What should university business incubators offer high technological startups? : an exploratory study in the Netherlands

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What should university business incubators offer high technological startups?

An exploratory study in the Netherlands

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Name: Diederik Bol Student number: 6137873

Date of submission: March 11, 2015

Faculty of Economics and Business

Master: Business Studies

Track: International Entrepreneurship Supervisor: Dr. G.T. Vinig

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Acknowledgement

This thesis is the final part of my Master program Business Studies at the Faculty of Economics and Business (FEB), University of Amsterdam. This master thesis is a conclusion of my specialization in the International Entrepreneurship track. I would like to show my gratitude to a number of people who were helpful in writing this thesis. First, my special thanks goes to my supervisor, Dr. G.T. Vinig. He introduced me to this topic, has been helpful and led me in the right direction. His course International Entrepreneurship inspired me to examine what university business incubators should offer high technology startups. Second, I would like to thank my mother and sister, Karen and Barbara, for their support, motivation and positivism. Third, my appreciation goes to my girlfriend Marloes, without her I would not have gotten this far. Furthermore, I would like to thank Anna and Daan, for helping me out on this thesis. I am looking forward to start my professional career with all the knowledge I have learned at the University of Amsterdam.

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Abstract

University business incubators are an interesting topic within the International Entrepreneurship track, since it combines many factors of business studies into one. The goal of this research is to examine what university business incubators should offer high technology startups. This was done by a literature study and semi-structured interviews with representatives of four Dutch university business incubators: YES!Delft, BTC-Twente, STARTUP/Eindhoven and ACE Venture Lab.

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1. Introduction

1.1 Overview

The capital of The Netherlands, Amsterdam, may be a paradise for cyclists, the country as a whole, seems to be a paradise for startups according to Henk Kamp, the Minister of Economic Affairs (Kamp, December 8, 2014). According to Kamp, the Netherlands have a growing number of successful startups but his ambition is to attract startups from abroad and appointed former EU-Commissioner Neelie Kroes as ‘Special Envoy’ to fulfill this ambition (Kamp, December 8, 2014). According to Ernst & Young (2012) the Netherlands has some strengths, which make it favorable for foreign investors: high quality of living conditions, telecommunications, transportation and logistics infrastructure. Ernst & Young (2012) predicted that in the eyes of potential investors the Netherlands will be the ‘Gateway to Europe’ by the year 2020 (p.5).

Right now the Netherlands has over 180.000 startups (KvK, 2015). This high number of Small and Medium scale Enterprises (SMEs) Aernoudt (2004) could not have foreseen, when he stated that entrepreneurship was an anomaly wearing two sides of the same medal. From these enterprises over 6.000 went bankrupt (KvK, 2015). Verma (2004) mentions several reasons for failure rates among small businesses: under capitalization, poor management, recession and competition (p. 3). Allen and Rahman (1985) mention management problems as being an important reason for small business to fail. In general, Verma (2004) states: ,,Although entrepreneurs may have specialized knowledge, they often lack the full array of business skills” (p. 3). In order to fill up this lack and to survive when entering the market, they can turn to a business incubator. Young (2001) and Rathino et al. (2013) see a clear connection between the support of business incubators and sustainable businesses.

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According to the National Business Incubation Association (NBIA, 2012) business incubation is a dynamic process of business enterprise development. Verma (2004) gives the following definition:,, (…) an organization, which offers a range of business services, and access to small space on flexible terms, to meet the needs of new firms” (p. 3). This definition is in line with the business incubators of this research. The Netherlands has 57 business incubators (Dutch Incubation Association, 2015) and therefore scores better on the number of incubators per capita than for instance the United States where, according to Wiggins and Gibson (2003), there are around 850 incubators.

As can be seen in the figure below, the business incubator model has changed over the years.

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Grimaldi and Grandi (2005) distinguish four types of incubators: Business Innovation Centers, University Business Incubators, Independent Private Incubators and Corporate Private Incubators. The next chapter will go into this further. For this research the focus is on university business incubators, which will be elaborated later on.

1.2 Role and function business incubators

There is hardly any dispute between researchers about what services a business incubator should offer their tenants. To mention some: enterprise development, business consultancy and network (Allen, 1985), how to get access to financing (Al-Mubaraki and Busler (2013), accounting and legal matters (Bergek and Norman, 2008). On the other hand, there is disagreement about the question what factors contribute to the business incubator’s success (among others: Verma, 2004; Schwartz and Gothner, 2009; Simons et al., 2000; Wiggins and Gibson, 2003). These different approaches will be described in the next chapter.

1.3 Problem definition

In the following section the problem addressed in this research will be discussed. First, by defining the problem statement this research will explore. Second, the delimitations will be presented.

1.3.1 Problem statement

University business incubators are supposed to transfer scientific and technological knowledge to high technological startups like Booking.com, Thuisbezorgd.nl, Senz and Epyon. Because little

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research has been done on the Dutch university business incubators phenomenon, it is interesting to investigate how they try to support and develop high technological startups. This leads to the following research question:

What should university business incubators offer high technological startups?

This research focuses on four Dutch university related business incubators: YES!Delft (founded in 2005), BTC-Twente (founded in 1981), STARTUP/Eindhoven (founded in 2014) and ACE Venture Lab (founded in 2008). There is no scientific basis for the choice of these incubators. YES!Delft and BTC-Twente are chosen due to the fact that they are two major incubators in the Netherlands. STARTUP/Eindhoven is interesting given the fact that it is a new incubator; it is therefore interesting to see if they follow a different path than the older ones. ACE Venture Lab is chosen because of the relation between the University of Amsterdam and the author of this thesis.

1.3.2 Delimitations

The first limitation of this study lies in the fact that only four university-related business incubators have been examined. This does not give a full overview of the Dutch university related business incubator landscape. However, for the explorative nature of this study, the current selection fits the needs. Furthermore only the role/influence of these business incubators in relation with the development of high technological startups has been examined. One could argue that examining that role is one thing, but one must also consider the amount of success these incubators have in what they do and/or offer. And where do they fail? However, it can be

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argued that having knowledge of the role/influence of business incubators is a starting point for future research.

1.4 Contribution

By answering the defined problem statement, this study contributes to the understanding what university business incubators should offer high technology startups. This study builds on previous work but explores new territory by researching four university related business incubators in the Netherlands; little research has been done on Dutch university business incubators. The international minded entrepreneurial environment in the Netherlands creates a good basis for exploring the added value of these incubators, which contributes to the existing literature that is focusing on business incubators worldwide.

