton says most incubators have moved to being more investor aligned, as with the Ice Angels, or even providing investor funds themselves, like PowerHouse.
“Incubators and angel groups like to fund what they have the capacity to fill. They might put in $200,000 because they’re confident they can raise $2m to get the company to break even, but if it’s a $200 million opportunity, that may be too challenging,” Hamilton says.
He says the bigger investments will probably need to come from overseas.
“The good news for the clean tech world is that global capital is looking everywhere.
Khosla Ventures has invested in three kiwi cleantech businesses – Lanzatech, Rocketlab and Bio Discovery. That doesn’t mean any kiwi company can rock up to Khosla and expect to be let in, but is shows what is possible for quality entrepreneurs.”
Icehouse chief executive Andy Hamilton Photo: Martin Sykes