Evaluation of the NZTE Incubator Support Programme
1. Business incubators aim to stimulate entrepreneurship, innovation and business growth.
Throughout the world they are seen as useful for stimulating entrepreneurship and encouraging formation of businesses with high-growth potential. Some incubators focus on research institutions with the aim of generating economic value from research and development, R&D, and one of the most successful incubators in New Zealand operates in this market.
2. New Zealand incubators each operate from their own model and network to provide similar sets of core services for business formation and growth.
Universities are in some places doing similar work, although it is generally focussed on generating value from intellectual property from research than on entrepreneurship.
NZ incubators have a ten year or more history, although some are new. They have mixed ownership (councils, universities and private) and diverse sources of revenue. In addition, there is a wide range of incubator activity by other organisations including university commercialisation offices and some private groups.
3. Most incubators are achieving best international practise. The 330 businesses that have graduated have generated $251m revenue, $163m exports and created 1746 jobs.
Most business incubators in New Zealand are shown by this evaluation to be following best international practise, including responding to local needs. This concurs with conclusions from other reviews that there is a diversity of incubator models in New Zealand that are addressing their niche and working satisfactorily. A minority of incubators are shown as under-performing, reflecting aspects of the particular model and challenges in generating deal-flow and establishing effective leadership for these particular situations.
4. Graduates include some high-growth potential businesses; an important measure of incubator success.
Incubators in the programme are well positioned to support high-growth-potential business, an important objective of government. Incubators are working effectively to stimulate high-growth-potential business through their selection, support and graduation processes. The powerHouse has been outstanding in this and others can learn from them. There is also opportunity to enhance outcomes from other government support for early stage business growth (‘seed commercialisation’). About 50 businesses, half the graduates 2009-11, met the NZTE high-growth criteria and are generating revenue. Further work is underway to examine this performance and clarify the high-growth definition.
5. New Zealand incubators depend on government support. This enables them to operate at the risky side of the business where the potential rewards for New Zealand are greatest.
In 2011/12 government support to business incubators was $4.4 million in funding to eight incubators, plus $0.4m for NZTE’s Incubator Development Unit (IDU) and $0.1m miscellaneous grants. The government also supports incubated firms through the Seed Co-investment Fund and R&D grants to businesses.
6. We are measuring the net value from incubators for business growth, using robust statistical techniques and data and we will report results by December.
Effectiveness needs to be determined by additionality- the extent to which incubated business performance is superior to what would occur without incubator support.
7. We recommend three year funding of the programme, focussing on graduating high-growth potential businesses, and ceasing funding of incubators that are unable to deliver such results.
Government should continue its support of incubators but with the expectation that the IDU should show measurable value from its monitoring and developmental activity. Three year funding is needed to incentivise the quality of incubator capabilities required to support entrepreneurs and business formation with high-growth potential.