Comparative study technology incubators in Quebec and abroad
3. Incubators' business models
This section describes the business models of the incubators studied, based on the ten dimensions set out above. The details of the various components of the business model are described for all of the Quebec incubators and all of the incubators outside Quebec.
3.1 Basic Characteristics
As for any enterprise, an incubator's raison d’être is set out in its mission statement. All of the incubators surveyed have mission statements.
The incubators may be non-profit organizations (NPOs), for-profit organizations (FPOs) or institutional organizations (a branch of a level of government).
Incubators may have physical, virtual or mixed facilities. Physical incubators offer business coaching only to their tenants. On the other hand, virtual incubators offer their clients no rental space, and provide only business coaching. Mixed incubators offer rental space, but their business coaching services are offered both to tenants and to outside clients.
Table 3.1 summarizes the characteristics of incubators inside and outside Quebec in terms of their mission, status, facilities and length of existence.
As may be expected, all incubators, in one way or another, share the mission of promoting the startup and initial development of enterprises based on the commercialization of innovative technologies. In Quebec, half of the incubators have the express objective of encouraging economic development by creating wealth and employment. Outside Quebec, one third of incubators have that objective. One quarter of Quebec incubators operate in one or more specific sectors, while this is the case for over half of the incubators outside Quebec. On the other hand, five Quebec incubators, as compared to three incubators outside Quebec, limit their mission to a particular region (of the location in the country).
Virtually all of the incubators are NPOs. On the other hand, outside Quebec, three incubators are FPOs or institutional incubators.
Incubators both inside and outside Quebec are primarily mixed. The others are physical, outside Quebec, and physical or virtual, in Quebec.
The incubators inside and outside Quebec are of similar ages, although it seems that the incubators in Quebec are slightly older on average.
Table 3.1 - Mission, status, facilities and age of incubators
| Elements of the mission | Number of incubators in Quebec (n = 8) | Number of incubators outside Quebec (n = 9) |
|---|---|---|
| Mission | ||
| Promoting startup and development of innovative/technology enterprises | 8 | 9 |
| Creation of jobs and wealth | 4 | 3 |
| Mission connected with an economic sector | 2 | 5 |
| Mission connected with a region | 5 | 3 |
| Status | ||
| NPO | 8 | 6 |
| FPO | 0 | 2 |
| Institutional | 0 | 1 |
| Facilities | ||
| Physical | 2 | 3 |
| Mixed | 4 | 6 |
| Virtual | 2 | 0 |
| Age | ||
| Average age | 12 | 10 |
| Date oldest incubator founded | 1987 | 1987 |
| Date youngest incubator founded | 2004 | 2005 |
The economic sectors in which the incubators operate are set out in Table 3.2.
Virtually all of the incubators operate in the biosciences sector. Five incubators in that field in Quebec and six incubators outside Quebec specialize in health technologies.
The other significant sectors in Quebec are information and communications technologies communication (ICT), industrial technologies, and the environment and energy. In comparison, ICT is very common outside Quebec, while fewer than half of those incubators are involved in industrial technologies and the environment and energy.
Not many incubators in Quebec are involved in aerospace, aeronautics, electronics and robotics. Outside Quebec, however, nearly half of the incubators are involved in those sectors.
Two incubators in Quebec and two outside Quebec accept clients in the traditional innovation sector, which involves applying innovations or new technologies to the services sector.
| Economic sector | Number of incubators in Quebec (n = 8) | Number of incubators outside Quebec (n = 9) |
|---|---|---|
| Biosciences (Life sciences)* | 8 | 8 |
| Health technologies | 5 | 6 |
| Agri-food | 4 | 2 |
| Biosciences in general | 4 | 4 |
| Information and communications technologies | 5 | 7 |
| Industrial technologies | 5 | 4 |
| Environment and energy | 4 | 4 |
| Aeronautics and aerospace | 1 | 4 |
| Electronics and robotics | 1 | 4 |
| Traditional innovation | 2 | 2 |
| * Health technologies (pharmaceuticals, medical instrumentation, biotechnologies applied to health, etc.), agri-food and biosciences in general are subcategories of biosciences, which includes subcategories other than the first two, as well as the category of biosciences without further details. | ||
3.2 Team and Network
Innovative technology enterprise projects approach the incubators in order to benefit from their teams' experience and expertise, and also to have access to their network of partners and contacts, which are essential to the success of a startup.
The composition of the team includes the number of members, the various functions they perform, and their training and experience. Table 3.3 sets out the composition of the teams at the incubators inside and outside Quebec.
In Quebec, a majority of incubators have more than one management employee. The situation is basically the same outside Quebec. Incubators outside Quebec have more business consultants than the incubators in Quebec. The business consultants are responsible for providing the enterprises with coaching. However, not all of the incubators have an business consultant; in those cases, it is generally the management that handles the coaching. These are often incubators that make intensive use of outside expertise (see section 3.5). In fact, generally speaking, the managers are involved in business coaching.
