Best practice for incubators in Region Västra Götaland Chalmers Innovation, Gothenburg

1. Developing Industrial Strategies Through Innovative Clusters and Technologies Best practice for incubators in Region Västra Götaland Chalmers Innovation, Gothenburg Gothia Science Park, Skövde Best Practice for Incubators

2. Preface to the Study of Best Practice for Incubators The idea for this study evolved from discussions in Thematic Working Group (TWG) Start-ups within the ERIK + network (European Regions Knowledge Based Innovation Network, part funded by DG Regional Policy) in which Region Västra Götaland is a member. These initial discussions were then followed by in-depth working group sessions involving the regions of Hamburg, Lower Austria and Västra Götaland. These working group sessions were paid for with funds provided by the regional budget of ERIK +. However, it was not possible to use ERIK + funding to pay for the study itself due to the project’s limited budget. It was therefore decided that the study would be funded by the regional budget within the DISTRICT programme within Interreg IIIC (part funded by DG Regional Policy) in which Västra Götaland is a partner, along with the regions of Tuscany, West Midlands and Sachsen. Under this programme, the region of Västra Götaland is responsible for the thematic area start-ups, spin-offs and financial engineering. This study was therefore of interest for augmenting our knowledge of the working methods of different incubators, since these play a major role in assisting with new start-ups. This knowledge can be passed on to other European regions. This study can also be of interest to the region of Västra Götaland, which expends considerable resources for part funding of almost all incubators in the region. This is to increase the number of technology-based and knowledge-intensive companies with potential in the global market. It should be pointed out that the incubator system is relatively new in the region of Västra Götaland. The first publicly-funded incubator was opened as recently as 1998 (Sahlgrenska Science Park – however, this has operated solely as an incubator only in the last couple of years). Most of the incubators in the region were established in 2002 or at a later date. The public investment in a more systematic means of developing advanced innovations is thus quite recent. The forerunners of the incubators were The House of Innovations at Chalmers University of Technology and the Business Innovation Centre (BIC) an EU concept, which began in Uddevalla in 1995. It is this latter concept that worked with advanced business development for starts-ups in the industrial sphere, but without any incubator activity. Best Practice for Incubators

3. To be able to carry out this study, it was essential that the chosen incubators had worked enough years for their working methods to have been verified and that the incubator companies interviewed had gone through the entire process. The regional dimension was also of particular interest – the different techniques and working methods of the incubators in various research and development environments, such as a metropolitan city area and smaller university college town. It was also important that the management/key persons were still with the company, since the study also adopted a company perspective, i.e. the company’s experience of the incubator’s service and support. Chalmers Innovation in Gothenburg (began operating in 1999) and Gothia Science Park in Skövde (2000) were considered as the most successful in their respective regional segments. These are also two of the oldest incubators in Region Västra Götaland. For that reason, these two were chosen for this study. The nine incubators operating in the Region are mentioned in the study. It ought to be added that a tenth incubator is being established (CIEL in Lidköping). This means that five incubators are operating in the Gothenburg city area and five in towns with university colleges or university departments. In addition to these ten incubators, which are part funded by the Region Västra Götaland, there is also a private incubator in Gothenburg that is run by Scandinavian Financial Management (SFM). This receives no public funding. Yet another private incubator, which has a more virtual organisation, is located in Gothenburg. Incubator Expertise is a regional network that promotes the exploitation of synergies and the skills development of publicly funded incubators. This is financially funded by Region Västra Götaland.Consequently, the incubators play a vital role in helping innovative start-up companies in the process of gaining a foothold in the market. It is also essential that these companies develop corporate concepts that are of such quality and show such potential that they can obtain private funding at later stages. However, funding has to come from public sources in the early stages because access to private seed capital is limited. Similarly, the incubators depend on a great influx of innovative concepts, driven by dynamic entrepreneurs, so that they can select the concepts that show most potential and good marketing prospects.If the regional public innovation system is going to be successful, it also has to contain these elements. Best Practice for Incubators