1.4.1 Theoretical contribution

The theoretical relevance for this research is in what university business incubators should offer their tenants. There is a lot of literature to be found on business incubators worldwide, except for the Netherlands. This study incorporates the Dutch incubator landscape into existing literature, which allows one to make a start of a comparison between Dutch incubators and foreign incubators.

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1.4.2 Managerial contribution

The managerial relevance for this research is in what university business incubators should offer their tenants. By combining the existing literature with semi-structured interviews this thesis shows which functions business incubators have or use and whether they are positive on stimulating high technology startups. Research findings will give both incubators as well as the entrepreneurs of high technology startups insights in what business incubators have to offer to their tenants.

1.5 Structure of this research

This thesis is structured as follows. First, the relevant literature of business incubators will be reviewed in chapter two. In addition, the literature on entrepreneurship and startups will be examined. Second, the methodology of this research is being discussed and the semi-structured interviews will be explained in chapter three. Thereafter, the empirical results acquired from the interviews will be presented in chapter four. In chapter five the conclusion will be drawn and in chapter six a discussion will be presented. Followed by the bibliography and appendices.

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2. Literature review

This chapter first pays attention to the phenomenon of entrepreneurship, followed by what is written in the literature about startups and their success and failure factors. Thereafter, aspects of business incubators will be elaborated, like what they are, what factors must keep in mind in order to be successful, what they can offer to their tenants and how they screen their tenants.

2.1 Entrepreneurship

According to Ahmad and Seymour (2008) it was the French economist Richard Cantillon who is seen as the first who coined in about 1730 on what we nowadays call entrepreneurs: ,,risk-takers, in the sense that they purchased goods at certain prices in the present to sell at uncertain process in the future” (p. 6). One of the most well known theorists on this matter, Joseph Schumpeter (1942), defined an entrepreneur as a force of ‘creative destruction’: someone ,,to reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply or materials or a new outlet for products by reorganizing an industry and so on’’(p. 132). In line with the notion of an entrepreneur as a force of ‘creative destruction’, Ahmad and Seymour (2008) state that this disruptive entrepreneurship has nothing to do with destroying and replacing industries, but with innovation ,,by identifying and exploiting new products, processes or markets” (p.14). Based on interviews and psychological tests, Collins and Moore (1964) found that entrepreneurs don’t match with structured roles society expects them to ‘play’. But that characteristic is not unique for entrepreneurs. As Collins and Moore (1964) state: ,,What is unique about them is that they found an outlet for their creativity by

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making out of an undifferentiated mass of circumstances a creation uniquely their own: a business firm” (p. 88). Shane (2003) points out the dynamic process involving obtaining equipment and establishing production processes that underlies the possibility for entrepreneurs to create new organizations. They take risks. But, according to Simon et al. (2000), they do not perceive them as such.

To give an unambiguous definition of entrepreneurship is difficult. Ahmad and Seymour (2008) state that this has to do with the different fields of entrepreneurship research: anthropology, social science, economics and management. There definition of entrepreneurship is linked to entrepreneurial activity which is ,,the enterprising human action in pursuit of the generation of value, through the creation of expansion of economic activity, by identifying and exploiting new products, processes or markets” (p. 14). According to Reynolds (2005) entrepreneurship can be conceptualized as the discovery of opportunities and the subsequent creation of new economic activity, often via the creation of a new organization, which is in line with Shane (2003). Referring to Reynolds et al. (2001) and Aernoudt (2004) state that entrepreneurship is still considered to be an anomaly in most European countries. Indeed, Reynolds et al. showed in their Global Entrepreneurship monitoring (2001) that from the 29 countries they investigated, Belgium, Denmark, France, Germany, Ireland, Japan, the Netherlands, Portugal, Sweden, Spain and the United Kingdom had low entrepreneurial activity. As for the Netherlands, in 2001 6.4 percent of the adults were occupied with entrepreneurial activity. Although they stipulate the fact that the Netherlands tried to improve its business environment, the Dutch generous social security system where it is difficult to fire someone, hampered the number of (nascent) entrepreneurs. They also found that a main reason of lower entrepreneurial activity was the fact that banks were reluctant to lend money to start-up firms.

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Based on the above, generally speaking it can be stated that an entrepreneur wants to leave the traditional paths and wants to start something new, something he thinks will be fruitful and he wants his own firm. As will be described below, there are, or can be, many hurdles on this path to ‘freedom’.

2.2 Startups

In their study regarding new businesses and their founders, Watson et al. (1998) state that new small businesses are especially vulnerable in the infancy period following startup. In line with that ,,the influence of the founder in defining the business concept and mode of operation is of paramount importance” (Watson et al, 1998, p. 220). But the first question should be: what motivates somebody for business startup? In answering that question Watson et al. (1998) refer to Knight (1921) and Gray (1990). The first addresses push factors (e.g. unemployment, recession) that stimulate an individual to start a new business, the latter addresses pull factors (e.g. being independent) for the same reason. In other words: push factors force an individual to make that choice, pull factors attract people to entrepreneurship (Van Gelderen et al., 2005). They state that if an entrepreneur is driven by push motivations and has at the same time high ambitions, this combination can have a negative effect. But Watson et al. (1998) are not too negative about push factors as they write: ,,where the effective comparison is with being unemployed and receiving benefit, self-employment and small-firm employment may look much more attractive” (p. 222). In their study, based on a sample of 166 new businesses, Watson et al. (1998) found four factors that motivated individuals for startup: the entrepreneurial factor (26,8% being independent) the personal-opportunistic factor (14,6% able to work from home, make a lot of money), the market-opportunistic factor (11,1% meet a service or need) and the financial needs factor (10,3% earn a

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reasonable living) (p. 227). The fact that the last factor was the least mentioned is in line with the Bolton Report (1971) that states money was not the first motive for business start-up. This report found that family support and personal involvement in the new firm were much more important. Human capital factors like education or having worked earlier in an organization, are also of importance and can be helpful when deciding to start a new business. For instance, Van Gelderen et al. (2005) point out that work experience develops skills that can be helpful when setting up a new business with all new tasks and problems involved.