Table 3.3 - Composition of the team
| Components of the team | Number of incubators in Quebec (n = 8) | Number of incubators outside Quebec (n = 9) |
|---|---|---|
| Number and functions | ||
| Management | ||
| 1 person | 3 | 5 |
| 2 or more people | 5 | 4 |
| Business consultants | ||
| No consultant | 3 | 2 |
| 1 consultant | 2 | 1 |
| 2 or more consultants | 3 | 6 |
| Specialized consultants | ||
| No specialised consultant | 3 | 7 |
| 1 specialized consultant | 2 | 0 |
| 2 or more specialized consultants | 3 | 2 |
| Other members of the team | ||
| Contract consultants | 6 | 1 |
| Support staff | 8 | 9 |
| Training | ||
| Scientific and technical | 6 | 9 |
| Economics and finance | 2 | 3 |
| Enterprise administration | 7 | 7 |
| Experience | ||
| Private enterprise | 5 | 8 |
| Funding and risk capital | 2 | 1 |
| Public sector | 1 | 2 |
| Incubation, commercialization and technology transfer | 0 | 2 |
In Quebec, a majority of incubators have specialized consultants, while this is not often the case outside Quebec. The specialized consultants are employees who are not managers or business consultants, and are approached for their expertise in a specific field, such as intellectual property, marketing, law (lawyers) or technical and scientific aspects.
Most of the incubators in Quebec supplement their team of business consultants by retaining contract consultants (not to be confused with the network of consultants, firms and experts to whom their clients may be referred for additional services). All of the incubators have technical and administrative support staff.
Overall, the Quebec incubators rely less on specialized and contract consultants, while incubators outside Quebec have larger teams of business consultants.
Table 3.4 shows the breakdown of incubators inside and outside Quebec by the size of their internal coaching team, which includes management personnel, business consultants and specialized consultants (not including contract consultants). On average, the internal teams for both categories of incubators are the same size, five members, but the table shows that there is more variation in the size of the incubators in Quebec than in the size of those outside Quebec.
Table 3.4 - Number of members on incubators' internal coaching team
| Number of members on coaching team | Number of incubators in Quebec (n = 8) | Number of incubators outside Quebec (n = 9) |
|---|---|---|
| 1 | 1 | 0 |
| 2 | 2 | 2 |
| 3 | 0 | 1 |
| 4 | 1 | 2 |
| 5 | 0 | 2 |
| 6 | 2 | 0 |
| 7 | 0 | 1 |
| 8 | 2 | 0 |
| 9 | 0 | 0 |
| 10 | 0 | 1 |
For all incubators, the members of the business coaching team (management and consultants) have scientific or technical training, or have training in enterprise administration.
A majority of the incubators' coaching teams have experience in private enterprise, both with young firms and with established firms. Experience in the funding and risk capital field, the public sector or commercializing technology (before they joined the incubator) is much less common. The experience of incubation teams outside Quebec seems to be a little more diversified than is the case of the teams in Quebec.
One of the essential components of the role of the incubators, and one intrinsic to that role, is their enterprise networks. Those networks essentially make it possible for them to give the incubated projects access to partners in all sectors (government, institutional, enterprise, finance, etc.), and this is likely to assist them in starting up. The networks are established both through the networks of the employees and boards of directors and through partnerships the incubator has formed to assist in its activities. Table 3.5 shows that the composition of the networks is similar between the two groups.
Table 3.5 - Composition of the networks of the incubators surveyed
| Components of the network | Incubators in Quebec (n = 8) | Incubators outside Quebec (n = 9) |
|---|---|---|
| Risk capital firms and financial institutions | 8 | 9 |
| Private enterprise and entrepreneurship | 8 | 9 |
| Government agencies and departments | 8 | 9 |
| Public research centres and laboratories | 7 | 8 |
| Consulting firms (consulting services) | 7 | 7 |
| Universities and affiliated organizations | 6 | 7 |
| Economic development agencies and organizations | 6 | 7 |
| Research application development and technology transfer corporations | 5 | 5 |
| Other incubators | 5 | 3 |
| International partners | 4 | 4 |
| Technopole, technology parks, etc. | 3 | 2 |
| Private research centres and laboratories | 0 | 2 |
3.3 Selection Process and Criteria
Table 3.6 sets out the various components of the process for selecting client projects for the incubators inside and outside Quebec.
Table 3.6 - Project selection process
| Components of the selection process | Incubators in Quebec (n = 8) | Incubators outside Quebec (n = 9) |
|---|---|---|
| Preselection | ||
| No preselection | 2 | 3 |
| Formal preselection by internal resources | 5 | 5 |
| Informal preselection by internal resources | 2 | 2 |
| Selection | ||
| Selection committee | 5 | 8 |
| Due diligence | 3 | 5 |
| Prerequisite training session | 0 | 1 |
| Decision | ||
| Ultimate decision by management | 3 | 1 |
| Ultimate decision by board | 0 | 3 |
| Ultimate decision by selection committee | 5 | 5 |
| Veto by outside institutions | 1 | 1 |
| Involvement of outside parties | 3 | 4 |
| Rejected candidates reconsidered | 1 | 1 |
In almost all cases, the selection process includes meetings and/or discussions among the incubators' team members and candidates, to get a better understanding of projects and evaluate the match between projects and the incubator.
Both inside and outside Quebec, formal preselection of candidates for incubation is carried out by internal resources, either management or a consultant, at a majority of incubators before selection. On the other hand, only a quarter of incubators inside and outside Quebec have an informal preselection process. Informal preselection can be a substitute for or in addition to formal preselection. In the latter case, the normal procedure is to consult the team members who were not involved in the formal evaluation to get their opinions of the candidates.
After preselection, applications are dealt with through the selection process, properly speaking. In most cases, a selection committee administers that process. Due diligence on the project is often included outside Quebec, but is less common in Quebec. That checking may be done before the decision to accept the project or after that decision is made, in which case final admission is conditional on the results.