4. In recent years, Region Västra Götaland has systematically invested in these key areas too. In order to promote academic entrepreneurship, each university and university college now has an entrepreneur school. This initiative was inspired by the Chalmers School of Entrepreneurship, which began in 1997 in Gothenburg. The school was later expanded with a pre-incubator. The Chalmers School of Entrepreneurship also now has a branch in Lidköping. To foster entrepreneurship and business development at universities and university colleges, Chalmers University of Technology and Gothenburg University developed the Hothouse concept at about the same time as Chalmers School of Entrepreneurship. This concept has since spread to other university colleges in the region. The University in Skövde has its own variety called Startblocket (Starting Block), which was launched in 2005. As well as encouraging entrepreneurship and trying to change attitudes to self-employment, many Hothouses also provide assistance and advice to simpler start-ups. Connect Väst also focuses on developing entrepreneurs and start-ups with what it calls its springboard programme. Connect began in Gothenburg in 1999 using Connect San Diego in California as its role model and now also works with new, promising companies through various networks, such as business angel networks. Connect is run by a private-public partnership with limited public funding. In recent years, Connect Väst has also established branches in all university towns across the region. One important organisation that promotes new concepts and business ideas by arranging annual business plan contests is Venture Cup. As can be seen from this report, numerous concepts have started in Gothenburg, particularly at Chalmers University of Technology, and have then spread to the three university towns in the region. In the area of public funding in early business stages, Region Västra Götaland has been a forerunner with seed capital for start-ups. These initiatives began in 2001 and in recent years have been developed and augmented with other initiatives in partnership with private and public players, such as Innovationsbron Väst and ALMI Väst. These two players also have their own funding solutions, such as option loans and start-up loans (Innovationsbron Väst) and innovation loans (ALMI). The regional holding companies also play a key role. The public efforts have been focused on the early stages (pre-seed and seed capital) as it is difficult to obtain private venture capital for these early stages. The companies may receive some public funding during their expansion phase through holding companies and initiatives with private/public partnerships. Best Practice for Incubators

5. The appended illustrations show, in a somewhat simplified manner, the most important components of this innovation system. If all of these key components – entrepreneurship initiatives, incubators and public venture capital in early stages – are weighed together, Region Västra Götaland probably has the best public-funded innovation system for technology-based and knowledge-intensive start-ups of any region in Sweden. However, the system needs to be developed in order to exploit all the potential that exists. It is therefore necessary to devise and test new concepts while at the same time continually improving existing initiatives. This study has been conducted by Scandinavian Financial Management (SFM) at the request of Region Västra Götaland. The authors are responsible for the conclusions and recommendations that have been made. Christer Enerskog Regional Coordinator for DISTRICT in Region Västra Götaland and member of ERIK + www.vgregion.se/district www.district-rfo.eu www.eriknetwork.net Best Practice for Incubators

7. Best Practice, Chalmers Innovation and Gothia Science Park Martin Skoglund (SFM AB) and Petter Skoglund (Blåbergsholmen) Gothenburg December 2006 Revised March 2007 Best Practice for Incubators

8. List of contents • Background • Basic concept and purpose • Listing of interviews and literature • Regional conditions • Summary of regional disparities and conclusions • Description of processes and structures • Interviews with incubators and conclusions drawn from these • Conclusions and recommendations to achieve best practice • Discussion • Appendix Best Practice for Incubators

9. Basic concept To identify best practice for incubators working under different conditions. A focus on Chalmers Innovation in Gothenburg and Gothia Science Park in Skövde Best Practice for Incubators

10. Chalmers Innovation The Chalmers Innovation Foundation was created in 1997 through a donation to Chalmers from the Sten A Olsson Foundation for Research and Culture. This donation provided the basis for creating the Chalmers Innovation Foundation and enabled the development of a centre for innovative activities at Chalmers. Facts: • Chalmers Innovation was launched in May 1999 • At present, there are 18 companies in the incubator and 4 in the pre-incubator • Number of new companies each year: 10-12 • Number of graduate companies: 43 companies in business today and 14 no longer operating • External capital attracted to the companies: EURO 88.6 million invested capital (accumulated since inception) + EURO 10.9 million in public funding (accumulated since inception) • Number of business developers: 7 Best Practice for Incubators