2.3 Success and failure factors of startups

According to Ray (1993) one cannot speak either of an ideal-type personality or of a marginal set of attributes that lead to success. In his view, an infinite variety of combinations contribute to a successful business. Entrepreneurial competence is only one of them. This last notion is rejected by Osborne (1993) who states that a business concept of the new firm and the capacity to accumulate capital are much more important to gain success. But Van Gelderen et al. (2005) argue that writing a business plan works out differently for start-ups with limited ambitions and those who start a large-scale business. The latter may be so experienced and know so much that they don’t need a business plan whereas the other ones by writing a plan, it can be helpful to structure and focus on what they are willing to do. Patton (2013) agrees with Osborne (1993) in saying that firm growth depends on knowledge acquisition and application. When funders of early stage firms have limited business experience, this can hamper growth. He refers to Penrose (1959) who states that firm growth is dependent on the application of entrepreneurial and managerial knowledge. Entrepreneurial knowledge deals with opportunity recognition and

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innovation; managerial knowledge deals with developing systems and processes that enable such opportunities to be exploited.

But Roure and Maidique (1986) found in their sample that the founders of both successful and unsuccessful firms had at least five years of experience in the particular industry in which their firms competed (p. 298). What seemed to be the decisive difference between them turned out to be if the founders have prior experience in the same position that they assumed in the new company. Those who lacked that experience, failed. Roure and Maidique (1986) stress the importance of looking at another factor in relating to success/failure: the degree of team completeness. With this they mean: ,,A group that included as original founders; the president and the executives responsible for marketing, engineering, finance, and operations” (p. 299). They found that, when they started, successful companies had larger and more complete teams. They also found that successful firms had more detailed development plans, which is in line with Osborne (1993). Also having a network is mentioned in relation with the firm’s success (Watson et al., 1998), as a person can’t act solely, together with risk perception, time investment and capital requirements. Kakati (2003) focuses on the entrepreneur quality, resource-based capability and competitive strategy as being decisive for the startups’ success. On the other hand, Van Gelderen et al. (2005) point out that the influence of variables like the individual, environment, the process and the organization in relation to success, can be either positive or negative. According to them, there is only one variable that can be negatively related to success: risk of the market. ,,If the market is really risky, chances of actually getting started are lower, as the nascent entrepreneur will abort the startup process when he learns that that the prospects for his firm are poor” (p. 368). Apart from this risk of the market, there are other factors that can cause trouble for start-ups e.g. personal and family situations and problems with marketing or

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selling the product. Regarding personal and family situations, Watson et al. (1998) mention the workload and feelings of loneliness while running a new venture together with problems concerning accounting. In case of family (business) experience or a stable and supportive family structure, things went better. A study of the Organization for Economic Cooperation and Development (OECD) (2002) found that 50-60% of new European enterprises does not succeed/survive within seven years. Vanderstraeten and Matthyssens (2010) refer to Stinchcombe (1965) who links this number with the ‘liability of newness’ principle: ,,(…) new organizations suffer a greater risk of failure than older ones, because they generally lack the necessary resources and legitimacy” (p. 4).

2.4 Business incubators

But hurdles can be managed. Like in the old days when newborn babies were looked after by an incubator, nowadays an incubator helps young firms to survive. But at the same time, the phenomenon of an incubator has evolved. Grimaldi and Grandi (2005) distinguish four main types of incubators: Business Innovation Centres (BICs) (which offer basic services to tenant companies), University Business Incubators (UBIs) (transfer scientific and technological knowledge from universities to companies like The University of Twente), Independent Private Incubators (IPIs) (set up by individuals to help starting entrepreneurs to grow) and Corporate Private Incubators (CPIs) which are owned and set up by large companies aiming to support new independent business units (pp. 112-113). Aerts et al. (2005) distinguish three generations of incubators: the first aimed at job creation, the second incubator generation extended these services to for instance consultancy and network access and the third generation concentrated on start-ups in the ICT. Although Aernoudt (2004) states, as mentioned above, that entrepreneurship

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is still considered to be an anomaly in most European countries and although he states that this is an obstacle for and has an impact on incubators, as for the 3.000 incubators worldwide, 30% is located in Western-Europe (European Commission, 2002).

The National Business Incubation Association (NBIA, 2012) describes business incubation (BI) as a dynamic process of business enterprise development. As a consequence, Aernoudt (2004) states that ,,a true incubator therefore is not only office space with a shared secretary and a common fax machine” but is supposed to offer ,,services such as hands-on management, access to finance (…), legal advice, operational know-how and access to new markets” whereas the main goal should be that after the incubation period the new firm has a financially viable outlook (p.127). Also Young (2001) and Ratinho et al. (2013) link the support of business incubators with getting sustainable businesses. As written before, entrepreneurial and managerial knowledge are decisive for a firm to grow. According to Patton (2013) this has implications for the development of early stage firms because their founders can hardly rely on business experience, resources and network alliances. So business incubation could be of great help and one might think that early stage firms that sought help for solving their (starting) problems, should be more successful than those who did not. But that does not seem to be true (Patton, 2013; Aernoudt, 2004). To put it stronger, Ratinho et al. (2013) found that when tenants had problems, they did not phone with an incubator in the first place. If they did, the problems were not solved thanks to the business incubator. Facing strategic problems did not turn out to be a reason for asking support. Support was sought in human capital development areas. As a consequence, Ratinho et al. (2013) suggest that not only a mismatch between the tenants’ perspective about their problems and their actual needs, but also between the BIs’ support and what the tenant actually needs: ,,while business incubators are helping tenants in developing their human capital, their most immediate needs are

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strategic” (p. 14). This mismatch hampers the solution of the tenants’ problems and it has an impact on the effectiveness of the BI support, as this is not linked with what should be done.

