Leading Australian business strategist, commentator and author Kerwin Rae believes the ‘incubator’ craze gathering momentum in Australia could stem the flow of local talent leaving our shores, at the same time injecting new much needed enthusiasm into the local start-up industry. And Sydney City Council, state governments and even universities are wholeheartedly embracing the US born start-up funding phenomenon.
Do Aussie SMEs really need help?
You are probably wondering why the local start-up industry needs a boost, I will tell you why. The failure rate of businesses in Australia is up by a whopping 57%. Business bankruptcy has increased by 48%.
Don’t faint yet, here’s the killer, wait for it… in the last 12 months, the number of start-ups in Australia has fallen by 95%. Yes, 95%.
The increasing uncertain and grim reality at home has seen the flexible tech start-ups flee for greener pastures (and greener wallets) to Silicon Valley in the quest for better funding and support opportunities. Meanwhile, the many of immobile bricks and mortar businesses are choking as well, headed for a slow inescapable death.
“We have a 95% fall in start-ups. At this stage most incubators are focused on tech, with some branching out into arts and creative industries. There are a few in other areas such as medical science and biotech. The government is becoming increasingly aware that they must do something, or we face economic collapse within our economy as SMEs make up such a huge portion of GDP. If SMEs fail, we fail,” Rae said.
Take note, “If SMEs fail, we fail.”
What are incubators? How do they benefit SMEs?
An incubator (also known as seed accelerator) is quite basically a shared workspace owned by, in most cases, a company, VC fund, angel investor or public institution like a university.
They usually provide a desk at low affordable rent so the start-ups can enjoy a favorable working environment right from the start, instead of being run in garages and bedroom corners.
Sometimes, with the support of the incubator’s owner(s), early stage funding ranging from as low as $15 to as much as $20,000 is available. This is usually in return for equity, you know what they say, you have to give some to get some. They go ahead to offer education, mentoring, networking opportunities and introductions.
How far have incubators gone in Australia?
City Councils are jumping on the trend bandwagon like teenage girls on Justin Bieber.
Sydney City Council’s Activation Project at 66 Oxford Street saw the council take an empty building, toss in some desks, throw in some Wi-Fi and, voila! They had their very own council-funded incubator offering everyone from artists to creative and techs low-cost space with plenty of benefits. And make no mistake; this project has worked very well, otherwise they would not have two more in the pipeline.
Victoria is keeping up too with the Monash Business Incubator. You can come in and work in a co-working environment, network with other start-ups and of course, vie for introductions when the heavy hitters come in.
Even universities have caught the incubator flu. The UNSW Venture Incubator Space opened up last year.
In Brisbane, Microsoft is investing $3 million over a period of three years with the Microsoft Innovation Centre that opened its doors in May this year. The centre will partner with other local incubators to help to accelerate the growth of software start-ups and small businesses in the state.
Where did incubators start? Where do they stand now?
Originating in the 1950’s, by the 1980’s incubators had all but disappeared from the business landscape, with only 12 survivors remaining in the U.S.
There are now estimated to be 1,000 in the U.S. with another 4,000 incubators sprouting up in countries such as Israel, China, the United Kingdom and, Australia.
“Incubators give investors a spread on risk and increases chances of success through mentoring, networking and seed funding. They nurture and see what cream rises to the top,” Rae explained.
“Considering Australian group buying site Spreets started in the incubator Pollinizer before being sold to Yahoo for $40 million, it just goes to show how much value they can add,” he said.
“I think we may see strong growth here for another few years however, I do forecast an incubator bubble at some point.”
“There has to be an increase in funding from these and other initiatives including Government-funded, or Australia is in deep trouble in the medium to long term.”
The incubator phenomenon is clearly selling like hot cakes but we can only wait and see whether these incubators will give us hot stocks or hot air.