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Hatching Good Ideas? Characteristics o/Minnesota's Business Incubators Incubator Focus Because the purpose of early incubators was ofren economic development in a broad sense, many early incubators had little focus on a particular industry or sector. This trend, too, is changing. In 1998, 43 percent of incubators nationally were mixed-use, accepting clients from a wide variety of business activities.'fi By early 2000, the share of mixed-use incubators had fallen to 30 percent." In 1998, 25 percent of incubators focused on technology firms, compared to 40 percent of incubators focused on technology in 2000. In 1998, the remaining incubators were focused on other sectors or goals: 10 percent on manufacturing, 9 percent targeted a specific industry, 6 focused on service industries, 5 percent of incubators had empowerment as a goal, and the remaining 2 percent of incubators had other purposes. Overall, the key change between 1998 and 2000 was the increasing prevalence of technology incubators. A change in focus began in 1996 with the creation of Idealab, one of the first Internet incubators. Idealab had some highly visible successes among its incubatees, including eToys, NetZero, and GoTo.com. Idealab was proclaimed as a new form of private incubator, heavily focused on dot-com companies and affiliated with venture capital firms.'" This new model was expected to transform how new companies are created and nurtured. Following Idealab's success, the Internet incubator became a hot commodity in the late 1990s. Internet incubators would take an equity stake in Internet start-ups, helping the company along its path toward an exit event, usually either buyout or initial public offering (IPO). The expected reward for successes was huge. The increase in technology-focused incubators between 1998 and 2000 is indicative of the increase in incubators focused on technology start-ups. However, the past year has not been a good time to be an Intemet incubator. The decrease in value of Intemet stocks and diminished optimism in the Intemet economy has diminished the value of incubator assets.'° Successful start-up companies have been few and far between. There is some skepticism about the viability of many newly-founded incubators. Dinah Adkins, the NBIA's executive director, said that incubators have become an "investment vehicle" in recent years, adding, "It's such a fad. People are jumping into forming them so quickly, but they're not well- constituted"'° Now, according to a New York Times report, some investment companies consider "incubator" to be a tainted term" Others are not so bearish on incubators that focus on technology. One report suggests that the business incubation industry became overcrowded with start-up incubators with the same business model.' In this context, the report states that many newer and weaker incubators are exiting the business. Incubators that survive this downturn will be better managed, better financed, and have proven track records. The focus of an incubator creates a potential dilemma for incubator developers. Mixed-use incubators, while well managed, might not offer industry specific knowledge to help businesses succeed. However, niche incubators may be vulnerable to a downtum in the specific sector. For example, for-profit, technology-focused incubators that take an equity stake are sharing in the hardships of the technology sector. One possible action would be for a technology incubator to be organized as a non-profit to insulate itself from business cycles. However, removing the down-side of risk also removes the up-side of reward. Focus of U.S. Incubators 1998 and 2000 Other Mixed Use Other 32% 30% .,, 43% 1998 Mixed Use 30% 2000 Source. National Business Incubation Association. Accessed at www.nbia.org/info/facts and www.nbia.org/info/fac[_sheet on August i6, 2000, ~nnesoaa Department of Trade and Economic Development