One incubator outside Quebec requires that candidates take entrepreneurship training before being officially accepted for incubation.
The final decision to accept a candidate for incubation is rarely made by the incubator's management, particularly outside Quebec. It is made by the incubator's board of directors or selection committee. On the other hand, for some incubators both inside and outside Quebec, the admission decision can be reversed by a decision of an institution to grant the project funding.
Some incubators bring outside agents into their selection processes, generally as members of the committee, and not many say that they revisit the grounds for refusal for candidates that are not admitted.
The managers who were interviewed had to rank, by order of importance, the five main criteria that are used to guide the selection of the candidates admitted into their incubators. Those criteria were then assigned a score ranging from 5 (first criterion) to 1 (fifth criterion). Table 3.7 sets out the proportion of incubators that use each of the criteria and the average weight they assign to those criteria (the higher the average, the more priority is assigned to the criterion). The various criteria have been grouped into categories to facilitate the analysis.
The main selection criterion is that the project involve an innovative technology that has strong potential, which means that the technology has a sizable market, generally national or international in scale, has clear comparative advantages, will lead to funding being obtained, will eventually be profitable, and so on. In Quebec, this criterion is used by nearly two thirds of incubators, and is generally given priority. Outside Quebec, virtually all incubators use this criterion, and it is given even more weight.
Table 3.7 - Selection criteria
| Criterion | Incubators in Quebec (n = 8) | Incubators outside Quebec (n = 9) | ||
|---|---|---|---|---|
| Number that use as a criterion | Average importance | Number that use as a criterion | Average importance | |
| Innovative technology with strong potential (size of market, comparative advantages, funding, profitability, feasibility, etc.) | 5 | 4.40 | 8 | 4.63 |
| Quality of the team or candidate (entrepreneurial potential, expertise, openness, will, etc.) | 5 | 4.40 | 6 | 3.17 |
| Criteria associated with the characteristics of the incubator (sector, region, mission, facilities, boundaries, etc.) | 3 | 4.67 | 4 | 4.00 |
| Technological research and development plan | 3 | 4.00 | 3 | 3.33 |
| Financial resources and eligibility for institutional assistance | 3 | 3.67 | 1 | 3.00 |
| Match between the project and the incubator (philosophy, value added, agreement, etc.) | 3 | 2.33 | 0 | N/A |
| Protected or protectable intellectual property | 2 | 3.00 | 4 | 3.50 |
| Maturity of the project (time on the market, technological risk management, etc.) | 1 | 2.00 | 4 | 3.50 |
The quality of the team or candidate, as defined by, among other things, its entrepreneurial potential, expertise, openness to advice or will to succeed, is as important for the incubators in Quebec as the technology. Outside Quebec, it is considered by a similar number of incubators, and is assigned only medium priority.
In Quebec, criteria associated with the characteristics of the incubator, such as the economic sectors or regions served, the existence and implementation of a technological research and development plan, the availability of financial resources or the possibility of obtaining those resources, and the match between the project and the incubator are applied by three incubators. However, while the first criterion is assigned very high importance by those that use it, and the second is assigned high importance, the third is generally assigned medium importance and the fourth is a low priority. Outside Quebec, criteria associated with the characteristics of the incubators are applied by four incubators and are assigned high importance; technological R&D is a criterion used by one third of the incubators, which assign it medium priority; the availability of financial resources is also given medium importance by the one incubator that uses it; and the match between the project and the incubator is not used as a criterion.
While the presence of protected or protectable intellectual property and the maturity of the project are assigned little weight as selection criteria in Quebec, they are used outside Quebec by nearly half of the incubators, and are assigned medium priority.
In conclusion, the following points summarize the characteristics of the selection process for incubators inside and outside Quebec:
- a majority of the incubators do project preselection, and the
process is relatively formal and is carried out by the internal
team;
- selection is done in a more structured fashion outside Quebec
(selection committee, due diligence);
- where a selection committee is created, it is generally given
responsibility for the decision as to whether to accept a project
for incubation;
- where the ultimate decision is not made by the selection
committee, it is made by the incubator's management in Quebec
and by the board or directors outside Quebec;
- the principal selection criteria relate to the projects'
potential for success (potential of the technology, quality of the
team);
- incubators outside Quebec focus their selection criteria on potential for success to a greater extent than do incubators in Quebec.
3.4 Services Offered
Tables 3.8 to 3.13 summarize the services offered by the incubators surveyed, broken down by the various functions of an enterprise. The tables set out the number of incubators in both groups analysed (incubators in Quebec, incubators outside Quebec) that offer each service, and the average importance they assign to it (3 = high importance, 2 = medium importance, 1 = low importance).
