Budget Best Practices for Business Incubators
There are quite a few well-funded business incubators and accelerators out there in the world, with generous budgets and even surpluses. Have you met one, though? Our data demonstrates that a majority of university-linked business incubation programs operate on a very small budget. How do these programs survive and thrive on such a small amount? This article will give you the details so that you can apply these best practices to your own budget.
Median budget size
According to the World Benchmark Report for 2017/2018 recently published by UBI Global, the university-linked incubation industry is dominated by programs with smaller budgets. In fact, the median program in the benchmarked programs had just $232 thousand to fund their program operations. A full ten percent of the benchmarked programs operate on budgets that are $50 thousand or less.
Most business incubators and accelerators find that their budget allocation is led by human-capital expenditures in staff salary and human resources expenditures. In fact, forty-five percent of the median program’s budget is spent on this budget item. This expenditure is followed closely by consultants and contractors, which is a twelve percent line item expenditure on average, which is also a human-capital related expense.
Sources of funds
The variety of fund sources for incubation programs in our benchmark was as varied as the programs themselves. It shouldn’t come as a surprise, however, that the majority of the financial support was through governmental programs at twenty-eight percent. This was followed by a thirteen percent fund source attributed to university contributions.
Budget Tip #1 – Think outside the fund source box
One of the most intriguing discoveries in our World Benchmark Report for 2017/2018 was how business incubators and accelerators are developing their business models to supplement their budgets with self-generated revenue. If we divide the business incubators and accelerators that participated in our benchmark into not-for-profit and for-profit programs, the revenue streams look like this:
Let’s take a look at two of the largest possibilities for fund sources for both not-for-profit and for-profit business incubator and accelerator programs:space rental and corporate sponsorship.
Space rental opportunities
Business incubators and accelerators who do not invest in their startups, mainly not-for-profit programs, can still seek revenue opportunities through space rental. Programs are able to form a best-practices guideline and base rental prices on the following criteria:
- Target market – rental subsidies can be sponsored by corporations looking for startups in particular technological areas or job creation potentials.
- Exit rules – programs have regular progress meetings with tenant startups, keeping them on track to move to larger, more independent spaces of their own thus keeping the space turnover to new startups at a high rate.
- Graduated rent – some programs offer lower rents at the beginning of the startup’s incubation or acceleration period, gradually rising over time with the success and growth of the business. Highly specialized programs in biotechnology, for instance, may offer longer tenancy agreements due to the nature of their business.
- Aftercare services – graduates of business incubators and accelerators are in at their most vulnerable when leaving the safe rental space of the program. Offering aftercare services to graduating startups gives the long-term benefit of keeping the graduate local as well as mitigates any impact from the startup leaving the nest.
Corporate sponsorship opportunities
Our Best Practices 2018 report highlighted another opportunity for business incubators and accelerators to maximize their earning potential. According to several of the programs in our report, corporate sponsorships have become an integral part of their budget strategies. Take for example our exclusive interview with Dr. Derek Newton, Associate Vice President of Innovations, Partnerships and Entrepreneurship at the University of Toronto Entrepreneurship program. Dr. Newton, when asked how U of T Entrepreneurship decided on their current sources of funding, said the following:
“…we created a management committee with broad representation of senior leadership across key faculties and our three campuses. This collaborative and diverse group reflects our deep commitment to support and advance entrepreneurship across the university.”
By involving peers at U of T, Dr. Newton has leveraged the University’s reputation to the corporate world and given credibility to the startups in their business incubator program. U of T has an excellent reputation in research excellence. The U of T has over 80,000 students, which appeals to corporate sponsors as a talent base. U of T Entrepreneurship, as an incubation program, is able to attract international sponsors to themselves or their other entrepreneurship hubs due to the quality of their research and of their students.
You need to know more
UBI Global has had a mission since our inception in 2013; to help business incubators and accelerators become more efficient and more competitive. We offer a range of membership levels that give your incubator access to our worldwide network of business incubators, accelerators, universities, programs and corporate sponsors.
Whether you are interested in becoming a member for the first time or looking to rejoin our network, have confidence that the information and resources available from UBI Global cannot be found anywhere else. Membership in UBI Global at the Pro level includes a valuable set of tools such as discounts and priority seating at the World Incubation Summit, the most important networking event in the world for business incubators and accelerators.
Pro members are also invited to participate in our World Benchmark Assessment 2018, which provides a valuable benchmark on their program’s current impact and performance against all participants in the study. Going Pro with your UBI Global membership will give you the information to turn your program into a top-performer with worldwide exposure to some of the biggest corporations in the world looking to invest in entrepreneurship.
For more information on UBI Global Membership, see our web site here. To purchase your own copy of the World Benchmark Report or Case Studies for 2017/2018, see the reports page of our web site. If you have questions on what UBI Global can do for you and your program, our friendly staff is here to help.
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