Entrepreneurs benefit from the activation and pre-incubator process
More growth companies attracting the interest of venture-capitalists
Finnish technology incubators are finding an increasing number of potential growth companies and are better able to support entrepreneurs, particularly in the challenging first few years in business. In a matter of just a few years, technology incubators have managed to increase the number of incubator businesses by over 60 percent and the number of venture-capital investments from 10 to 60 a year. The share of private investments was 40 percent in 2007. This data is based on the Technology Incubator Development Project (formerly the Development Programme for Business Incubators, Yrke) coordinated by Sitra, a decisive factor behind the success of technology incubators.
– Thanks to the nationwide activation and pre-incubator process created during the Yrke project, an increasing number of enterprises are entering the incubators. The pre-incubator activities started from scratch, and now as many as 300 pre-incubator agreements are being signed every year. The quality of the companies involved has also improved. The quality criteria include growth and an orientation towards internationalisation, eligibility for venture capital investment and innovativeness, says Director Anu Nokso-Koivisto from Sitra at the concluding seminar of the Technology Incubator Development Project.
When the project was launched, new enterprises entering incubators numbered 98 per year. As the processes developed, the number of companies grew steadily. The quality of the incubator businesses also improved. Currently, nearly 200 new companies are selected for incubators each year. The annual number of fast-growing incubator businesses has more than doubled from under 20 to 40. Their share of new incubator businesses has risen from 13 percent to 25 percent.
– The selected companies are younger than before, more innovative and more growth-oriented. Approximately half of the companies double their net sales every year. The best companies recruit at least ten new employees every year, which is a significant effort for a new company. But companies do not emerge out of thin air; incubators must encourage entrepreneurship and the best companies often have to be built with the assistance of an incubator, says Research Manager Ulla Hytti from the Turku School of Economics, who conducted the final evaluation of the technology incubator activities.
– In the nationwide activation and pre-incubator process created during the project, entrepreneurs are challenged to develop their operations. Half of the pre-incubator businesses move on to the actual business incubators. About one-fifth of the companies meet the challenge of rising to the next growth category, says Nokso-Koivisto.
Sitra took on the coordinating responsibility of the project in 2003 together with the Ministry of Trade and Industry, Tekes, T&E centres, and local and regional authorities. The objective is to increase the number and improve the quality of new competence-based enterprises. During the project, the incubators were set certain goals and indicators, and were given an ABC classification for measuring company quality. This enables the monitoring of the number of new companies with the capacity and desire for growth that are being set up in Finland. According to an international survey carried out by Sitra, a similar system of classification is not in use anywhere else.
The role of technology incubators as an engine in Finnish business life is significant. An entrepreneur will need large amounts of information and support, particularly in the early stages of the business. About one half of companies set up in Finland fold during the first few years.
– Of the companies selected for incubators, nine out of ten continue after three years, making the survival rate considerably higher than average, says Hytti.
– An entrepreneur may have an interesting product or service, but lacks the skill and knowledge of commercialisation, sales, management or internationalisation. It is for incubators to help entrepreneurs to develop their business and to find their ideal partners. The incubator activities offer entrepreneurs a survival kit that will carry them through difficulties. Incubators are needed to provide entrepreneurs who are wrestling with a business idea with genuine support, so that there is adequate time for the idea to mature, develop and grow, says Nokso-Koivisto.
Changes in funding One of the goals of the project was to develop a long-term funding model for incubators. According to the evaluation commissioned by Sitra, governments in other countries have guaranteed the funding for incubators when similar projects have been launched. In Finland, incubators have received their funding from various sources on a project-specific basis.
– The initiator of the project, which has since become the new Ministry of Employment and the Economy, has promised to ensure that the development work and good results accomplished during the project will not be wasted as far as activation and pre-incubator processes are concerned. The funding, however, will be reviewed and set in more market-oriented direction, Nokso-Koivisto says.
Anu Nokso-Koivisto, Director, Sitra
Tel. +358 50 563 6997, firstname.lastname@example.org
Ulla Hytti, Research Manager, Turku School of Economics, TSE Entre
Tel. +358 40 540 9112, email@example.com
Background of the project
In 2003, the Ministry of Trade and Industry saw a need to address the number and quality of start-up businesses in Finland. In its view, the business incubators operating in conjunction with technology centres were in a key position to identify and develop new growth companies. At that stage, however, the products and services that these companies had at their disposal were relatively modest in many localities.
Sitra was asked to coordinate the Development Programme for Business Incubators (Yrke) and to upgrade key business development activities together with other public bodies. Later, the business incubators selected for the programme were coined technology incubators.
The Technology Incubator Development Project was launched to develop the activities of 12 regional technology incubators and thereby increase the number and improve the quality of the companies under their auspices. Sitra took on the coordinating responsibility of the project together with the Ministry of Trade and Industry, Tekes, T&E centres, and local and regional authorities. The Finnish Science Park Association is also behind the project. The objective is to increase the number and improve the quality of new competence-based enterprises.
Sitra launched a programme during the Technology Incubator Development Project with the aim of revising the practices of technology incubators and harmonising their methods. Technology incubators jointly agreed on the key development targets, which the regional incubators then planned and implemented. Simultaneously, nationwide activation and pre-incubator processed evolved.
During the project, the incubators were set certain goals and indicators and given an ABC classification for measuring company quality. This enables the statistical analysis of the number of new companies with the capacity and desire for growth that are being set up in Finland.
Sitra’s involvement in the Technology Incubator Development Programme ended in January 2008. The technology incubators will, however, continue their operations, benefiting from the experiences accumulated in the project and further developing their activities. The responsibility of the development work and reporting will be transferred to the Finnish Science Park Association’s Business Development Team.
- Finn-Medi Ltd., (Tampere Consortium)
- Hermia Business Development Ltd (Tampere Consortium)
- Joensuu Science Park Ltd/ Aventur Partners Ltd
- Technology Centre Teknia Ltd
- Lahti Science and Business Park Ltd
- Prizztech Ltd (Pori)
- Seinäjoki Technology Centre Ltd
- Technopolis Ventures JSP Ltd. (Jyväskylä)*
- Technopolis Ventures Kareltek Ltd (Lappeenranta)* Technopolis Ventures Oulutech Ltd (Oulu)*
- Technopolis Ventures Professia Ltd (Tampere Consortium)*
- Technopolis Ventures Ltd (Espoo)* Technology Centre Oy Merinova Ab (Vaasa)
- Turku Science Park Ltd
*) The Yrke programme resulted in the establishment in Espoo in 2004 of Technopolis Ventures Ltd, a subsidiary incubator of Technopolis plc. Since then, Technopolis plc has acquired technology centres and their business operations on several locations. Through these acquisitions, many technology incubators have become part of the Technopolis Group (Jyväskylä Technology Centre Ltd, Otaniemi Science Park Ltd, Oulutech Ltd, Professia Ltd and Technology Centre Kareltek Ltd. A letter of intent has also been signed with Technology Centre Teknia Ltd).
Yrke: Development Programme for Business Incubators Yrke
A project launched in 2003 to develop the activities of 12 regional technology incubators and thereby increase the number and improve the quality of the companies under their auspices. The title of the project was later changed to the Technology Incubator Development Project.