2.5 Business incubator services

The above mentioned remarks concerning the link between business incubators, solving early stage firms problems and effectiveness of BI support, raise the questions what BIs are supposed to offer to early stage firms and what’s their role in the entrepreneurial process. Answering that questions, one should keep in mind that, as said before, through the years BI has evolved from creating startups in all sectors, pushing economic development and creating entrepreneurship with a focus on technology (Aernoudt, 2004). So it turns out that the term business incubator covers much more than one activity, that it has become an ‘umbrella word’, (…) used to denote institutions with completely different objectives” (Aernoudt, 2004, p. 128). In countering this heterogeneity problem, Hackett and Dilts (2004) formulated the following definition: “A business incubator is a shared office-space facility that seeks to provide its incubates […] with a strategic, value-adding intervention system […] of monitoring and business assistance. This system controls and links resources with the objective of facilitating the successful new venture development of the incubatees while simultaneously containing the cost of their potential failure. […] The incubator is not simply a shared-space office facility, infrastructure and mission statement. Rather, the incubator is also a network of individuals and organizations […]” (p.57). Based on the literature one can state that there is at least some agreement about what BI’s should offer their tenants. Allen (1985) mentions four topics: enterprise development, a flexible affordable working space, business consultancy network and shared office services. Also Al-Mubaraki and Busler (2013) mention four kinds of services that help business growth and

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technological innovation: start-up consulting and business planning, consulting regarding business development and growth, consulting how to access to financing, training and networking (p. 365). This is in line with Bergek and Norrman (2008) who also emphasize the importance of business support with which they mean entrepreneurial training, business development, accounting, legal matters, advertising and financial assistance (p. 24). They also mention shared office space, shared support services, network provision and mediation that ,,incubators may help incubates to understand, interpret and perhaps even influence the institutional demands introduced by regulations, laws, traditions, values , norms and cognitive rules” (p. 25). According to Ratinho et al. (2013) provision of space is critical to business incubation. And they stress the necessity of linking tenants to useful networks. This is in line with Aldrich and Waldinger (1990) who states that because nascent entrepreneurs in general rely on their existing social networks, incubators should connect them with persons that can be helpful in the long run. As a consequence, Peters et al. (2004) state that incubators should be viewed as brokers because this is in line with the idea that ,,a huge part of the value of the incubator is its role as an intermediary to a much larger set of networks” (p. 89). In order to find out to what degree ups benefit from the services offered by incubators, Patton (2013) states that start-ups must have the feeling they can rely on the information they get and that the information is useful for their business, and they must be aware of the necessity for help. He found that the first issue raised problems between start-ups and their incubator founders. As a consequence, he states that incubator directors should not only look at what they (can) offer, but, in searching the best incubator practice, they should particularly be aware of the willingness of their tenants and therefore they must develop a holistic view ,,which stresses the importance of the founder’s willingness and ability to actively engage in an interactive, critical and reflective process” (p. 15).

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2.6 Business incubators and success factors

Although it has been stated that there is some agreement in the literature about what a business incubator should offer their tenants, among researchers there is either no unanimity regarding the criteria and definitions for success nor a clear standardization how to evaluate and measure success (Verma, 2003; Phan et al., 2005). And because of the fact there are several measurement systems, Franco-Santos et al. (2007) state that definitive conclusions regarding performance research don’t exist. At the same time, Vanderstraeten and Matthyssens (2010) mention two benefits of using robust performance measures and measurement systems: 1) incubator managers using them can position themselves better in the incubator landscape and 2) measures and measurement systems are necessary for strategy development, implementation and improvement. Literature mentions different measures like tenant employment, incubator period, tenant success rate (Aerts et al., 2005). Lewis (2001) mentions motivation and the fact that that the incubator manager should have local knowledge. Haapasalo and Ekholm (2004) state that organized networking is the most important factor for incubator success networking because this can help a startup company to launch and expand its business. According to Verma (2004) seven factors affect the success of an incubator: shared services, facilities and location, funding and support, incubator governance, tenant entry and exit criteria, monitoring and networking and age and size of the incubator.

The biggest and most extensive factor is that of the Shared services. Verma (2004) distinguishes three types of services incubators can offer their tenants: Logistical or physical services, shared business support services and business consulting assistance or expertise. As seen in the outline below, both logistical as well as shared business support services are self-evident and need little

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explanation. The business consulting assistance is more extensive and deserves some extra attention.

As discussed earlier, entrepreneurs often lack the full array of business skills. Business incubators are designed to fill this gap and help the startups on this sophisticated field of expertise.

The connections of incubators enable them to offer short-cuts in “getting things done” for tenants. The shared services identified by Allen (1985), Allen and Rahman (1985) and Smilor (1987) are ranked by Verma (2004) in his study. From the financial consulting assistance point of view, respondents ranked “government grants and loans” and “equity and debt finance arrangements” as being most important. The connection of the university-based incubators with the government could aid this process.

Regarding the management assistance, helping tenants with their “business plan preparation” is considered the most important aspect within this factor (Verma, 2004) as 57,7% of the respondents gave highest priority to this variable within this factor. Incubators have more experience in creating and evaluating business plans. Furthermore they are more aware of the aspects financial institutions attach importance to.

As for professional business services the “introduction to venture capitalists” is a major asset for tenants. Furthermore access to legal representation and counseling at a fraction of the normal cost speeds up legal processes and enables to tenants to ensure themselves of enough legal intellect to run their business. The following outline is summary of shared services:

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Logistical or Physical services

Shared Business Support Services Business Consulting Assistance or Expertise • Security services • Computers • Conference room • Custodial services • Photocopier • Furniture and equipment rental • Library • Telephone equipment • Photocopy • Receptionist • Typing • Clerical • Filing • Mail service • Word processing • Off-hours answering service • Audio-visual equipment • Shipping and receiving Financial Consulting • Business taxes • Risk Management and Insurance • Government Grants and Loans • Government Procurement Process • Government Contract Preparation • Equity and Debt

Finance Arrangements • Export development Assistance Management Assistance • Business plan preparation • Employee Relations • Advertising and Marketing

• Health and Benefit Packages Professional Business Services • Legal Counseling • Legal Representation • Patent Assistance • Accounting • Computing and Information Services • Bookkeeping • Introduction to Venture Capitalist Table 2.1 Verma, 2004

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Regarding to facilities and location, Verma (2004) divides this into two sections. First, flexibility in size and length of lease, most incubators provide space at below market rents. Flexibility was noted to be crucial to a successful incubator (Campbell and Allen, 1987) because it is difficult for small businesses to plan in terms of the size and length of lease. Second, a city centric location Young (2001) found in his study that 57% of incubators are located in major cities. Hansen et al. (2000) also found that 68% of incubators have only one location that is situated in big cities. Incubators are located near research parks, universities or research labs to offer entrepreneurs access to a wider range of facilities.

Looking at funding and support, Verma (2004) splits this into financing arrangement and organizational arrangements. According to financing arrangement, incubator financing depends largely upon if the facility is privately or publicly sponsored (Allen, 1985; Allen and Rahman, 1987). Incubators can be characterized as one of the four organizational types: for profit or corporate, not for-profit public or government, academic or educational institutions and a hybrid public/private partnerships (Allen, 1985; Allen, 1988).