Table 3.8 - Services offered – Management
| Services | Incubators in Quebec | Incubators outside Quebec | ||
|---|---|---|---|---|
| Number that offer (n = 8) | Average importance | Number that offer (n = 9) | Average importance | |
| Strategic advice | 8 | 2.63 | 9 | 2.78 |
| Preparing diagnosis – business plan | 7 | 3.00 | 9 | 2.33 |
| Management training | 3 | 2.86 | 9 | 2.78 |
| Participation in management | 2 | 2.67 | 3 | 1.89 |
| Other* | 3 | 2.67 | 2 | 2.50 |
| At least one management service | 8 | 2.74 | 9 | 2.47 |
| * The "Other" services offered by incubators in Quebec are management team training (1), finding and negotiating strategic alliances (1) and one-to-one knowledge transfer (1). The "Other" services offered by incubators outside Quebec are assistance with recruiting the management team (2). | ||||
All of the Incubators inside and outside Quebec offer business management advice. However, the incubators in Quebec assign slightly more importance to these services, on average, than incubators outside Quebec. The two most common services are strategic advice and assistance in preparing a diagnosis and business plan. While only three incubators in Quebec offer management training, all incubators outside Quebec do, but the incubators outside Quebec assign lower importance to that service.
Table 3.9 - Services offered – Marketing
| Services | Incubators in Quebec | Incubators outside Quebec | ||
|---|---|---|---|---|
| Number that offer (n = 8) | Average importance | Number that offer (n = 9) | Average importance | |
| Market studies and commercialization strategy | 7 | 2.29 | 5 | 2.60 |
| Marketing advice | 5 | 2.00 | 7 | 2.17 |
| Public relations and communications | 4 | 2.60 | 6 | 2.71 |
| Client and business development | 3 | 1.50 | 6 | 2.33 |
| Training in marketing | 2 | 2.00 | 7 | 2.00 |
| Other* | 4 | 2.75 | 0 | N/A |
| At least one marketing service | 7 | 2.24 | 9 | 2.35 |
| * The "Other" services offered by incubators in Quebec are enterprise relations and strategic alliance development (1), strategic development advice (1), hiring and training representatives (1) and one-to-one knowledge transfer (1). | ||||
Inside and outside Quebec, marketing services are less important than management services, in terms of both the number of incubators that offer these services and the average importance assigned to them. Incubators outside Quebec, however, assign more importance to these services, and more than half offer the five main services, with marketing advice being the most common. In Quebec, market studies and commercialization strategies are the most common service, although marketing advice and "Other" services are regarded as more important, on average. As is the case for management, significantly more incubators outside Quebec offer training in marketing.
Table 3.10 - Services offered – Production
| Services | Incubators in Quebec | Incubators outside Quebec | ||
|---|---|---|---|---|
| Number that offer (n = 8) | Average importance | Number that offer (n = 9) | Average importance | |
| Organization of operations | 3 | 2.00 | 2 | 1.50 |
| Technical advice | 3 | 2.33 | 2 | 2.00 |
| Technical training | 2 | 2.50 | 0 | N/A |
| Other* | 1 | 3.00 | 0 | N/A |
| At least one production service | 6 | 2.33 | 3 | 1.75 |
| * The "Other" services offered by incubators in Quebec are research and development assistance (1), including planning the work, providing specialized expertise, collaboration with institutional laboratories, preparing funding applications, preparing scientific evaluations and one-toone knowledge transfer. | ||||
In total, few incubators offer production-related services. This is particularly true outside Quebec. As well, where this type of service is offered, it is not considered to be very important. In comparison, three quarters of incubators in Quebec offer at least one production-related service.
Table 3.11 - Services offered – Finance
| Services | Incubators in Quebec | Incubators outside Quebec | ||
|---|---|---|---|---|
| Number that offer (n = 8) | Average importance | Number that offer (n = 9) | Average importance | |
| Financial plan and finding funding | 7 | 2.33 | 9 | 3.00 |
| Accounting and bookkeeping | 4 | 2.71 | 4 | 2.67 |
| Training in finance and accounting | 3 | 2.25 | 6 | 2.00 |
| Equity investment or funding by the incubator | 3 | 2.00 | 5 | 2.00 |
| Other* | 2 | 3.00 | 0 | N/A |
| At least finance service | 8 | 2.47 | 9 | 2.46 |
| * The "Other" services offered by incubators in Quebec are one-to-one knowledge transfer (1) and tax benefits for clients (1). | ||||
All incubators inside and outside Quebec offer finance-related services, primarily involving assistance in preparing a financial plan and finding funding. The importance assigned to this type of service is similar inside and outside Quebec, and it ranks third behind management services and auxiliary services.
Table 3.12 - Services offered – Human resources and legal affairs
| Services | Incubators in Quebec | Incubators outside Quebec | ||
|---|---|---|---|---|
| Number that offer (n = 8) | Average importance | Number that offer (n = 9) | Average importance | |
| Legal advice (except in relation to intellectual property) | 7 | 2.17 | 4 | 2.43 |
| Human resources management advice | 6 | 2.29 | 7 | 2.50 |
| Intellectual property advice | 6 | 2.33 | 8 | 2.13 |
| Training in human resources management and legal affairs | 1 | 2.00 | 7 | 2.29 |
| Other* | 2 | 2.50 | 0 | N/A |
| At least one service relating to human resources and legal affairs | 7 | 2.27 | 9 | 2.31 |
| * The "Other" services offered by incubators in Quebec are specialized training workshops (1) and one-to-one knowledge transfer (1). | ||||
As in the case of marketing-related services, the importance assigned to human resources services by incubators inside and outside Quebec places them second, behind the primary services, management and finance advice and auxiliary services. Outside Quebec, the most common service is intellectual property advice, while in Quebec it is legal advice. The third most important service is human resources management advice. As well, as in the case of the other types of services, incubators outside Quebec offer significantly more training.