11. Gothia Science Park Gothia Science Park provides a complete environment for expanding, knowledge-intensive companies at the campus of the University of Skövde. The University of Skövde offers programmes with an emphasis on business where the main focus is on computing, natural science, technology, economics and humanities. Facts: • Gothia Science Park opened for business in 2000 • At present, there are 8 companies + 3 projects in the incubator • Number of new companies each year: 3-5 on average • Number of graduate companies: 25 • External capital attracted to the companies: EURO 1,7 million invested capital (accumulated since inception) + EURO 540 000 in public funding (accumulated since inception) • Number of business developers: 2.5 Best Practice for Incubators

12. Purpose of the study Using good examples from two cities with different conditions, this study seeks to: • Illustrate disparities in conditions of best practice in two different local environments • Show how best practice is implemented practically • Provide guidance for how other incubators can manage and improve their operations • Suggest areas of improvement to the incubators in the study to help them enhance their business offering • Provide guidance on requirements for start-up of incubators • Provide guidance on management of new incubators Best Practice for Incubators

13. 10 incubator companies Best Practice for Incubators

14. Incubators in Region Västra Götaland Nine incubators Source: Innovation system in Västra Götaland - strengths and challenges Best Practice for Incubators

15. Public Funding FUNDING GUIDE What kind of capital is needed for the idea or company to grow? growth capital seed capital pre-seed pre-study funding development packaging verification idea pre company formation post company formation Option loan Conditional loan Profit share loan Growth loan Holding company Innovation loan Holding company Source: Innovation system in Västra Götaland - strengths and challenges Best Practice for Incubators

16. Innovation systems for technology-based and knowledge-intensive companies • Available throughout the region • Can provide funding and assistance with projects, from initial ideas through to early growth stages • Does not provide services for later stages (growth) • Focuses on projects with high technology content Best Practice for Incubators

17. Stockholm region Uppsala region Borås region Falkenberg/Varberg Malung Mora/Orsa/Älvdalen Gothenburg region Helsingborg region Fyrstad region Köping/Arboga/Kungsör Örnsköldsvik Västervik Malmö region Linköping region Skövde/Skara region Nässjö region Markaryd/Ljungby Hudiksvall/Nordanstig Örebro region Karlstad/Kristinehamn Gotland Åre Säffle/Åmål Västerås region Sundsvall/Härnösand Lidköping/Götene/Vara Ludvika region Sollefteå/Kramfors Umeå region Falun/Borlänge region Simrishamn/Tomelilla Fagersta region Lycksele/Malå Jönköping region Växjö region Värnamo/Gnosjö/Gislaved Hultsfred/Vimmerby Arvidsjaur Halmstad/Laholm/Hylte Olofström/Karlshamn Härjedalen Sorsele Kristianstad/Hässleholm StrömstadTanum Årjäng Bollnäs/Ovanåker Kalmarreg/Öland Nyköping/Oxelösund Kiruna Arvika/Eda Gävle/Sandviken region Tranås/Ydre/Aneby Jokkmokk Överkalix Luleå/Fyrkanten region Arjeplog Söderhamn Sunne/Torsby Norrköping region Skellefteå/Norsjö Vansbro Kalix Eskilstuna Karlskoga region Hagfors Storuman Karlskrona/Ronneby Älmhult/Osby Bengtsfors/Dals-Ed Ljusdal Östersund region Avesta/Hedemora Filipstad/Hällefors Gällivare Oskarshamn region Övertorneå Katrineholm/Flen region Vilhelmina/Dorotea/Åsele Strömsund Pajala Haparanda [Regional categorisation of Sweden] Gothenburg and Skövde based on regional conditions according to NUTEK's division into Local Work Regions Region Family 1 Metropolitan cities Region Family 2 University towns and cities Region Family 3 Regional centres Region Family 4 Secondary centres Region Family 5 Small regions - private Region Family 6 Small regions - public Source: NUTEK Gothenburg Best Practice for Incubators Skövde

18. 12000 10323 10000 8000 5894 6000 4000 3441 2046 2000 842 128 19 50 1 6 0 0 0 Region family 1 Region family 2 Region family 3 Region family 4 Region family 5 Region family 6 Total no. R&D annual work units/region family Average no. R&D annual work units/region Academic research per region family and average per individual Local Work Region, R&D annual work units [Analysis of regional sources for research and development] R&D annual work units (Universities and colleges) There is virtually no academic research in region families 4-6 There is virtually no academic research in region families 4-6 Source: SCB "Research and development in the university and university college sector" Gothenburg Best Practice for Incubators Skövde

