Finding adequate sources of funding is the primary challenge of just about any startup company, and biotechnology is no different. In fact, the regulatory, scientific and logistical requirements of making a new drug or device could easily be the most challenging of any industry. In addition, the global recession of 2007-2009 (combined with austerity measures in Europe and budget cuts in the United States) hasn’t helped funding much.

So, where does a fledgling biotech or research lab turn for support? – To a growing number of biotechnology incubators.

Particularly in the United States (though Europe is catching up), these organizations provide financial, managerial, marketing, legal, and other support for new firms with a new technology—usually these firms are just developing a new invention, have no business plan, lack a firm idea of potential markets, and, have little to no money. For biotechnology, an incubator can provide lab space and equipment—not easy commodities to come by, whether in big cities or in areas lacking a big technology industry presence.

The incubator concept

The incubator concept didn’t start with biotech—high-tech startups were some of the first firms to be served by a central location that could give a new company a boost. In the US, these funding mechanisms were particularly important by the end of the Cold War in the late 1980s, when defense funding was no longer as readily available to fund projects that might have military value. Today, many local and state governments have funded technology incubators, while others were started by academic institutions. There’s even a US trade association for incubators, which come in a variety of stripes:

University—these are often a part of a technology transfer office, where the university attempts to license (sell) its intellectual property. But they can help researchers and professors develop their projects, and match up with potential investors and other business partners. In the US, nearly every major university has one of these.

Regional—there’s an incubator for biotech in just about every state in the U.S. Some states, like California, Maryland or Texas, have at least half a dozen. Likewise, European incubators are starting to multiply (in the UK, there are at least three), and some have been around awhile. For example, in Montpellier, France, the Méditerranée Technopole was created in 1985. It now works to attract entrepreneurs to Montpellier and help local firms in healthcare, information technology and agriculture-related technology.

Industry-specific—incubators probably started with the high-tech industry, but have moved into biotech and other areas. Even within biotech, some incubators have specialized to match with local needs or create a more successful business model with a certain specialty. For example, the Innovation Factory in Georgia was set up to promote medical device development—it was founded by ex-device executives.

Do incubators create biotech hubs/centers?

There’s a lot of talk about emerging biotechnology “hubs;” centers of research, manufacturing and development activity. These have included Boston, San Francisco and Washington, D.C., in the U.S., Cambridge and London in the UK and various regions in Germany,  Sweden, Norway and the Czech Republic. But does an incubator help hatch a hub? “It’s a chicken-egg system,” said Ahmed Enany, president of the Los Angeles-based Southern California Biomedical Council, one of southern California’s main biotech trade organizations. “You need a deal flow to make a good incubator, and move firms to the next level. It’s hard to start a biotech ecosystem with just an incubator.”

Follow the money

“Deal flow”? Essentially, a successful incubator helps a new idea catch on and make money for its inventors and investors. Many incubators have closed largely because government backing dried up, and because the incubator itself struggled in vain to generate income, Enany said. Success stories have come from incubators that created partnerships with investors, who would buy stock in a new tenant firm. This allowed the new firm to develop its project, and the investors could collect a tidy profit when the firm was strong enough to leave the incubator.

What does this mean for you?

Your next research lab may be in such an incubator.  With austerity measures and science funding cuts making starting out (0r continuing) in a lab more and more difficult, incubators may be a viable way to get access to equipment and overhead to conduct experiments.  It may also call for a different way to approach your research – what areas or your lab could be of possible commercial interest to a company?

Wanted: empty nests

If you do want to set up space in an incubator, heed this: they do want you to leave (eventually). An incubator is usually successful because its tenants navigated product development bumps, legal and regulatory shoals, and marketing currents to start earning money on their inventions. This pays off the incubator and investors, and makes room for the next round of inventors.

Fortunately, most graduates of incubators (about 87%, according to a 1997 study) stayed in business, much better than small businesses in the United States as a whole—only 44% survive! That’s a nice, warm nest egg!