The ReSET - Why Incubators Struggle And What To Do About It

10/30/17

Newt Fowler

There’s been a lot of buzz about two of the region’s hottest incubators – 1776 in D.C. and Mach37 in NoVa. A recent Washington Post article went behind the buzz to understand why these incubators struggled and ultimately were restructured with out of town ownership. To understand the challenges faced by incubators today you have to go back over 30 years to when incubators were just arriving on the scene. Back then, startups were just gaining traction. In most communities, they were novelties, with no financial history, no cash flow, often led by unseasoned entrepreneurs, and needed a few hundred square feet in which to work, perhaps for a couple of months.

Landlords didn’t want to lease space to them – remember this was decades before coworking, flex space and short term leases found their way into real estate models. The problem was left to forward thinking local governments and academic research institutions to find and subsidize space for their startup communities. Ten years ago there were waiting lists to get into incubators that offered little more than real estate. Today space isn’t the challenge, as startups in most communities have dozens of coworking and flex space options from which to choose.Yet real estate has trapped many of today’s incubators.

The predicament is incubators, no matter how much they’re subsidized by governments and universities operate in the red; they still have to charge their startups to cover their shortfall or find among a dwindling pool of sponsors the willingness to do so. What startups want today is access to capital, mentors, talent and customers.They’re looking for incubators with a track record of providing these resources. And therein lies the rub. Few have budgets to fund more than the space.

Barely a week after the Post article, Maryland Technology Development Corporation (TEDCO) announced that it was investing $750,000 in 6 incubation projects in Maryland. Not one was to fund an operating shortfall or patch a problematic business model. Each winner was a collaboration of academic, industry, government groups. And each was focused on targeted tech-driven opportunities in their communities, such as providing support for accelerator graduates (a frequent point of failure), linking startups with industry partners to test promising technologies, focusing on rural entrepreneurism, scaling promising medical devices.

TEDCO is making the right investment – focused on advancing novel concepts relevant to startups that wouldn’t see the light of day without funding. It’s also great that all the award winners are committed to working with other organizations on these projects. The hope is that these funds will also lead to closer collaboration between groups, sharing what worked and what didn’t – all with improving the incubation culture in Maryland for the better of our startup community.

With more than 30 years’ experience in law and business, Newt Fowler, a partner in Womble Carlyle’s business practice, advises many investors, entrepreneurs and technology companies, guiding them through all aspects of business planning, financing transactions, technology commercialization and M&A. He’s the pastboard chair of TEDCO and serves on the Board of the Economic Alliance of Greater Baltimore. Newt can be reached at nfowler@wcsr.com.

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