19. Summary of an average Local Work Region in each family regarding R&D sources [Analysis of regional sources for research and development] R&D sources Region Family 1 Metropolitan Cities Region Family 2 University towns and cities Region Family 3 Regional centres Region Family 4 Secondary centres Region Family 5 Small regions - private Region Family 6 Small regions - public Academic research (R&D annual work units) 3,400 840 130 1 6 0 Research institute (no. employees) 496 23 45 0 0 0 Large companies (>200 employees) 294 41 26 9 4 3 SME companies (10-199 employees) 8 783 1,566 1,056 384 159 153 People with engineering degrees (%) 37,800 (4.5%) 4,656 (3.0%) 2,674 (2.7%) 776 (2.2%) 319 (2.1%) 207 (1.4%) Colours indicate relative access to R&D in different regions: = Excellent access = Good access = Some access = No access Gothenburg Best Practice for Incubators Skövde Source: WARP/SFM analysis

20. 900000 35% 790951 800000 31% 30% 700000 27% 25% 600000 23% 20% 500000 18% 16% 16% 400000 364804 15% 287396 300000 263 650 10% 200000 114872 5% 100000 50694 41 057 38532 22 800 6 382 2 408 2414 0 0% Region family 1 Region family 2 Region family 3 Region family 4 Region family 5 Region family 6 No. people with post-secondary education per region family No. people with post-secondary education on average in each region % with post-secondary education per region family Level of education per region family (II/II), general post-secondary education [Analysis of regional sources for research and development] Number of people (16-74 years old) As a percentage Equivalent to the number of highly-qualified people in the Örebro region Equivalent to the number of highly-qualified people in the Helsingborg region Equivalent to the number of highly-qualified people in just the Örebro region Equivalent to the number of highly-qualified people in just the Helsingborg region Source: The State of the Regions in 2002, ITPS and NUTEK Gothenburg Best Practice for Incubators Skövde

21. Academic research is carried out to a far greater extent in Gothenburg There are more engineers per capita and in actual numbers in Gothenburg There are more students in Gothenburg More R&D is conducted at the large companies in Gothenburg There is more private venture capital in Gothenburg Summary of disparities in conditions for Chalmers and Gothia Best Practice for Incubators

22. List of contents • Background • Description of processes and structures • Chalmers Innovation, Deal Flow, selection and growth rate • Gothia Science Park, Deal Flow, selection and growth rate • Chalmers Innovation, process • Gothia Science Park, process • Business growth process • Summary of differences in working methods and structures at Chalmers and Gothia • Interviews with incubators and conclusions drawn from these • Conclusions and recommendations to achieve best practice • Discussion • Appendix Best Practice for Incubators

23. Chalmers Innovation, Deal Flow, selection and growth rate High and rapid growth by means of venture capital Many objects Tough selection (approx. 10%) 3 years Best Practice for Incubators

24. Gothia Science Park Deal Flow, selection and growth rate Slow growth with little external funding and substantial own funding Few objects Considerate selection (50%?) 7 years Best Practice for Incubators

25. Business growth • Characterised by two different roles for the business developers in the incubator • Consultant - has an active, operational role in the company. For example, acts as the CEO or CFO for a period of time • Coach - has a more passive role, is responsible for follow-up of the companies and provides support to the management team throughout an entire incubation phase • External consultants are employed in various roles • In the management team for the companies • In sales and marketing • In technology development • Chalmers has an extensive alumni network from the E-school • Can start up companies • Can step in as a leader in later stages • As sales representatives, etc. Best Practice for Incubators

26. Chalmers Innovation, process Private venture capital Capital from the incubator Little start-up capital External External Potential Selection Supply value Exit "Major consulting effort" "Rapid growth" Little sourcing effort "Tough selection" 3 years Best Practice for Incubators

27. Skövde Gothia Science Park, process Private venture capital Capital from the incubator External External Little start-up capital Potential Selection Supply value Exit "Major consulting effort" "Slow growth" Major sourcing effort "Considerate selection" 7 years + 7 years Best Practice for Incubators