Incubator governance regards to the management structure of an incubator. Most facilities consist of incubator managers, board of directors and an advisory council, who play key roles in recommending, reviewing and approving companies in the facility (Allen, 1985; Kumar and Kumar, 1997; Smilor 1987). Incubator governance consists of an experienced incubator manager, a key board of directors, a noted advisory council and concise program milestones with clear policies and procedures.

Regarding to tenant entry and exit criteria Verma (2004) states that if an incubator seeks to build companies, then it must have a selection process through which it evaluates, recommends and

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selects tenant firms (Allen, 1985; Smilor 1987). Exit criteria are not as extensive as entry criteria. Generally, exit policy is defined by a limited time to a tenant’s occupancy of the facility (Verma, 2004). When successful tenants no longer need the services provided by the incubator, or have a lack of space, they move from the facility. There are incubator managers who prefer tenants to be permanently situated in the facility, assuring certainty of occupancy and therefore avoiding financial risks.

The sixth factor Verma (2004) explains is mentoring and networking. First, the stronger, more complex the entrepreneurial network is, the more likely the entrepreneur will have access to opportunities, the greater his chance of solving problems and ultimately the greater the chance of success for a new venture. Second, if tenant companies grow, they must eventually stand on their own. This is an effect of the protected environment of the incubator. Third, a tie to a university proves beneficial not only for the incubator but also for the university (Smilor, 1987). Incubators benefit by having former university professors as managers or advisors. For the university, the incubator provides a mechanism to commercialize university research (Verma, 2004). Fourth, community support plays an important role in sustaining incubator development and thereby in incubator success (Smilor, 1987). Fifth, Smilor (1987) identified affiliation with key institutions, both private and public, as an important intangible element, playing a key role in incubator development. Affiliation with key institutions provides entrepreneurs with access to a wide range of skills and services. It also helps link entrepreneurs with highly successful and experienced entrepreneurs.

Another factor Verma (2004) refers to is the age and size of the incubator. A study by Allen and McCluskey (1990) found that the age and size of incubators affect the number of jobs created and firms graduated. They found that older incubators have more time to produce results, thereby

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creating more jobs and that larger facilities have more tenants who can produce more jobs or graduates.

For his research Verma (2004) defines a successful incubator as: ,,an incubator that has graduated firms, has created jobs, and is able to achieve financial break-even (…)” (p. 34). But using only one or even a few variables for incubator evaluation is insufficient (Schwartz and Gothner, 2009). They apply the Preference Ranking Organization Method for Enrichment Evaluation, consisting of six criteria to compare performances of business incubators: 1) average incubation time; 2) share of start-ups; 3) share of high-tech firms; 4) client satisfaction; 5) overall survival; 6) employment growth after graduation (Vanderstraeten and Matthyssens, 2010, p. 7). Critics say that this measuring method focuses mainly on the output side. Vanderstraeten and Matthyssens (2010) are in favor of Simons et al. (2000) inputs-process-outputs model when measuring incubators performances. According to Simons et al. (2000) “performance measurement and control information can be understood only by reference to some model of underlying organizational processes”(p.59). Those processes can be divided in input, output and process side and in all three of them the (incubator) manager has different responsibilities: 1) obtaining appropriate, sufficient and qualitative inputs, (2) maintaining an efficient transformation process, and (3) meeting output specifications (Vanderstraeten and Matthyssens, 2010, p. 8).

In general, the following variables are mentioned in relation with best practices: screening, job creation, graduation, incubate survival and growth. But all of them have certain shortcomings. To start with survival and growth: there is hardly consensus how to measure firm growth: sales growth?; cash flow growth?; growth in the number of employees? ,,Which measure is most relevant, is unclear” (Vanderstraeten and Matthyssens, 2010, p. 9). Linking screening with best practices is difficult because there does not exist a ‘one fits all’ screening practice. But severe

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screening of tenants by incubators can be helpful in minimizing risks for both of them because it is conventional wisdom that if somebody wants to gain success, he will minimize the hampering factors. This also counts for business incubators: their success is related to the performance of the tenants, so they should screen them severely in order to minimize the number of tenant failures (Aerts et al. 2005; Merrifield, 1987). This is in line with Wiggins and Gibson (2003) who state that ,,selecting companies is perhaps the most important consideration that sets apart one incubator from another” (p. 63). They point at several factors that must be taken into account while selecting companies: the process must be rational, well communicated and the company in question must fit with the incubator’s purpose (p. 63). Based on a variety of research, Verma (2003) eleven entry criteria among which the ability to create jobs, present a written business plan, have a unique opportunity, affiliated with university and complementary to existing firms (p. 46). Watson et al. (1998) stress the importance of the viability of the business concept, the founder’s background to find out if he/she is able to cope with the new business venture, the founder’s objectives and, last but not least, incubators should be aware that ,,quality of live issues, personal problems and family matters can be very important for small business owners and can impact on the success of the business venture” (p. 237).

By using Critical Success Factors (CSF) incubators can test whether the tenant can succeed or not (Lumpkin and Ireland, 1988). Although these factors differ, given the fact that there are lots of different incubators, these factors are defined as ,,those dimensions of firm’s operations that are vital to its success” (Lumpkin and Ireland, 1988, p. 60). So incubators should select tenants/client firms regarding what skills they need to survive when entering the market where they want to performance. Given the fact that incubators have three priorities: job creation, promote economic development and earn a profit (Smilor, 1985) they should use appropriate selection criteria to

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achieve those priorities. Lumpkin and Ireland (1988) wanted to see if incubators use a set of CSF’s to screen new tenants. Their sample counted 41 incubators. The critical success factors they mention regarding to financial ratios are liquidity, profitability, asset utilization, price earnings and debt utilization. Looking at personal characteristics of the management team factors are age, sex, technical skills, management skills, financial skills, marketing skills, aggressiveness/persistence, creativity, personal investment and references from others. Critical market factors are current size, growth rate, uniqueness of product/service, marketability of product/service and a written business plan.

They found that about 15% of the incubators did not screen their tenants at all. 45.4% of the incubator managers focused during the screening on market factors and personal characteristics, 24.2% on financial factors and 15.2% was focused primarily on personal factors. They also found that retail, services and heavy industry were mentioned by incubator as the types they excluded. High technology startups turned out to be popular to incubators.

