If you believe the numbers, it’s hard to deny that we’re in the midst of an incubator bubble.
An Xconomy survey recently found that the number of venture incubators in the U.S. has risen to 64 in 2011, nearly double the 34 of the prior year, and more than triple the amount in 2009.
Ohio has seen its share of entrants into the competition, including one incubator in Hudson that recently opened. LaunchHouse came to Shaker Heights earlier this year, while even the state itself has gotten into the act with an incubator-like summer venture competition it called OneFund that was sponsored by the Ohio Department of Development. Add those to several existing incubators in the state, such as one that was established at Ohio University in 1983, and it’s clear that Ohio has no shortage of incubators — though the number recently dropped by one when a Cincinnati biotech incubator shut it doors.
But is that surplus of incubators such a bad thing?
Xconomy’s Wade Roush (in a piece well worth checking out) argues that it is and maintains that as more incubators produce more startups, those startups will have to compete even harder to attract the attention of investors. Plus, Roush argues, can the weak economy generate enough demand for the products and services all these startups are churning out?
Members of Ohio’s startup community don’t necessarily buy that line of reasoning.
Michael Goldberg, co-manager of Cleveland and Israel-based Bridge Investment Fund, has a somewhat unique perspective on incubators among U.S. venture capitalists. Some of Bridge’s portfolio companies got their start in Israel’s many state-supported incubators that have helped the country develop a booming technology sector that has arguably become the envy of the world.
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In Goldberg’s view, the value of incubators goes beyond dollars and shekels. “In addition to capital, entrepreneurs at an early stage who’ve never run businesses before need help in other ways,” he said. “Strong incubators can provide those other services, such as critical advice, that these entrepreneurs need to help them succeed.”
Plus, incubators help focus attention on startups, which can make early stage investing seem more attractive to a broader cross-section of investors, and that’s good for the funding environment in general, Goldberg said.
Baiju Shah, president of Cleveland nonprofit BioEnterprise, said Xconomy’s data likely undercounts the actual number of incubators in the U.S. As for Ohio, Shah said most of the state’s incubators are nonprofits and don’t fit the venture-backed model, though LaunchHouse is a notable exception.
Like virtually everything in life, the incubator-bubble question comes down to perspective. If you’re an entrepreneur desperate for seed money, you love that there’s more cash available to startups like yours. If you’re an entrepreneur whose company is nearing the commercialization stage and you’re looking for angel or venture money, you’re probably not crazy about all the competition from incubator-backed startups for investor attention and dollars.
VCs like incubators because they increase the supply of startups they could invest in and boost the quality of their deal flow. From an economic development or government perspective, incubators are golden — helping support much-needed jobs and investment. And, perhaps more importantly — when each individual startup can be thought of as a last-second, 50-yard Hail Mary pass — incubators improve the odds that one of those desperate heaves connects with a target in the end zone.
Photo from flickr user Dave Lindblom