28. Business growth process in the incubator Gothia, own staff Chalmers, own staff E-school students Chalmers Alumni Consultant Board business Coach years 6 -1 3 1 2 4 5 Best Practice for Incubators

29. Chalmers Large deal flow with high levels of technological sophistication - lots of projects with research backgrounds Tough selection process similar to that at venture capital companies Business growth based on many business developers with a deep commitment to the companies The business developers have varying roles (coach/consultant) E-school alumni provide a recruiting base for project managers/consultants Relatively good access to private capital via business angels and venture capital companies Short development period through influx of venture capital The portfolio companies have fast routes to public funding since this focuses on technological sophistication Gothia Science Park Small deal flow with varying levels of technological sophistication - few projects with research backgrounds Considerate selection process in which much time is spent helping the companies along Business growth based on many business developers with a deep commitment to the companies The business developers have varying roles (coach/consultant) Poor access to private capital via business angels and venture capital companies Long development period because of a slow influx of venture capital The portfolio companies have longer routes to public funding since this focuses on technological sophistication Summary of differences and similarities in working methods and structures at Chalmers and at Gothia Science Park Best Practice for Incubators

30. List of contents • Background • Description of processes and structures • Interviews with the incubator companies and conclusions drawn from these • Bottlenecks in the process and the benefit provided by Gothia to the companies according to best practice. • Bottlenecks in the process and the benefit provided by Chalmers to the companies according to best practice. • Summary from interviews • Conclusions and recommendations to achieve best practice • Discussion • Appendix Best Practice for Incubators

31. Bottlenecks in the process and the benefit provided by Gothia to the companies according to best practice. Phase 1: idea to start-up phase Phase 2: start-up phase in the first year Phase 3: after the first year Benefit provided by Gothia 5 indicates that the benefit provided is highly valuable Bottlenecks for Gothia 1 indicates no bottleneck 5 5 4.5 4.5 4 4 3.5 3.5 3 Capital 3 Capital Coach 2.5 Coach 2.5 Consultant Consultant 2 2 Other Other 1.5 1.5 1 1 0.5 0.5 0 0 Phase 1 Phase 2 Phase 3 Phase 1 Phase 2 Phase 3 According to best practice, Gothia provides the companies with the help they require and counters the formation of bottlenecks. Best Practice for Incubators

32. Bottlenecks in the process and the benefit provided by Chalmers to the companies according to best practice. Phase 1: idea to start-up phase Phase 2: start-up phase in the first year Phase 3: after the first year Bottlenecks for Chalmers 1 indicates no bottleneck Benefit provided by Chalmers 5 indicates that the benefit provided is highly valuable 5 5 4.5 4.5 4 4 3.5 3.5 Capital 3 3 Capital Coach Coach 2.5 2.5 Consultant Consultant 2 2 Other Other 1.5 1.5 3D stack 5 1 1 0.5 0.5 0 0 Phase 1 Phase 2 Phase 3 Phase 1 Phase 2 Phase 3 According to best practice, Chalmers provides the companies with the help they require and counters the formation of bottlenecks. Best Practice for Incubators

33. Summary based on interviews with the companies in this study • Many of the companies at Gothia Science Park have industrial backgrounds, focus on one specific customer group and have varying levels of technological sophistication • Many of the companies at Chalmers Innovation have research backgrounds, are focused on finding a suitable market and application and are often highly technologically sophisticated • The incubators have a clear picture of their prospects • The incubators have a clear picture of their process and how it has developed over time • The incubators and the incubator companies give a homogeneous picture of the actual situation • All companies interviewed stated that they would not be in existence today without the support of the incubator • The incubators provide help that counters the bottlenecks of the seedling companies • Skövde has major problems with funding in phases 1 and 2 • In Skövde, the seedling companies raise much of the funding through their own work • Swifter progress could be made in Skövde if it had a larger private funding network and access to industrial development skills Best Practice for Incubators

34. List of contents • Background • Description of processes and structures • Interviews with incubators and conclusions drawn from these • Conclusions and recommendations for best practice • Staffing • Deal Flow and selection • Funding • Networks • Summary • Discussion • Appendix Best Practice for Incubators

