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Article: The MIT Enterprise Forum Takes on Incubators - A Special Report

Article Group List / Entrepreneurship / The MIT Enterprise Forum Takes on Incubators - A Special Report

The MIT Enterprise Forum Takes on Incubators - A Special Report

By Doug Cantor

It was standing room only at Chase Manhattan Bank March 29th, as the MIT Enterprise Forum hosted its latest roundtable discussion, "Incubators 2000: Hatching the Clicks." On hand at the oversold event were around 200 dark-suited members of the New York entrepreneurial community: startup founders, venture capitalists, and executives from various incubators with their hopeful "incubatees" in tow.

The expert panel appeared to reflect the demographics of the audience - that is, aside from being composed exclusively of men.  Chosen to speak were representatives of three incubator-incubatee pairs - Richard Barker of Viant's Incubator Services division and Kenneth Krushel, CEO of Viant-incubated iCollege.com; Howard Lee Morgan, Vice chairman of idealab!, and Shmuel Gniwisch, CEO of idealab! graduate buyjewel.com; and George Zachary of Mohr Davidow Ventures and Hans Peter Brondmo of Mohr Davidow incubatee Post Communications.

"Not all incubators are high-tech [oriented], observed MIT Enterprise Forum of New York City chair Bryan Finkel, bringing the crowd to order.  "I've been involved in an incubation for about the last nine months." With that, the large screen in the conference room displayed a picture of his baby, born the previous Wednesday.  Following the gracious applause and some other brief remarks, the evening's jovial moderator, Global Brand Development chairman James Maxmin, was introduced.

Maxmin then allowed the panelists to introduce themselves and their companies.  In addition to plugging new projects, most took their allotted time attempting to differentiate their businesses from the media's traditional portrayals of incubators and startups.  Said Mohr Davidow's Zachary: "For me, being a VC is being a producer.  I produce companies." Brondmo, meanwhile, described himself as a "serial entrepreneur." He then added a bit of humorous advice for fellow entrepreneurs when pitching incubators or venture capital firms: "There's an inverse relationship between the number of slides in your presentation and getting funding."

Finally Maxmin asked the first substantive question of the evening: "Why in today's environment is incubation such an attractive concept?"

Viant's Barker offered the most compelling explanation.  "When startups started to have tremendous success?VC money became almost generic," he remarked.  "So VCs [had] to offer more services to differentiate themselves - first and foremost were real estate, finance, accounting, and IT."

The audience was then enlightened about several other topics, including the way in which Viant's incubator services arm makes money.

Quipped Barker, "We charge outrageous fees for our work." On a more serious note, Barker added that Viant used revenue-sharing and equity stakes to make a profit from its incubator arm, though he noted that the percentage of equity Viant took in companies was lower than average - usually less than 20 percent.

Though perhaps lacking Barker's comedic flair, Zachary managed to shed a bit more light on the subject of how an incubator generates revenue.  He explained that Mohr Davidow takes 20-40 percent stakes in its incubatees, and that other revenue sharing arrangements are sometimes made.  He also stressed that his firm takes on only one or two startups per year in order to give them the attention they need.

"Some people think that incubators [mean] shoving people into a cubicle, giving them a T-1 line, and saying, 'make us some money.' But that's not what the quality ones do."

Zachary also delineated the necessary conditions for incubators and entrepreneurs to get together and cultivate a successful relationship.  Not surprisingly, he asserted that the greatest initial difficulty is getting the ear of a potential investor who receives numerous other pitches.

"As a firm, each of us gets about 50 plans a day," he noted.  The number of startups that can receive incubation services is limited "not because I can't write more checks.  It's because I run out of time.  My bar is unbelievably high.  [Entrepreneurs] have to have a good referral.  And I need to be able to clearly see their business."

As if the process of approaching incubators were not daunting enough, it was revealed that due to the tremendous volume, the average business plan gets just 20-30 seconds of consideration.  Not only are haphazard mailings rarely noticed, the panel warned, but even when seen do not produce a proper incubator-incubatee match.

"Get a referral and see how many boards a partner is on to see how many commitments they already have," the panel advised.

Maxmin saved his best query of the night for last, polling the panel on what it thought is the most important service an incubator provides. 

Buyjewel.com's Gniwisch remarked that idealab's greatest contribution to the success of his company was its ability to "find the undefined market," and "hire the best people out there." He concluded by adding to his ongoing idealab encomium, which by this time had even grown tiresome to Morgan, idealab's own vice chairman.

Other panelists pointed to the incubator's emotional investment as its most important contribution.

Said Krushel, "I would want the incubator to have a sense of urgency, since you're going to throw yourself on train tracks [for you business]."

Brondmo agreed.  "You have to trust and believe in the people at the opposite side of the table," he said, bringing the discussion back to where Finkel had started it.  "It is a little like giving birth - they have to feel a real passionate attachment to what you're doing."