Although difficult to measure, Aerts et al. (2005) tried to find a link between screening practices and incubator performance. Before doing so, they state that it must be clear which variables are used to measure incubator performance. Those variables vary from job creation, cost effectiveness and growth. Based on the screening factors of Lumpkin and Ireland (1988), they made a questionnaire and a list of 23 incubator services. Only incubators who offered more than 5 services were admitted. Their sample contained 107 incubators. They found that three incubators didn’t screen on the Lumpkin and Ireland (1988) factors. 76% of the incubators left the decision of accepting a tenant or not in the hands of a selection committee, 24% relied on only one person being in charged with the screening. Market factors turned out to be the most

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important part of the screening (61%), followed by the management team (27%) and financial factors (6%). Only 6% screened on a balanced set of factors.

Aerts et al. (2005) conclude that these differences make clear that incubators screen in an unbalanced way, which is critical for both the incubator and the tenant. They state: ,,a high concentration on one screening dimension (financial factors, team or market) is related to a higher failure rate” (Aerts et al., 1988, p. 19). So according to them, a diversified set of criteria should be used during the screening process but it remains unclear how exactly that set of criteria should look like.

Like Patton (2013), also Bergek and Norrman (2008) are in favor of a holistic approach, covering the goals and the performance of the incubators, when searching for the best incubator practice. They define best practice as ,,a process that is better at delivering a particular result than any other process” (p. 22) and in their research ‘better’ concerns the question ,,whether the right things are done” (p. 22). In their opinion, identifying the best practice can only be successful when comparisons are made between incubators who share the same goals. They relate goals and performance of the incubators to their incubator models that contain four components: selection (either focused on the idea of the incubate or on his/her personality, experience, skills); business support (e.g. coaching); mediation (how the incubates get connected with each other and the outside world) and graduation (whether the incubate can stay or not). Their sample counts sixteen Swedish incubators, so it is more an illustration rather than a proper test of the validity of their framework. Regarding selection it turned out that six incubators were entrepreneur focused, seven were idea focused, one had a survival of the fittest approach (,,rely on markets to provide the selection processes that over time will separate winners from losers”, p. 23) and three looked carefully if the new born entrepreneur had the possibility to win after entering the ‘the market

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place’ (and stay there), the so-called ‘picking-the-winner’ approach. Regarding business support it turned out that four incubators chose for little intervention, three were the opposite and seven had a program, which incubates, had to follow. Not only because of the small sample number, but also because Bergek and Norrman (2008) did not find substantial differences regarding graduation, it is difficult to say whether their best practice model is useful or not.

Linking best practices with graduation rates alone is rejected by Allen and McCluskey (1990) because it does not tell anything about what happens to the firm after being graduated. Also the variable job creation by tenants is difficult to handle because ,,this misses important long-term benefits of incubators” (Allen and McCluskey, 1990, p. 92).

Less successful or failed business incubators are less investigated. Lewis (2001) refers to Smilor (1996) who mentions five reasons for failure: inflated expectations, a wrong manager, overestimating the incubator’s role in economic development, overspending and a failure to leverage resources (p. 22). So research came up concerning the characteristics a business incubator should have. Lewis (2001) sums up some characteristic and skills of good incubator managers like problem solving skills, having an eye for detail but not being afraid of multitasking, being a team player en being motivated by challenge. In order to succeed, business incubators must show leadership, deliver value-added services to member companies and develop a new-company selection process (Gibson and Wiggins, 2005).

2.6 Accelerators

The most recent development in the world of incubators is the rise of so-called accelerators. According to Cohen and Hochberg (2014) accelerators offer programs that last approximately

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three months, they provide nascent ventures, little seed capital and a working place. They define the Seed Accelerator as follows: ,,A fixed-term, cohort-based program, including mentorship and educational components, that culminates in a public pitch event or demo-day” (p. 4). During the demo-day the involved ventures present themselves to investors hoping for a click (Cohen, 2013). Dempwolf et al. (2013) underline the fact that ,,accelerators can connect startups with networks of other entrepreneurs and potential investors giving program participants invaluable social capital contributions” (p. 1).

Accelerators differ from incubators on four dimensions: 1) the short-term program; 2) cohorts; 3) incentives and 4) the educational program (Cohen and Hochberg, 2014). Dempwolf et al. (2014) mention besides that the fact that accelerators are eager for a specific area of expertise in its staff and their focus on social capital contributions and social networking.

Compared to the short-term program accelerators offer, it takes firms one to five years to graduate from incubators (Amezcua, 2011). Cohen and Hochberg (2014) explain the reason for this high-speed program: ,,The limited duration of accelerator programs focuses founders’ attention. Founders work at an often unsustainable pace for the three-month programs; often working seven days a week, doing little else but work and sleep. Of course, they could not sustain this pace if the programs were longer or ongoing” (p. 10). What’s more: they enter and leave the program in groups, cohorts. During the high-speed program they work intensively and form strong bonds (Cohen and Hochberg, 2014). As was written before, incubators are generally publicly owned so not having an own investment fund (Allen and McCluskey, 1990). On the other hand, lots of accelerators are privately owned. As a result, according to Cohen and Hochberg, 2014) ,,the incentives of accelerator directors are often more closely aligned with the ventures than are those of professional incubator managers” (p. 11). Regarding the educational

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program, it turns out that when entering the accelerator program, nascent ventures can expect lectures on lots of topics that has to do with entrepreneurship.

In their study of accelerators, Hallen, Bingham and Cohen (2013) found that on the one hand many accelerator programs don’t accelerate startup development at any price but on the other hand that those top programs indeed accelerate.

This chapter first paid attention to the phenomenon of the entrepreneurship, followed by what is written in the literature about startups and their success and failure factors. Thereafter, aspects of business incubators were elaborated, like what they are, what factors must be kept in mind in order to be successful, what they can offer to their tenants and how they should screen their tenants. The six factors Verma (2004) used in his research are leading for this thesis.

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3. Methodology

In order to answer the research question, apart from a literature study, qualitative research in the shape of semi-structured interviews will be done done because this strategy ,,usually emphasizes words rather than quantification in the collection and analysis of data” (Bryman, 2008, p. 366). Semi-structured interviews will be held with representatives of four university related incubators: Yes!Delft, ACE Venture Lab Amsterdam, STARTUP/Eindhoven and BTC-Twente.