35. Best Practice – Staffing • The incubator should have a critical mass of 4 or 5 employees with a very broad skills base • Comments from seedling companies: It is excellent to be able to pick the brains of so many people. And if you don't get on with one person, you can always turn to someone else • Business developers in the incubator ought to be pragmatic and deeply committed to each company • Skills, experience and self-confidence to participate actively in the development of the companies • Avoid running incubators that are under-staffed and just have an "incubator manager" • Avoid building lots of small incubators where the staff become office administrators instead of business developers • Successful incubators start 1 or 2 companies per business developer per year • Avoid setting unrealistic goals in relation to staff numbers and potential Best Practice for Incubators

36. Best Practice - Deal Flow and selection The incubator must be adapted to the prevailing conditions of the region in which it operates Smaller regions (population <200,000) • The smaller the region, the broader the approach • The incubator should not be targeted at narrow market niches • Find out the best companies in all industries • The smaller the region, the more limited the selection and flow • Look for potential companies from different sources - industry, academia, etc. • The smaller the region, the more work is required to create and develop a Deal Flow City regions (population >500,000) • Deal flow potential is high from R&D and other sources • Sufficient data for niched incubators Best Practice for Incubators

37. Best Practice – Funding Smaller regions (population <200,000) • The incubator companies need more customer-funded activities during the development phase, e.g. through consulting assignments • Important to make use of funding sources for early phases, such as pre-incubator funds • All regions have potential private financiers • Creation of structured business angel networks can speed up access to venture capital Metropolitan City regions (population >500,000) • The incubator companies can be funded by venture capital • Important to make use of funding sources for early phases, such as pre-incubator funds • Creation of structured business angel networks can speed up access to venture capital Best Practice for Incubators

38. Best Practice – Networks • "Grey eminence" • Experience of the business • Capital/ • Business angels • Structured and operational • Incubator • > 4 employees • Broad skills base • Operational work • Deep commitment • Varying roles over time • Starts up 1 or 2 companies per person each year • Coaches up to 5 companies each year • Industrial development resources • Easy access • Board pool • Active Board pool with extensive selection • Universities/Colleges/R&D • Change according to the potentials • Public funding • In the backbone of the incubator's business developers • External consultant/ • e-school • Swift access Best Practice for Incubators

39. List of contents • Background • Description of processes and structures • Interviews with incubators and conclusions drawn from these • Summary • Conclusions and recommendations to achieve best practice • Discussion • Appendix Best Practice for Incubators

40. Unexploited potential in Gothenburg - discussion Tough selection technological sophistication Incubator companies Successful companies Technological sophistication ? Where do they go? Room for Gothia-style incubator in Gothenburg? 3 years Best Practice for Incubators

41. Unexploited potential in Gothenburg - discussion • Chalmers captures just a fraction of the ideas in Gothenburg • Gothia has shown good results with a very broad selection • Several of the companies in Gothia would not have been accepted by Chalmers because their level of technological sophistication was too low • Considering the success of Gothia's working model, there ought to be room in Gothenburg for another incubator with broader selection criteria and less focus on technological sophistication.A focus on business benefits. Best Practice for Incubators

42. List of contents • Background • Description of processes and structures • Interviews with incubators and conclusions drawn from these • Summary • Conclusions and recommendations to achieve best practice • Discussion • Appendix Best Practice for Incubators

43. Phase 1. Idea phase for start-up phase Phase 2. Start up phase in the first year Phase 3. After the first year 1. What were the bottlenecks during the various phases, rate on a scale of 1-5 where 5 is the greatest bottleneck in phases 1, 2 and 3? a. Capital : Incubator’s own seedling fund, “I-Bron” b. Other : Service provider: cleaning, legal, premises, etc. c. Consultant: Business model, sales, external funding d. Coaching: mentorship, follow-up, business growth j - Phase 1 Phase 2 Phase 3 Capital Coach Consultant Other Comments: 2. Rank on a scale of 1-5 which of the following incubator services you benefited from the most during phases 1, 2 and 3? a. Capital : Incubator’s own seedling fund, “I-Bron” b. Other: Service provider: cleaning, legal, premises, etc. c. Consultant: Business model, sales, external funding d. Coaching: mentorship, follow-up, business growth AppendixQuestionnaire j Phase 1 Phase 2 Phase 3 Capital Coach Consultant Other Best Practice for Incubators