Table 3.13 - Services offered – Auxiliary services
| Services | Incubators in Quebec | Incubators outside Quebec | ||
|---|---|---|---|---|
| Number that offer (n = 8) | Average importance | Number that offer (n = 9) | Average importance | |
| Provision of rental space and office equipment | 6 | 2.83 | 9 | 2.67 |
| Secretarial and reception services | 6 | 3.00 | 9 | 2.50 |
| Provision of rental space and technical/laboratory equipment | 4 | 2.00 | 4 | 2.44 |
| Miscellaneous supplies | 4 | 2.25 | 2 | 3.00 |
| At least one auxiliary service | 6 | 2.50 | 9 | 2.58 |
The auxiliary services are regarded as very important by the incubators that offer them. In total, only two incubators in Quebec do not offer rental space. While all of the incubators that offer rental space make offices available, only about half offer laboratories. As well, the miscellaneous supplies offered are more limited outside Quebec than in Quebec.
Table 3.14 breaks down the incubators inside and outside Quebec by the number of services. With the exception of production-related advice and auxiliary services, incubators outside Quebec offer a larger number of services, on average.
Note should also be made of another service provided by incubators that is not covered by any of these categories: referrals to outside services. This service takes a variety of forms, from simple referrals to good service providers to agreements for preferred rates, and includes structured networks and formal evaluations of service providers. In Quebec, seven incubators offer this service, and assign an average importance of 2.86 to it. Of the incubators outside Quebec, eight offer this service, and its average importance is 2.63.
Table 3.14 - Number of services offered, by category of service
| Number of services | Category | ||||||
|---|---|---|---|---|---|---|---|
| Management | Marketing | Production | Finance | Human resources and legal affairs | Auxiliary services | ||
| Incubators in Quebec (n = 8) | |||||||
| 0 | 0 | 1 | 2 | 0 | 1 | 2 | |
| 1 | 1 | 0 | 4 | 2 | 0 | 0 | |
| 2 | 2 | 2 | 1 | 2 | 2 | 2 | |
| 3 | 2 | 2 | 1 | 3 | 2 | 0 | |
| 4 | 3 | 1 | 0 | 1 | 3 | 4 | |
| 5 | 0 | 1 | N/A | 0 | 0 | N/A | |
| 6 | N/A | 1 | N/A | N/A | N/A | N/A | |
| Incubators outside Quebec (n = 9) | |||||||
| 0 | 0 | 0 | 6 | 0 | 0 | 0 | |
| 1 | 0 | 1 | 2 | 3 | 1 | 0 | |
| 2 | 0 | 1 | 1 | 1 | 2 | 4 | |
| 3 | 5 | 2 | 0 | 1 | 3 | 4 | |
| 4 | 3 | 3 | 0 | 4 | 3 | 1 | |
| 5 | 1 | 2 | N/A | 0 | 0 | N/A | |
| 6 | N/A | 0 | N/A | N/A | N/A | N/A | |
In conclusion, the characteristics of the services offered by incubators are as follows:
- both inside and outside Quebec, management and finance advice
is given primary importance, followed by marketing advice and human
resources and legal affairs advice; referral services to outside
resources are also considered to be of high importance;
- in Quebec, the importance assigned to production-related advice
seems to be equal to the importance of marketing and human
resources advice, but outside Quebec there is clearly less
importance placed on it;
- with a few exceptions, the services offered by incubators
outside Quebec are more complete than for incubators in
Quebec;
- the services offered by incubators inside and outside Quebec
are similar in the cases of management advice, finance advice and
human resources and legal affairs advice;
- for marketing advice, incubators outside Quebec take a more
active and participatory approach, by offering public relations and
client development services;
- most incubators outside Quebec offer training in the various fields and place more importance on this, while training is assigned less importance in Quebec.
3.5 Coaching
Coaching, here, is defined as the way the incubators offer their business services. This is basically how the support is provided for the incubated projects. Table 3.15 illustrates how incubators inside and outside Quebec deliver this service.
Table 3.15 - Business coaching
| Components of coaching provided | Incubators in Quebec (n = 8) | Incubators outside Quebec (n = 9) |
|---|---|---|
| Personalized coaching plan | 2 | 2 |
| Designation of a consultant assigned to the project (coach/mentor) | 5 | 5 |
| Expertise advice on request | 4 | 8 |
| Creation of an advisory committee | 3 | 2 |
| Pre-incubation phase | 4 | 2 |
| Regular coaching | 5 | 7 |
| Intensity of coaching varies in different phases of project | 3 | 4 |
| Fixed time period for coaching | 2 | 6 |
| Intensive use of outside expertise | 3 | 4 |
| Startup funding | 2 | 5 |
| Complete services offered internally | 2 | 2 |
One of the main differences between the incubators inside and outside Quebec is that virtually all of the incubators outside Quebec expressly offer expert advice on request, while that is the case for only half of the incubators in Quebec. The expert advice offered on demand consists of advice, often in specialized fields (marketing, intellectual property, etc.), provided by the incubators' internal team when clients request it. It differs from the expert advice provided as part of the services delivered by the designated consultant or advisory committee, or the advice provided formally in the coaching plan (whether personalized or not).
A majority of incubators inside and outside Quebec assign a specific consultant to each project, often based on the economic sector, but only a small proportion establishes a personalized coaching plan or creates an advisory committee to support the project. Generally, the advisory committee is made up of a combination of internal and external consultants and operates to guide the coaching and meet any needs that arise. It may also provide invaluable contacts for projects.