According to Saunders et al. (2009) a semi-structured interview is a ,,wide-ranging category of interview in which the interviewer commences with a set of interview themes but is prepared to vary the order in which questions are asked and to ask new questions in the context of the research situation” (p.601). While using a semi-structured interview, the researcher has a list of themes to be covered. This means that there will be some structure in the interview but there will be room to improvise and collect answers outside the standard questions (Saunders et al., 2009). Regarding the use of (semi-structured) interviews Saunders et al. (2009) hammer at five P’s the researcher must keep in mind: ,,prior planning prevents poor performance” (p. 328). Among others, the researcher must have a great deal of knowledge about the topics he/she wants to discuss with the interviewee; he/she should handover useful information to the interviewee about what will be discussed and the interview should not be held in a noisy place as this will reduce the quality of the audio recording of the interview. Bell et al. (2004) state that interviews may be the only way of obtaining information from the key decision makers, given their noted reluctance to complete questionnaires.

Concerning the reliability of a research, Bryman (2008) states that this has to do with the question whether the results of a study can be repeated. This might be difficult when using a

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non-standardized research method because circumstances could have changed when doing the same research, say, a year later. Therefore, Saunders et al. (2009) state: ,,an attempt to ensure that qualitative, non-standardized research could be replicated by other researchers would not be realistic or feasible without undermining this type of research” (p. 328). According to Marshall and Rossman (1999) researchers using this approach should make this clear by explaining the research design, the reasons why a certain strategy and why a specific method was chosen and how the data were obtained. When doing this, and the result is appropriate, other researchers would be able to reanalyze the collected data.

Regarding the validity of a research, Saunders et al. (2009) define this concept as ,,the extent to which data collection method or methods accurately measure what they were intended to measure” (p. 603). And: ,,The extent to which research findings are really about what they profess to be about” (p. 603). It is common to distinguish internal and external validity. The first deals with the question ,,of whether a conclusion that incorporates a causal relationship between two or more variables holds water” (Bryman, 2008, p. 32). As for this research where the role/function of four university related incubators in stimulating high technology startups will be elaborated: how sure can we be that there is a causal relationship between the university related incubator and successfully stimulating high technology startups? So the researcher should keep in mind that there could be other factors that are responsible for the success of a high-tech start up. External validity is concerned with the extent to which the results of a study can be generalized to other situations and to other people (Saunders et al., 2009, p. 592).

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3.1 Data collection

As mentioned before, representatives of four university business incubators will be interviewed. The representatives are: Elsbeth Geukers - YES!Delft, Rob de Koning – BTC-Twente, Monique Greve and Robert Al – STARTUP/Eindhoven and Erik Boer - ACE Venture Lab.

There is no scientific basis for the choice of these incubators. YES!Delft and BTC-Twente are chosen due to the fact that they are two major incubators in the Netherlands. STARTUP/Eindhoven is interesting given the fact that it is a new incubator and there is the possibility that it follows a different path. ACE Venture Lab is chosen because of the relation between the University of Amsterdam and the author of this thesis.

The questionnaire consists of two parts: the first part concentrates on general characteristics and background of the incubator. The second part focuses on the six factors of Verma (2004) as described in the literature. The results will be presented on the basis of these factors.

The interviews are audio-recorded in order to analyze the results. The duration of the interviews is around one hour. The purpose of the interview will be explained to the interviewee in a short introduction. Permission to record the interview will be asked in advance. See for the semi-structured interviews appendix A.

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3.2 Description of the four incubators

3.2.1 Delft

The first incubator is YES!Delft. The abbreviation stands for Young Entrepreneurs Society in Delft, a city that has on of the most well known Dutch technological universities. This interview was held with Elsbeth Geukers, Launch Lab manager.

The foundation of YES!Delft is a joint initiative of Delft University of Techbology (TU Delft), the City of Delft and TNO Companies. The mission of the center is “Building tomorrow’s leading firms” (derived from www.yesdelft.nl). Since the start in 2005, over hundred fifty companies started at YES!Delft.

According to YES!Delft, two themes demand global attention: sustainability and healthcare. To achieve breakthroughs in these themes it is of importance that knowledge institutes, companies and governments work together in the knowledge region of South-Holland Rotterdam, Delft and Leiden. Their ambition is to be in the top 3 of knowledge and innovation regions of Europe by the year 2025. To achieve this goal, the science park will be further developed: a sustainable data center and new business complex will be built.

This regional cooperation stimulates cooperation between business, knowledge institutes and governments. Universities and research institutes do research that form the basis for sustainable groundbreaking developments like the storm-umbrellas from Senz, the fast charging solutions for electric vehicles from Epyon and the easy offshore access from Ampelmann. Business translates this scientific knowledge into practical applications. Innovative business blossoms in incubators. Both knowledge institutes and business attract talented individuals, which offer them further development. The government creates a good entrepreneurial and innovative climate by

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implementing stimulating policies and facilitating measures.

Incubators play a specific role in the innovation process. At YES!Delft ambitious entrepreneurs with a technical innovative business idea get the space, network and support to grow their idea from a startup into a company.

3.2.2 BTC-Twente

The second interview was conducted at BTC Twente. BTC stands for Bedrijfstechnologisch Centrum Twente (Business Technology Center Twente). BTC is established on Kennispark Twente. Kennispark is a place where science, business and leisure are combined. The interview was held with Rob de Koning, director of this incubator.

The foundation of Kennispark Twente in Enschede is a joint initiative of the University of Twente, the City of Enschede, the Region of Twente, the Province of Overijssel and the Saxion University of Applied Sciences. Through Kennispark Twente they share the economic development goal of creating 10.000 new jobs for the region (derived from http://www.btc-twente.nl/en/BTC-Twente/btc_organisation/).

The mission of Kennispark Twente is to further develop an innovative entrepreneur’s climate in the region of Twente. By doing so, Kennispark invests in three product lines. The first is to support systems for innovative startups: from coaching programs, events and financing. Second is industrial innovation, joint innovation projects between Small and Medium size Enterprises (SME), local industries and universities. The third line is to create an attractive business climate, where the Region of Twente can attract new businesses.

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The Innovation Campus Kennispark in Enschede is a location where more than 380 companies work. It is a location with a hospitable and established climate for entrepreneurs, that offers chances and opportunities for development and growth of your company.

