GEM Report Shows Start-up Firms’ Impact

The latest Global Entrepreneurship Monitor (GEM) report underscores the fact entrepreneurs are not to be ignored as economic development catalysts. According to the 2003 GEM Global Report, which looks at entrepreneurship and economic growth in 41 countries, 300 million people around the world were in the process of launching more than 192 million new firms in 2003. Of those, more than 80 percent expect to create jobs within the next five years. The authors conclude that job creation is highly correlated with a country’s level of start-up activity.

For the first time ever, the GEM Report examined entrepreneurial activity of existing firms in addition to nascent firms. The report found that the number of individuals in the world looking to start a new business was five times greater than the number of existing businesses that plan to provide markets with new innovations. In fact, 95 percent of existing firms replicate existing activity and are not very entrepreneurial, according to the report.

Other key findings include:

• Chile, Korea, New Zealand, Venezuela and Uganda ranked highest in terms of overall entrepreneurial activity. Sweden, Netherlands, Taiwan, Croatia, Japan and Russia ranked lowest.


• Fewer than 37 of every 100,000 start-ups received venture capital and more than 80 percent of venture capital start-up funding occurred in the United States.


• On average, new firms less than one year old provided two to 15 percent of the total number of jobs in a country.


• Three out of every 100 adults in GEM countries have invested in someone else’s business.


• Men accounted for 64 percent of start-up activity; women accounted for only 36 percent.


• 67 percent of entrepreneurs were between ages 25 and 44.

GEM is an international study of entrepreneurship conducted by Babson College and London Business School and funded by the Ewing Marion Kauffman Foundation. Visit www.gemconsortium.org/document.asp?id=327 to view the report.

Women Are Underrepresented in Venture Capital Firms

Key findings include:

• Women represented 10 percent of management-track venture capitalists in 1995, but this number fell to 9 percent in 2000, despite significant growth in the industry.


• By 2000, 64 percent of women who had been in the industry in 1995 had left.


• In 1995 only 27 percent of venture capital partnerships had females in management positions; by 2000, that number had fallen to 25 percent, and most of those managers were the sole females in key positions within their firms.

The authors argue that this poor representation of women in the venture capital industry is adversely affecting the ability of women-led firms to obtain venture capital. Although venture capitalists do not recommend investments based on the gender of entrepreneurs, the report found that venture capital deal flow is greatly affected by networking. Without an adequate number of women in venture capital management positions, women-led firms appear to be at a disadvantage in getting their deals to the table, according to the report.

The Diana Project is a multiyear, multiuniversity study of women business owners and business growth opportunities sponsored by the U.S. Small Business Administration and the Ewing Marion Kauffman Foundation. To read the full report, visit www.kauffman.org/pages/416.cfm.

Changing the Face of Rural Assistance

Did you know that national governments across the globe spend $300 billion to $320 billion on farming subsidies for rural communities each year? A new report from the Progressive Policy Institute argues that rural communities would be much better off if federal governments spent portions of those funds on rural economic development. Reversing Rural America’s Economic Decline: The Case for a National Balanced Growth Strategy argues that such subsidies merely preserve the status quo of rural communities rather than encourage growth or betterment.

The authors suggest that countries should uniformly agree to reduce farming subsidies, which primarily serve to stifle agricultural competition between countries. By enacting a mass disarmament of subsidies, federal governments could use the leftover funds in conjunction with local and regional funding to boost the economic competitiveness of rural communities by creating new jobs, establishing new industry bases within the region and diversifying rural economies. To read the report, visit www.ppionline.org/ppi_ci.cfm?knlgAreaID=107&subsecid=123&contentid=252381.

U.S. Legislative Update
by Erik Pages

International outsourcing – also known as offshoring – has emerged as one of the hottest discussion topics in the ongoing presidential campaign, so it should come as no surprise that Congress is actively debating the issue too. Led by Rep. Todd Tiahrt, R-Kan., House Republican leaders are unveiling a multipronged program called “Hire Our Workers” (HOW), which is designed to create new opportunities for American businesses and workers. Leaders of the initiative will push for House votes on key legislation related to tax fairness, regulatory reform, tort reform and a host of other issues.

For more on offshoring and other U.S. legislative news, click here.

Learn to Ask Your Clients the Right Questions

• What market characteristics demonstrate attractiveness for the new product opportunity?


• What risks are associated with developing and delivering the new product or service?


• What is the adequacy of the company's resources to successfully develop and commercialize this new product idea?


• What are the competitive advantages of the new product or service?

To check out all 2,000 questions and read supplementary articles, visit www.leadersaskgoodquestions.com.

New Biotech Incubator to Invest in Other Incubators’ Clients

There’s a new option for life sciences companies looking for capital investments. Z-Cube is a corporate incubator that seeks to invest in innovative start-ups working with biotechnology/pharmaceutical technologies and provide them with business assistance services. Sponsored by the Zambon Group, an international pharmaceutical company, Z-Cube aims to cultivate sound investments through incubation services and to create partnerships between its parent company and the newest tide of biotechnology start-ups.

“Z-Cube represents an opportunity for seed-stage companies – including existing incubator clients – to get an attractive partnership with a pharma company,” says Claudio Semeraro, Z-Cube executive director. “In addition to capital investment, we provide industry-grade developmental and business strategy input, financial investment, and a host of other incubation services, including access to Zambon laboratories and facilities." Z-Cube assigns each funding recipient a project coordinator who facilitates access to Zambon’s internal and external business resources to assist the sponsored firm in areas such as business plan development, marketing, research and development, and financial strategy.