Nearly three quarters of incubators inside and outside Quebec offer regular coaching, that is, coaching organized around planned meetings, discussions or evaluations, held at fixed intervals. On the other hand, fewer than half expressly vary the intensity of the coaching they provide in different phases of the project's development.
In Quebec, half of the incubators offer a formal pre-incubation phase, but fewer than one quarter of the incubators outside Quebec do this. The pre-incubation period is always shorter than the incubation itself, and during that period a project receives limited enterprise advice from the incubator, which is intended to build up its case and make it a better candidate. On the other hand, while only one quarter of the incubators in Quebec offer coaching for a fixed period of time, two thirds of the incubators outside Quebec do this.
Two incubators in Quebec have access to startup funding for their clients, whether from their own funds or not. This is low, considering that over half of the incubators outside Quebec offer this type of funding. In some cases, the startup funding has to be used to pay for outside expertise.
Some incubators both inside and outside Quebec make intensive use of outside expertise, and some others place the emphasis on providing complete services internally. In the first case, the outside expertise supplements or replaces advice provided internally, in which case the incubator acts primarily as a broker and guides projects to the most appropriate experts. This generally goes hand in hand with partnership agreements, in particular for preferred rates, and with evaluation of the experts by the incubator. In the second case, the incubators in question have an internal team that is able to provide enterprise advice in a majority of the potential fields.
On average, incubators in Quebec allocate 6.2 consultant-hours per week to coaching for each project, while incubators outside Quebec allocate 4.3 hours.
One of the incubators' main roles is to help their clients to obtain funding (see section 3.4). Because the incubators' objective is to increase the chances that technology enterprises will succeed, one aim of their services is to enable clients to obtain funding, or facilitate that process, funding being essential to the projects' success in the long term. In addition to the services offered, a number of strategies may be employed, and they are set out in table 3.16.
The two most common methods are, most importantly, the use of the network, referrals and contacts, followed by preparing and implementing a funding strategy. These strategies may involve simply identifying needs, identifying the most appropriate funding options, or a step-by-step process of finding funders based on defined criteria (for example, going to see the funders who are least likely to agree, in the beginning, in order to fine-tune the presentation, or trying first for the funding that will dilute the entrepreneurs' equity the least).
Table 3.16 - Strategies to assist clients in obtaining funding
| Strategies | Incubators in Quebec (n = 8) | Incubators outside Quebec (n = 9) |
|---|---|---|
| Networking, referrals and contacts | 8 | 8 |
| Preparing and implementing a funding strategy | 6 | 5 |
| Ongoing assistance | 5 | 1 |
| Assistance in preparing the business plan and presentation | 3 | 3 |
| Approaching potential business partners | 2 | 2 |
| Organizing a single window | 1 | 3 |
| Creating new funds | 1 | 1 |
| Use of specialized fundraising consultants | 0 | 3 |
However, while ongoing assistance to projects for finding funding is identified as a strategy by many of the Quebec incubator managers, it was mentioned by only one manager outside Quebec.
One final point to note is that specialized fundraising consultants are used by one third of incubators outside Quebec but only one incubator in Quebec.
In conclusion, the following points summarize the characteristics of the coaching provided by incubators inside and outside Quebec:
- most incubators assign a specific consultant to each
project;
- almost all incubators outside Quebec emphasize the fact that
their expertise is offered to clients on request, a situation that
is less common, although still significant, in Quebec;
- few incubators create advisory committees to support projects
during the coaching;
- overall, and with the exception of the pre-incubation phase
offered, the coaching offered by incubators outside Quebec seems to
be more structured than the coaching offered by incubators in
Quebec;
- incubators outside Quebec often have access to startup funding
as an incubation tool, a situation that is rare in Quebec;
- methods of finding funding are similar inside and outside
Quebec in many respects, and are essentially based on using
enterprise networks and preparing and implementing a specific
funding strategy;
- however, incubators inside and outside Quebec differ in two respects: Quebec offers more ongoing assistance, and fundraising specialists are only used outside Quebec.
3.6 Follow-up with Graduates
Three quarters of the incubators in Quebec and nearly all the incubators outside Quebec do follow-up with their graduates. The nature of the follow-up is set out in table 3.17.
Table 3.17 - Follow-up with graduates
| Follow up activities | Incubators in Quebec (n = 6) | Incubators outside Quebec (n = 8) |
|---|---|---|
| Compiling statistics | 3 | 3 |
| Ad hoc meetings and services | 2 | 7 |
| Informal follow-up | 2 | 5 |
| Integration into the network | 2 | 2 |
| Equity investment in the enterprise | 2 | 1 |
| Events for graduates | 1 | 2 |
In Quebec, there is no predominant method of following up with graduates; the method used by the largest number of incubators is compiling statistics about the enterprises' economic performance (jobs, sales, revenue, funding obtained, etc.), which is done by half of the survey participants in Quebec. In some cases, time limits are imposed for statistical surveys, in the sense that after a certain number of years following the completion of the incubation, no further follow-up is done with the enterprises.
The situation is different outside Quebec, where a large majority of incubators meet with their graduates regularly, offer them ad hoc services, and do informal follow-up.
However, the fact that only six of the 17 incubators examined compile statistics on the performance of their graduate enterprises complicates the evaluation of the incubators' performance.
3.7 Business development
Table 3.18 summarizes the business development methods used by the incubators studied.
