Incubator ‘graduates’ few, far between

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As the outgoing director and incoming chairman, the incubator’s Duncan Stewart hopes for better results.

As the outgoing director and incoming chairman, the incubator’s Duncan Stewart hopes for better results.

Despite the help they get, few make it on their own

The Colorado Springs Technology Incubator, where fledgling companies are nurtured as they learn to make their way into the world, has graduated three companies in its nearly 10-year history.

Two more are readying to leave the nest next year.

If those sound like small numbers, they are, though the reasons, according to past and present incubator officials, have mostly to do with a poor economy and the nature of the incubator business.

“You get companies in their very earliest stages, really just people with ideas,” said Gary Markle, the incubator’s first executive director. “You vet them to see if they will progress, that’s basically what you’re looking for. Graduation is only one metric. You have these very, very new companies, and many don’t succeed in the long run.”

That’s unquestionably true, but the generally accepted success rate for incubator companies in good and bad times in the United State is 87 percent, according to surveys by the incubator industry.

By comparison, the success rate of incubator companies here is 10 percent.

Here’s how the Business Journal calculated that figure:

Because of spotty record-keeping in its early years, the exact number of incubator companies over the past decade is unknown.

What is known is that the incubator has accepted 24 companies into its program since Duncan Stewart took over as director in 2007.

Over the years, three companies have graduated, including two that were brought into the incubator under Markle. There were six companies involved with the incubator at the time it opened its doors or shortly thereafter.

Those six plus the 24 in the program in the years since Stewart took over would mean at least 30 companies have gone through the incubator. Given its three “graduates,” the incubator’s success rate would then be 10 percent — a number that would fall even lower if the actual, presumably higher, number of incubator companies were known.

None of this is necessarily a negative in Markle’s view. While they are in business, he says, incubator companies pump money into the local economy in various ways.

The investment dollars they attract “has to be spent hiring people, buying equipment, paying rent. It all goes back into the local economy. That’s how you measure it,” Markle said.

Incubator businesses have received $85.3 million in investment dollars in the past five years. That figure includes both venture capital investment and government grants. Payroll totaled $17.4 million over the same period of time.

At the moment, nine companies rent space at the incubator’s building on Fountain Boulevard.

One of the companies readying to leave the incubator is Combat Training Solutions, which is building its own headquarters on Powers Boulevard in northeastern Colorado Springs. The other is Spiral Funds, which focuses on fund-raising for nonprofits, civil servants, youth clubs and other groups. The company provides ways for consumers to give money to their favorite charity through the purchase of items they would buy anyway.

New Planet, an incubator tenant that started in 2007, left earlier this year. The company creates mobile software solutions and is nearing a final deal with pharmaceutical giant Pfizer to track some of its medical trials.

The other two companies to have graduated are X-Aware, a software firm, and DigiLearn, which provides continuing education classes for the legal profession.

These few successes aside, the incubator hasn’t lived up to the goals Stewart himself established when he took charge in 2007.

At the time, he said he wanted to attract 15 businesses to the incubator, with a total of 500 employees. Employment has yet to break 100.

“We’ve had to regroup,” he said. “The economy has made it very difficult. People aren’t really investing. We’ve had to become tactical instead of strategic. But I think that will change as the economy improves.”

Stewart — who recently rose to become chairman of the incubator and is stepping aside as director — hopes to find more success by partnering with professors at the Air Force Academy. He has started discussions about creating companies based on some of the professors’ research projects.

“So many professors do the research and create the product, and that’s all they’re interested in,” he said. “We’re going to help them get that research out in the world.”

The incubator also will work harder, he said, to help find investors for its tenants.

Stewart now turns to a mix of government grants, along with private venture capital and angel investment firms. The City of Colorado Springs gives the group $50,000 a year. For the first time this year, the incubator received money from El Paso County, which provided a one-time grant of $15,000 to “help get us through the summer doldrums,” Stewart said.

“We’re looking at ways to make that relationship more permanent,” he said. “It’s not there yet.”

Stewart’s board of directors recently approved a new, four-year strategic plan.

It includes plans to take steps to attract new businesses to the incubator — focusing on the information technology, biomedical, defense and energy industries.

Plans also call for a new facility. Stewart’s looking at properties in the Garden of the Gods corridor that have at least 60,000 square feet of space. He wants to add laboratory and light industrial space to attract different companies.

The plan also includes hiring at least two new employees: a marketing director and a client services director.

He also hopes to bolster the incubator’s finances, aiming to generate at least a 10 percent operating cash surplus every year so the incubator can better withstand down cycles in the economy.

What remains to be seen is whether any of these steps will help the incubator boost its success rate.

INCUBATOR METRICS

The incubator began to track patents filed and other measures after Duncan Stewart took over as director in 2007. Figures reflect activity at companies that are either tenants or incubator clients housed elsewhere. Data are incomplete for some years because of spotty record-keeping by the incubator in its early years.

2009 2008 2007 2006 2005
Patents filed 4 7 0
Full-time equivalents 77.5 47 33 84 69
Capital raised $585,000 $1 million $14 million< $30.5 million $27 million
Gov’t grants $1.1 million $1.75 million $0
Annual payroll $2 million $2.4 million $3.3 million $5.2 million $5.7 million
Revenue $1.56 million $6.5 million $4.5 million

Source: Colorado Springs Technology Incubator.