For those companies that are already enrolled in an incubation program, Z-Cube would consider its funding and incubation services to be complementary to those of the other incubator.

Z-Cube plans to make staged investments of €1 to €3 million (about $1.2 to $3.6 million) in 24 seed- and early-stage companies over the next five years. For information or to apply, visit www.z-cube.it or contact Jeffrey Wager or Steve Wardell at CPP Advisors (a life science advisory firm based in Waltham, Mass., that represents Z-Cube) at (781) 250-2100.

Tax Credits to Boost Incubation in Missouri

Obtaining funding for incubation programs in Missouri is now a whole lot easier. Earlier this year, the Missouri Department of Economic Development enacted the Small Business Incubator Tax Credit program, which offers a 50 percent state tax credit to individuals or organizations that contribute to eligible incubation programs within the state. Supporters hope that the program will encourage more people to contribute to incubation programs, increase awareness about business incubation, and provide incubators with new ways to leverage support.

Under the new program, a contributor can receive a maximum tax credit of $50,000 for contributions made to a single incubator or $100,000 for contributions made to multiple incubators. Overall, the state will award $500,000 per year in tax credits on a first-come, first-served basis. Incubation programs must submit an application to the state in order to become an eligible incubation program. For more information, visit www.ded.mo.gov/business/enhancecompetitiveness/smallbusincubator.shtml.

In-Q-Tel: The CIA’s Venture Capital Arm

Did you know that the U.S. Central Intelligence Agency (CIA) is investing in start-up companies? Since opening in 1999, In-Q-Tel, like many CIA programs, has been operating under the radar, quietly investing about $35 million per year in technology start-ups.

To date, In-Q-Tel has invested in about 30 companies. Investments have ranged from $3 million to $5 million per company, based on three factors: the potential value of the firm/technology to the CIA, whether the company is capable of succeeding and the uniqueness of the technology. “We typically do an equity deal with the companies, and we often fund certain feature sets for the product,” says Gayle von Eckartsberg, In-Q-Tel vice president for strategy and communication. “These feature sets aim to accelerate the development of the technology both for CIA purposes and for the betterment of the overall marketability of the product.” For example, the CIA may desire that a certain software application run on Linux in addition to the more marketable Windows platform. In-Q-Tel would then supply the additional funds to ensure that this product feature was available.

Through In-Q-Tel, the CIA hopes to regain a technological edge that it now finds lacking, according to von Eckartsberg. In previous years, the CIA had been a frontrunner in technology innovation. However, the favorable environment for technology entrepreneurs has left the CIA with fewer scientists and researchers willing to take a government paycheck in lieu of starting their own businesses. “Also, cutting-edge technology often isn’t being sold in the federal marketplace, so In-Q-Tel gives the CIA access to technologies that it might never see otherwise,” von Eckartsberg says.

For information or to submit a business plan to In-Q-Tel, visit www.in-q-tel.com.

Inventory Your State’s Technology and Science Assets

One of the first steps when devising a business plan is to assess your assets. Forming an economic development plan should be no different. A new report from the Milken Institute, State Technology and Science Index, provides a catalog of all 50 U.S. states’ technology and science assets that can be leveraged to promote economic development. Researchers ranked states based on 75 indicators in five categories: research and development inputs, risk capital and entrepreneurial infrastructure, human capital investment, technology and science workforce, and technology concentration and dynamism.

Massachusetts, California and Colorado ranked highest in the report’s findings; Kentucky, Arkansas and Mississippi ranked lowest. Rhode Island had the greatest increase in ranking, moving up 10 places compared to 2002’s report. The report says that Rhode Island made terrific strides in the development of risk capital and seeding new start-ups. To read an overview or order a copy of the report, visit www.milkeninstitute.org/publications/publications.taf?function=detail&ID=304&cat=ResRep.

Calendar

May 30: This is the final day NBIA members can vote in the NBIA Board of Directors election. Do your part to select the individuals who will lead NBIA into the future and vote today!

June 13-15: Visit Sheffield, Ala., for Advanced Skills for Incubator Management: Grow Your Clients – Grow Your Incubator, sponsored by the Appalachian Regional Commission, Tennessee Valley Authority and Shoals Entrepreneurial Center. The conference includes roundtable discussions and 12 sessions on topics such as kitchen incubation, cash flow management and effective marketing strategies. Visit www.shoalsec.com/conference_061304.html for details.

June 16-19: The European Business and Innovation Centre Network (EBN) will hold the 13th EBN Congress, Industry Leaders and Small Business: Leading the Way Together, in Malaga, Spain. Take part in sessions and roundtable discussions focusing on strengthening the ties between the European Union’s large industries and small businesses. Visit www.ebn.be/ebn07.htm#ebncongress for details.

Visit NBIA’s Industry Calendar to find out about more events taking place in business incubation and related industries.

Questions? Comments? E-mail UPdates@nbia.org.

Brian Walker - EDITOR
Meredith Erlewine - DIRECTOR OF PUBLICATIONS
Linda Knopp - CONTRIBUTOR

ISSN: 1080-9902
Copyright 2004 National Business Incubation Association (NBIA).
NBIA advances the business incubation process to increase entrepreneurial success and individual opportunity, strengthening communities worldwide. NBIA publishes UPdates bimonthly for members.