The method most preferred by incubators inside and outside Quebec for developing their enterprises and finding clients is referrals by partners and contacts. In some cases, mutual referral agreements may even be entered into with certain partners.
Table 3.18 - Business development Final Report
| Business development methods | Incubators in Quebec (n = 8) | Incubators outside Quebec (n = 9) |
|---|---|---|
| Referrals by partners and contacts | 7 | 9 |
| Prospecting and canvassing | 5 | 3 |
| Participating in conferences, conventions, exhibitions, etc. | 5 | 3 |
| Organizing evens and training sessions | 5 | 3 |
| Internet site | 3 | 2 |
| Advertising | 2 | 5 |
In Quebec, prospecting and canvassing potential clients, participating in networking events (conferences, conventions, exhibitions, etc.) and organizing events or developing promotional or informational tools are used by a majority of incubators, but this is not the case outside Quebec.
However, while more than half of incubators outside Quebec use advertising in local or regional media, that is the case for only a quarter of incubators in Quebec.
While all of the incubators have Internet sites, fewer than a third of the incubators surveyed mentioned using the site as a main business development strategy.
3.8 Source of Clients
To identify the sources that generate the most candidates accepted for incubation, table 3.19 shows the breakdown of clients of incubators inside and outside Quebec by source.
The two main sources of clients for incubators inside and outside Quebec are the universities and independent entrepreneurs. All incubators have clients that come from the universities, and more than three quarters accept independent entrepreneurs. As well, over 70% of incubated projects come from one of those two sources.
Table 3.19 - Source of incubators' clients
| Source | Incubators in Quebec (n = 8) | Incubators outside Quebec (n = 9) | ||
|---|---|---|---|---|
| Number with clients from source | % of clients from source | Number with clients from source | % of clients from source | |
| Universities | 8 | 38% | 9 | 34% |
| Public research centres | 5 | 9% | 2 | 5% |
| Private research centres (FPOs, NPOs) | 2 | 2% | 2 | 2% |
| Economic Development Agency | 3 | 3% | 2 | 1% |
| Private enterprise | 3 | 14% | 4 | 13% |
| Independent entrepreneurs | 6 | 33% | 8 | 43% |
| Other | 1 | 1% | 1 | 1% |
| Total | N/A | 100% | N/A | 100% |
3.9 Allocation of Efforts
Table 3.20 sets out the average effort allocated by incubators to their various activities.
Table 3.20 - Allocation of efforts
| Activities | Incubators in Quebec | Incubators outside Quebec |
|---|---|---|
| Coaching (excluding finding funding) | 32% | 39% |
| Finding funding for enterprises | 14% | 10% |
| Selection process | 13% | 13% |
| Follow-up with graduates | 6% | 6% |
| Business development | 15% | 15% |
| Administrative support and related services | 21% | 18% |
| Total | 100% | 100% |
The activity to which incubators inside and outside Quebec allocate most effort is business coaching, including help with finding funding. However, more importance is assigned to finding funding for the enterprises in Quebec, while business coaching other than finding funding is more predominant outside Quebec.
This difference probably reflects the difficulty enterprises have getting startup capital in Quebec at present. More effort has to be devoted to this activity to make up for the scarcity of capital.
3.10 Financial Structure
An incubator's financial structure is defined according to its expenses and revenues, including the methods by which it is paid.
Table 3.21 sets out the average allocation of the incubators' operating budgets by the various budget items, for the years 2003 to 2007.
Table 3.21 - Average expense breakdown (2003 to 2007)
| Expenses | Incubators in Quebec | Incubators outside Quebec |
|---|---|---|
| Salaries and benefits | 51% | 37% |
| Administrative, support and office expenses | 21% | 14% |
| Professional fees (consultants) | 8% | 21% |
| Travel, representation and promotion expenses | 4% | 4% |
| Depreciation and other expenses | 16% | 24% |
| Total | 100% | 100% |
In Quebec, salaries and benefits are the principal expense, and on average account for a little over half of the incubators' expenses. Outside Quebec, however, salaries and benefits represent only a little over a third of expenses. On the other hand, professional fees are the second largest expense item for incubators outside Quebec, and only the fourth largest in Quebec. As can also be seen from the coaching structure, it seems that as a result, incubators outside Quebec use more outside services than incubators in Quebec, or cover more of the expenses associated with those services for their clients.
Under depreciation and other expenses, the difference between incubators inside and outside Quebec would seem to be a function of the fact that in Quebec there are two virtual incubators with minimal expenses, and the fact that some of the incubators in Quebec have facilities paid for by grants of public funds, and depreciation is not counted in expenses.
Table 3.22 shows the average breakdown of the incubators' budgets by various types of revenue for the years 2003 to 2007. Revenue is subdivided into public contributions (various levels of government), self-funding and other sources.
