Ways of incubating and accelerating innovation
One of the more interesting phenomena that have accompanied the growth in entrepreneurship in the UK has been the expansion in the number of specific property developments, such as incubators and accelerators, which have been created to support new and growing businesses.
First established in the UK 30 years ago, incubators are typically defined as physical spaces that charge rent or membership fees to entrepreneurs and provide additional services such as training for entrepreneurs, access to networks and specialist equipment.
The first accelerator in the UK was only founded in 2007, although the vast majority have been set up during the past five years.
They are different to incubators because they usually offer seed funding to resident businesses, usually in the form of an equity investment. They also put their tenants through a highly selective programme (that can last up to a year) to help them develop a business plan, prepare for pitching to potential investors and undertake initial market testing.
Despite incubators and accelerators becoming an increasingly important part of the entrepreneurial ecosystem, very little is actually known about their impact in different sectors and locations.
Fortunately, that gap in information has now been addressed by the innovation charity NESTA, which published a report last month on the impact of this phenomenon across the UK
According to this research, there are currently 205 incubators and 163 accelerators currently active in the UK, supporting around 7,000 new businesses every year.
While some incubators cater to all types of entrepreneurs, the majority focus on early-stage ventures that usually stay for around two years before leaving.
Most are partly self-funded through the membership fees or rent they charge their residents (which is £250 per person per month on average), although these fees are often subsidised using public or university funding.
In contrast, accelerators are generally less reliant on public funding, often being financed by venture capital or, increasingly, by large businesses that are becoming more interested in entering this space to identify new markets, support an entrepreneurial culture internally, and help solve business problems quicker and at a lower risk.
It would be expected that many incubators and accelerators would be concentrating on developing a particular sector and yet a large proportion do not have a particular focus, although those that do tend to be based in digital technologies.
Very few are found in the UK’s largest industries such as real estate, construction and retail sectors, although this is changing.
For example, the John Lewis Partnership has opened J-LAB, a start-up accelerator which is looking to help new ventures come up with fresh ideas and technologies that can be developed in association with two of the UK’s leading retail brands, John Lewis and Waitrose.
In addition, Pi Labs has been founded to accelerate high-calibre start-up ventures into scalable businesses that will disrupt the property sector, although it is the only one of its type in the UK.
By location, more than half of accelerators are currently based in London, while incubators are spread relatively evenly throughout the UK.
This is not unexpected given that is where UK’s venture capital and most of the UK’s large companies are headquartered.
However, there is a concern that this may be driving talent towards the UK’s capital city and potentially affecting the development of clusters of high-potential firms elsewhere.
There are fewer incubators and accelerators in the devolved regions of Scotland, Wales and Northern Ireland and these are more reliant on public funding for support.
In Wales, all of these are located along the M4 corridor, with the exception of the Optic Business Incubation Centre in St Asaph and the Bridge Innovation Centre in Pembrokeshire, the only remnants of the Welsh Government’s much-criticised Technium programme of incubator support.
Therefore, the NESTA report has demonstrated the importance of incubators and accelerators across the UK and, more importantly, the scope for further growth.
However, more needs to be done to understand the impact of other property support (especially coworking space) and to determine which business incubation and acceleration models currently work effectively, so that further expansion in this sector can have a sustainable impact on the creation and growth of innovative firms across Wales.