An Update on Incubators

1 Apr

By Max Klietmann, VP of Research, LSN

Incubators have become an increasingly integral part of the life sciences landscape. They play a key role in the advancement of nascent technologies from an academic research stage to commercial potential. However, in my discussions with many emerging life science entrepreneurs, I’ve learned that there are a number of myths and misconceptions about what value incubators really provide. However, statistics consistently show that the value of adoption by a good incubator considerably decreases risk and time to market. This article seeks to explain exactly what incubators are, how they can help move your company forward, and what to look for when evaluating an incubator to partner with.

Incubators in the context of life sciences can be loosely defined as a shared laboratory space to facilitate the growth of early stage companies and technologies. They are often run by universities, state or regional economic development organizations, research institutions, large industry players, or some combination thereof. The most basic mission of these organizations is to increase the success rate of early-stage companies for a variety of reasons. These typically include identifying future customers, creating valuable jobs within a certain region, or to find early-stage technologies that could be future investment or partnering opportunities.

A good incubator committed to its constituents offers a number of powerful advantages – First and foremost, there is the advantage of sharing space and equipment, which means massive cost savings. This is a huge advantage in the current investment environment surrounding life sciences, as capital efficiency is becoming a primary focus of investment evaluation in a highly capital-intensive space. Second, a good incubator offers resources and fosters an ecosystem that can help emerging companies to quickly fill gaps, learn best practices, and develop a more informed strategy to reach the market. These benefits can take the form of pro bono legal or financial services provided by firms seeking out future clients, consultative services provided by the incubator itself, or simply being surrounded by other entrepreneurs. Finally, it puts your company in the context of a network that helps to build out a highly compelling team. Most life sciences entrepreneurs previously existed either in the context of academia or within a large biopharma. They may be brilliant scientists developing cutting-edge technologies, but they lack the business sense to fully comprehend that their asset is the basis of a business, not just a research publication. Incubators provide a network that can help entrepreneurs find the right people to fill this gap.

All of these sound nice, but will they actually increase your company’s probability of success? In short, yes – According to the National Business Incubation Association (NBIA), partnering with a hands-on incubator (not just rental lab space), doubles the likelihood that a company will still be operating five years later. This is because incubators exist to move companies forward and get them ready for their next round of funding. Considering that there has been roughly a 50% funding drop for early stage companies over the last two years, incubators clearly provide a huge advantage in this regard.

So how do you pick the right one? Fit is the most critical piece of the puzzle – It isn’t necessarily the most prestigious incubator that you should be focusing on. Look for those that provide services relevant to your firm, and ideally are specialized in helping companies similar to yours. Shop around – ask how long a typical member remains in incubation before moving to the next level, and make sure the organization is personally committed to your company’s success. Making this evaluation should be a carefully-planned and well thought-out decision. A solid relationship with a strong, hands-on incubator is one of the easiest ways to decrease risk surrounding your company. Heck, you may even learn a thing or two!

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