Table 3.22 - Average revenue breakdown (2003 to 2007)
| Revenue | Incubators in Quebec |
Incubators outside Quebec |
|---|---|---|
| Public contributions | ||
| Federal contributions | 30% | 26% |
| Provincial (regional) contributions | 24% | 17% |
| Municipal contributions | 8% | 10% |
| European Union contributions | 0% | 14% |
| Contributions from paragovernmental organizations (CLD, etc.) | 2% | 1% |
| Total public contributions | 64% | 68% |
| Self-funding | ||
| Rent | 12% | 17% |
| Professional fees and other fees, payable when services are used | 10% | 3% |
| Professional fees and other fees, payable if successful | 6% | 8% |
| Sales of equity | 2% | 0% |
| Private contributions | 2% | 2% |
| Total self-funding | 32% | 30% |
| Other funding sources | ||
| Total other funding sources | 4% | 2% |
| Total | 100% | 100% |
Government is the principal funder for the incubators studied; governments contribute two thirds of revenue, on average. Federal (national) government grants are the largest source of outside funding for the incubators, accounting for a third of the revenues of incubators in Quebec and a quarter outside Quebec. Provincial contributions (state, in the United States, region, in France, etc.) are next, although they are lower in Quebec than outside Quebec. In addition, public funding sources for incubators outside Quebec include the European Union, which funds five of the nine incubators surveyed.
In the last five years, self-funding has accounted for a little less than a third of the revenues of incubators both inside and outside Quebec, on average. Self-funding includes payment for services and private grants obtained.
The survey of incubators identified the following four mechanisms by which payment is made for services performed:
- rent;
- professional fees and other fees, paid when services are
used;
- professional fees and other fees, payable if successful;
- sales of equity.
Rent refers to the rental costs for rental of office space or, where applicable, laboratories. In general, rents follow market prices, but this is not always the case.
Professional fees and other fees are the costs associated with services other than rental of space. In addition to the professional fees charged to the incubated projects, this category may include the cost of providing miscellaneous services (photocopying, fax, etc.) and management or administration fees charged to organizations or enterprises that are not in incubation.
Professional fees and other fees may be charged to the incubated enterprises in two ways. The first is to have the projects pay when the service is used. In that case, they may pay in a lump sum, or by monthly billing, an hourly rate, or another method. Payment of the amounts owing may be postponed until funding is obtained, but is not conditional on funding. As well, given the scarcity of the financial resources available to the incubators' clients, professional fees and other fees payable when services are used can sometimes be significantly lower than market price.
The second method is to make payment of the amounts owing conditional on the success of the enterprise. In that case, payment is generally made as a proportion of sales or of funding obtained, up to the amount of the value of the services provided. This mechanism also includes the return of advances paid that are refundable when the enterprise succeeds, but unlike fees that are payable when services are used, it does not include management fees.
The third payment method is equity participation in the incubated enterprises. This mechanism generates revenue when the equity is sold.
Of course these are broad categories of payment mechanisms, and there are many variations within each of them. However, these four mechanisms provide a good illustration of the various methods by which incubators inside and outside Quebec receive payment for their services.
Rent is the main source of self-funding revenue for the incubators, but it is more important outside Quebec than in Quebec. Rent apart, incubators in Quebec charge proportionately more professional fees and fees payable when services are used, while incubators outside Quebec place more emphasis on professional and other fees for which payment depends on the success of the projects, that is, on funding being obtained or sales made.
Table 3.23 shows the proportion of incubators that use each of these mechanisms, and the average proportion of the payments they received associated with those mechanisms, for the years 2003 to 2007.
Table 3.23 - Payment mechanisms used (2003 to 2007)
| Payment mechanisms | Incubators in Quebec (n = 8) | Incubators outside Quebec (n = 7)* | ||
|---|---|---|---|---|
| Users | % of payment received | Users | % of payment received | |
| Rent | 6 | 52% | 4 | 59% |
| Professional fees and other fees, payable when services are used | 6 | 37% | 2 | 22% |
| Professional fees and other fees, payable if successful | 2 | 76% | 2 | 83% |
| Sales of equity | 2 | 26% | 0 | N/A |
| No payment received | 0 | N/A | 2 | N/A |
| * Based on 7 incubators; 2 of the 9 outside Quebec did not disclose details of payments received | ||||
In Quebec, rent and fees payable when services are used are the mechanisms used by the largest number of incubators to obtain payment for services. Rent accounts for 53% of payments received by incubators that use that mechanism. The situation is similar outside Quebec, where rent is also the most common payment mechanism, although to a lesser extent.
On the other hand, professional and other fees payable if the enterprise is successful are used as payment mechanisms by only a quarter of incubators inside and outside Quebec. However, where that mechanism is used, it makes a substantial contribution to payments received by the incubator. Only two incubators in Quebec receive payment through equity participation.
It should be noted that of the seven incubators outside Quebec that were considered in this respect, two do not receive payment.
There are therefore essentially three payment models. The first, which is referred to as "guaranteed", uses payment mechanisms that generate guaranteed, immediate, regular and foreseeable payment for services: rent and professional and other fees payable when services are used. The risk associated with this payment model is low.
The second, which is referred to as "risky", uses payment mechanisms that generate deferred revenue from services, which is often deferred for an indefinite time and is therefore not foreseeable, and depends on the degree of success achieved by the project: professional and other fees for services payable if the enterprise is successful. In that case, the risk is very high, but the revenue generated where a major success is achieved can be very substantial.
The third payment model, referred to as "combined", is a hybrid. It combines the regularity and security of guaranteed mechanisms with the deferred and potentially high return of the risky mechanisms. The risk associated with this model will therefore fall between the risk associated with the other two models, and the return will depend on the combination of mechanisms used.
In Quebec, a large majority of incubators operate using a "guaranteed" payment model. However, two incubators use a "risky" payment model, and one incubator uses a "combined" payment model.
Outside Quebec, of the five incubators that receive payment, three use a "guaranteed" payment model and two use a "risky" payment model.
