A Place Designed For Breeding A Business

by Gretchen Kell Just as some newborn babies need an incubator before they're strong enough to survive on their own, a professor and an MBA student each is setting up an "incubator" for fragile young businesses. Incubators, popping up nationwide, are small offices where entrepreneurs-including college students-can test launch dream businesses. They often provide computers, fax machines, phones, Internet access, business and technical advice and financing. The incubators, sometimes located near but not on university campuses, are a welcome sight for students. For decades, struggling young entrepreneurs have had to start up businesses in apartments and garages. For legal and ethical reasons, students cannot use campus resources for such ventures. "Incubation is the garage of the '90s," said Thorne Sparkman III, a second-year MBA student at the Haas School of Business and president of Incubator Inc., a new company on Durant Street, near campus. "You could use your garage and get by as best as you could-Hewlett-Packard and other Silicon Valley businesses were born in the garage. But it's hard to do," said John Freeman, a professor at the Haas School. He plans to set up an incubator near campus this semester with work space for about 28 students. Freeman, who teaches entrepreneurship, said the benefits of an incubator are many. "First, it gives students a business address, a phone number and some infrastructural support," he said. "The incubator also will give them a focal point for making connections with the business world. We'll have an advisory board of accountants, lawyers, venture capitalists and other business professionals who will give sage advice and judgment. There also is peer support that can continue after graduation." Despite developing different businesses, teams of young entrepreneurs working under the same roof can learn together how to overcome common hurdles, said Sparkman. The idea behind Incubator, Inc., was first proposed by two MBA students here. After they graduated, the business school's Internet Business Club developed the plan further. Nat Goldhaber, a Berkeley alumnus and chief executive officer of CyberGold, brought the venture to life by agreeing to finance it. Young entrepreneurs who sign up with Incubator, Inc., can use the office free for the first year, said Sparkman, but they agree to return to the incubator a 4 percent equity stake in their company. That money will be used to cover operating expenses, he said. The incubator's investors also get first crack at financing start-up companies that grow out of the incubator. The modest office will hold up to five fledgling businesses a year, said Sparkman. Both Berkeley students and city of Berkeley residents can apply. While Incubator, Inc., is designed for people launching Internet businesses, Freeman's proposed incubator would hatch many types of business ventures. He will require that at least one person on each team be a Haas student. Freeman said that the Haas School's well-known entrepreneurship program produces numbers of students interested in starting up businesses. "In the past few years we've been seeing eight to 10 businesses per year come out of Haas. Sometimes the business students team up with students from other places, such as the College of Engineering," he said. Freeman said he is gathering private investors to help establish a corporation "that will donate any profits to the university." Unlike at Incubator, Inc., investors in this incubator would not have an advantage over others when it comes to funding the students' businesses. Instead, they would act only as mentors. While professors and others in the campus community may help get the incubators onto the drawing table and later may serve as advisers, Freeman said the incubators must operate independently and off campus. "...Their business is the creature of that incubator," said Freeman. "Nobody, including myself, can take a nickel out of this as a university employee. We're working with attorneys to structure this in a way that's both legally and ethically appropriate." Freeman said he was not sure what fees, if any, students would be charged to use the incubator he's establishing. It seems natural, he said, for the university to help young entrepreneurs make the transition from classroom to corporation. After all, many Berkeley graduates have started or helped to start successful companies-including Sun Microsystems, The Gap and Otis Spunkmeyer, Inc.- that today employ large numbers of Californians.