An important question for people wanting to establish an incubator is whether it should be established as a profit seeking organization or not. This article sets out some of the attributes of 'for profit' and 'not for profit' incubator structures to help readers decide which path they should follow. Most incubators in the world are structured along 'not for profit' lines although this does not necessarily mean they do not seek to make a profit.
Objectives
The key aspect of the this definition is whether or not the incubator will be a profit seeking organization. This is important because it establishes the objectives, goals and indicators of the incubator.
This definition depends on the organization that is leading the incubator planning and implementation. The government (municipal, state or federal) and public universities generally create nonprofit incubators. When the leading institution is a private company, the tendency is to establish a profit-seeking incubator.
Key Issues
Nonprofit and profit-seeking incubators usually have different objectives. Despite these differences, incubators can contribute to the development of the region in which they are located; independently of their purpose.
- Profit seeking: according to Neal Young (in ARANHA, 2003), this type of incubator tends to receive “equity in incubated companies as either full or partial payment for the incubator”. The objectives of this type of incubator depend on the principal organization:
- Companies from the traditional sector: these companies are interested in motivating an entrepreneurial style in their employees. They hope to maintain their best staff, and develop new technologies, processes and products.
- Technology companies: aside from the objective of maintaining talents, incubators created by this type of company want to expand their competitiveness and speed in launching new solutions.
- Venture Capitalists: interested in supporting companies that can generate a higher return than the rates paid by the market.
- Nonprofit:
- Government: the objective of the government in supporting an incubator’s establishment can vary. The following is highlighted:
- Broadening of employment and income opportunities;
- Development of economic alternatives;
- Enhanced competitiveness among dynamic and/or strategic sectors of the economy;
- Development of new technologies;
- Universities/Research Centers: in general, the objective is scientific and technological development and commercialization.
- Communities: normally led by charitable organizations, this type of incubator is targeted mainly at expanding employment opportunities in the region.
Responsible Parties
Defining the incubator’s purpose is the task of the team that is driving the incubator project. When more than one organization is involved with the project, at least one representative of each should be involved at this stage of the project.
Results
The team responsible for the project can define the objectives and goals of the new incubator with greater precision.
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