The Business Model of Biotechnology Incubators

Mar 08, 2019
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Biotechnology incubators support entrepreneurs and early stage start-up companies by either competing or cooperating with other companies in the search of the most interesting, valuable and viable start-ups. Along with venture capitalists, business angels, consulting companies and institutional investors, incubators provide financial and managerial support. The incubation of technology-based start-up ventures has been dependent on the nature of R&D projects. Incubators constantly face high uncertainties regarding future technologies, potential markets, and team development. Returns on investments in specific start-ups could be generated through equity shares in the start-ups and to some extent by providing training and services to the desired clients. Therefore, an incubator is both a service firm and risk investor that supports early-stage technology start-up companies through strategic business guidance and direct equity investment. Ultimately, the effective risk management across the innovation pipeline becomes the biotechnology incubator’s business model.

These biotechnology incubators have differentiated themselves by the source of their evolvement, competitive scope, strategic objective, and the service models. The main purpose of these incubators is to speed up the business development by providing the start-up risk capital, reducing the uncertainty in the early phases of development, and shortening the ‘time-to-market.’ Entrepreneurs have varied reasons for starting up with an incubator, based on the type of an investor, region, profit-making strategy or strategic partner. There are several kinds.

University-based incubators

Typically, the university-based incubators are sponsored by academic institutions and give preference to faculty and student entrepreneurs from their same university or institutes. Others establish close relationships with universities and colleges. These incubators use universities as a technology source and as a means to provide opportunities for their client firms to leverage university research in their commercialization efforts.

Region-specific incubators

The goal of the region-specific incubator is to partner with area leaders in their efforts to diversify the region’s economy by creating a strong high-tech industry base and also to assist them in technology transfer activities to build a strong entrepreneurial culture. Geographical focus is a natural competitive factor for regional business incubators, since their mission is to support new businesses locally. Network access is a crucial element of successful incubation. Since networks are usually limited to certain regions, many incubators strive to establish a good local presence early in their development.

Industry-specific incubators

Some incubators focus on a particular industry because of the past experience, competencies of the incubator managers, preference to other similar entrepreneurs to create a network among incubating entrepreneurs, or due to the need of business facilitation services such as funding, office space, IT infrastructure, and training from the consulting firms.

For-profit or Not-for-profit incubators

Incubators also differ in their strategic objective for supporting start-ups: whether they are offering their products, technologies or services for-profit or not-for-profit purposes. What separates the successful from the unsuccessful incubators? Is success dependant on their being for-profit or not-for-profit type of incubators?

Now, considering the nature of uncertainty in the entrepreneurial life cycle at the early stage of start-up development, there is no guarantee that a particular start-up is going to be successful. Generally, these different types of incubators operate at the highly uncertain stage when business plans are not finalized, markets are uncertain, and technologies are underdeveloped. The inherent complexity and unpredictability of incubation makes it difficult to support all the start-ups. Therefore, it is important to understand that, theses incubators generally make investment decisions across a portfolio of different but ‘ought-to-be-successful’ start-ups in order to maximize operational and investment returns while minimizing portfolio risk.

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Viren Konde

Viren Konde

Principal Consultant, iHealthcareAnalyst, Inc.

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