3.2.3 STARTUP/Eindhoven

The third interview was conducted with the Innovation Lab of STARTUP/Eindhoven. This incubator is located at the campus of Technical University of Eindhoven (TU/e). The interview was held with Robert Al, Incubation manager, and Monique Greve, project leader, both responsible for the Innovation Lab.

The foundation of STARTUP/Eindhoven is a joint initiative of the Technical University of Eindhoven, the Eindhoven Student Business Club and Brightmove. This incubator started the most recently; the official launch was in September 2014.

The aim of STARTUP/Eindhoven is to create a vibrant community on the TU/e campus of people that carry out the combination entrepreneurship with technology innovations and empower each other.

This incubator aims at three target audiences, namely the entrepreneurs, the intrapreneurs and the student teams. With only a couple months of being in business, the Innovation Lab already has 100 entrepreneurs, 100 intrapreneurs and 200 student teams operating.

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3.2.4 Amsterdam

The fourth and final incubator that was interviewed was ACE Venture Lab. ACE stands for Amsterdam Center for Entrepreneurship. The interview was held with Erik Boer, director of ACE.

In 2006 the Faculty of Economics and Business of the University of Amsterdam started a new research center. In 2008, the University of Amsterdam, the Vrije Universiteit (VU), Hogeschool van Amsterdam (HvA) and Hogeschool Inholland joined forces into an initiative called CASE, the Center for Amsterdam Scholes for Entrepreneurship. The cooperation is meant to improve the business climate in Amsterdam by bringing businesses in contact with scientific research. In 2010 CASE forms the basis for the current ACE.

With education, research and the Venture Lab is ACE the place in Amsterdam for students, teachers, researchers and entrepreneurs when it comes to entrepreneurship. Their goal is to become a leader in accelerating science based technology companies.

As a leading Center for Entrepreneurship they stimulate high-quality entrepreneurship through research and education. They want to accomplish their mission by joining forces with four top universities namely the University of Amsterdam (UvA), VU University (VU), the Amsterdam School of Applied Sciences (HvA) and the Amsterdam School of Arts (AHK).

The reproduction of the interviews is not on the basis of quotations (question/answer) but contains a summary of the discussed topics because this is in favor of the readability of the results.

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4. Results

In this chapter the results of the semi-structured interviews will be shown in tables, followed by an explanation of the results. Due to the large amount of information, tables are used to facilitate the reading. For a full review of the results see appendix B. The results are discussed according to the order held in the literature review.

4.1 Background incubator

YES!Delft BTC-Twente STARTUP/Eindhoven ACE Initiative - Delft University of Technology (TU) - City of Delft - TNO Companies - Technical Graduate School Twente - Technological University of Eindhoven

- Brabants Center for Entrepreneurship (BCE) - University of Amsterdam (UvA) - Vrije University of Amsterdam (VU) - University of Applied Sciences Amsterdam (HvA) - Inholland University of Applied Sciences

Team (FTE) 7 7.6 3 3

Table 4.1

All four business incubators are initiatives of multiple institutions, with a connection to a university. The teams operating at the incubators differ, due to the age and size of the incubator and the number of tenants.

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4.2 Shared services

YES!Delft BTC-Twente STARTUP/Eindhoven ACE

Logistical or physical services

Yes Yes Yes Yes

Shared business support services

Yes Yes Yes Yes

Financial Consulting

Yes Yes Yes Yes

Management Assistance

Yes Yes Yes Yes

Professional Business Services

Yes Yes Yes Yes

Table 4.2

All incubators provide logistical services and shared business support services. Examples of these services are security services, furniture and equipment, receptionist and audio-visual equipment. However, differences arise in financial consulting. BTC-Twente has an arrangement with a national bank, which tenants can use. With regards to professional business services, YES!Delft helps their tenants with a special network event to get introduced to a venture capitalist, which is called ‘Meet the VC’s’. YES!Delft also has special ties to the ANP, a Dutch news agency, where tenants can advertise their businesses easily.

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4.3 Facilities and location

Flexible Yes Yes Yes Yes

Rent (per year / per meter2₎ Variable See appendix C €295 No rent €130 City centric location Next to campus TU Delft Next to campus TU/Enschede On campus TU/Eindhoven On campus UvA Table 4.3

Regarding to facilities, al four incubators are flexible in size and length of lease. Within BTC-Twente tenants can end their lease every two months. STARTUP/Eindhoven has no lease at all, due to the fact that they only exist for a short period of time. Tenants are free to leave whenever they want. STARTUP/Eindhoven prefers startups to work from within the incubator instead of elsewhere. At YES!Delft the office rates are variable, see appendix D for the details. It is remarkable to see that these rates incur during time. YES!Delft outsources their offices to an external party, this party is responsible for everything regarding the offices, from occupation to cleaning and facilities. The locations of the incubators are situated near or on the campus of the affiliated university. An important aspect of facilities is the IT-infrastructure, all four incubators score very well in this sections. The IT-infrastructure in the Netherlands is top-notch.

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4.4 Funding and support

YES!Delft BTC-Twente STARTUP/Eindhoven ACE

Finance Public Public Public Public

Organizational type Not for profit For profit Not for profit Not for profit (short term goal: for profit)

Table 4.4

All four incubators are publicly financed; this is mainly due to the fact that they are tied to universities. Of the four incubators only BTC-Twente is a for profit institution. BTC-Twente manages a total of four buildings on campus. The incubator experiences only the upside, because they can use the turnover from the rent of the buildings, but are not responsible for the vacancy. The other three are not for profit institutions. ACE Venture Lab has the goal to be a for profit institutions within a short period of time.

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4.5 Incubator governance

Incubation manager

Yes No Yes Yes

Key board of directors

Yes Yes No Yes

Noted advisory council

Yes Yes No Yes

Program milestones

Yes No No Yes

Programs Incubation Program -three years- Venture Lab -one year- Explore program -ten weeks- Growth Program -two years- Bootcamp -five days- LaunchLab -three months- Growth program -two years- Table 4.5

Incubator governance consists of an experienced incubator manager, a key board of directors, a noted advisory council and concise program milestones with clear policies and procedures. YES!Delft and ACE Venture Lab score positive on all four sections. The other two score diversified on these sections.

What should university business incubators offer high technological startups? : an exploratory study in the Netherlands