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TO THE POINT

Earlier this year, Rensselaer Polytechnic Institute announced it would close its award-winning incubator after 30 years of operation. Read on to learn more details about how this long-running incubation program fell upon hard times.

Rensselaer Polytechnic Institute closes venerable incubation program

by Corinne Colbert

April/May 2010

On Feb. 5, Rensselaer Polytechnic Institute in Troy, N.Y., announced that it was closing its incubation program — the first university-supported incubator in the U.S. — and gave the incubator’s 13 remaining clients six weeks to vacate the premises.

A week after the RPI announcement, the Rensselaer County Industrial Development Agency created a $50,000 relocation fund to help incubator clients find new homes within the county.

The news of the closure shocked those who have long known the program’s reputation for quality. Founded in 1980, the RPI Incubator Center “had been for many years the absolute epitome of a university incubator,” says Dinah Adkins, NBIA’s president emerita. She later told the Albany Times Union, “The closing of the RPI incubator is a travesty.”

Local officials aren’t happy, either. In a story published Feb. 12 in the Albany Business Review, Rensselaer County Executive Kathy Jimino said, “We’re disappointed because we’ve seen the track record the RPI incubator has had on companies that have gone through there. We’re anxious to see what the college has coming out in place of this.”

According to news reports, RPI wants to restructure the incubator as a virtual program focusing on energy and environmental start-ups, using grant funding rather than rent to support operations. Historically, the incubator hosted a variety of technology companies, including pharmaceutical, ICT, software and video game start-ups. Among its graduates are:

  • MapInfo, now Pitney Bowes Business Insight, which makes mapping and demographic software for business and government
  • Albany Molecular Research (NASDAQ: AMRI), a life science firm involved in drug discovery, development and manufacturing; has more than 1,200 employees
  • Vicarious Visions, a video game developer that has sold more than $1 billion worth of games, including Guitar Hero; acquired by Activision

According to its Web site, the RPI incubator had served more than 250 companies since 1980; those companies had created more than 2,500 jobs and generated annual sales in excess of $600 million. The Web site also stated that about two-thirds of the incubator companies historically were either based on RPI-generated intellectual property or founded by RPI alumni.

The RPI Incubator Center was NBIA’s 1995 Randall M. Whaley Incubator of the Year; its client, Precision Valve and Automation, was named Technology Client of the Year the same year. RPI also was featured in the original Best Practices in Action: Guidelines for Implementing First-Class Business Incubation Programs.

“Sad, but not surprised” is how Mark Rice — an RPI graduate who directed the incubator from 1988 to 1994 — describes his reaction to the announcement of the incubator’s closing. “Part of me says I should be angry, but that’s not a healthy thing to carry around. I can’t begin to understand why” [it’s closing].

“I was stunned,” echoes Jerry Mahone, the program’s first full-time director. “I guess I’m still stunned.”

The original RPI incubator facility was a 3,500-square-foot building. In 1982, the program expanded into a 42,000-square-foot building. Ten years later, the incubator added a third facility, comprising 32,000 square feet, to offer wet lab space.

It wasn’t space that made the program great, Rice says, but the continuum of “incredibly committed, dedicated, hard-working, capable incubator managers.” They included:

  • Founding director Michael Wacholder, worked part-time as director until 1983
  • Mahone, who headed the program full-time from 1983 until 1988
  • Rice, who managed the program from 1988 to 1994
  • Glenn Doell, director from 1995 to 1998
  • Bela Musits, who led the program from 1999 to 2002

The last dedicated incubator director at RPI was Michael Tentnowski, who became director in late 2005. Tentnowski was an active NBIA member who tried to move his program forward. For example, he forged a partnership with France’s Montpellier Agglomeration Business Innovation Centre — NBIA’s 2007 Randall M. Whaley Incubator of the Year — to offer reciprocal services to clients. The agreement never came to fruition, in part because Tentnowski left RPI in December 2008.

A number of sources have indicated that the change in the incubator’s fortunes lies with Shirley Jackson, who has served as RPI’s president since 1999 and whose tenure has been touched by controversies over her pay and extravagant spending.

Controversies aside, Jackson’s focus has been not on RPI’s tradition of entrepreneurship, but on its academic strengths. “While she’s the president, the focus will be on science and engineering,” Rice says. “Entrepreneurship is not at the same level of strategic focus.”

But few expected the incubator to shut down because of a change in focus. “I was aware that there were discussions about what direction [the incubator] should be headed in, but I had no idea those discussions would result in the incubator closing,” Mahone says.

Still, RPI has not completely abandoned entrepreneurship. The 1,250-acre Rensselaer Technology Park offers 320,000 square feet of multi-tenant space in 11 buildings. And the Severino Center for Technological Entrepreneurship — a program Rice founded in 1988 to connect the incubator with RPI’s Lally School of Management and Technology — sponsors the Severino Interest Group to foster connections between university researchers, entrepreneurs and business leaders.

Can the new model work?

Adkins doubts the revamped program can survive as described. Not having a building will not necessarily save money because, presumably, the program will still have to hire staff and offer services. Those expenses, on average, account for 36 percent and 19 percent, respectively, of incubator expenses (according to NBIA’s 2006 State of the Business Incubation Industry report).

In the 2006 SOI survey, only eight respondents out of more than 200 indicated that they did not have an incubator facility.

“They will lose much of the synergy, sharing and learning that incubator clients have when they are co-located,” Adkins says.

Rice agrees. “The real value of the incubator was that it was right on campus, making it easy for entrepreneurs to connect to [RPI] students, faculty and resources.”

More troublesome is the plan to fund operations not with rents and fees, but sources such as grants. According to the 2006 SOI report, 59 percent of incubator revenue is derived from client rents and/or fees. Service contracts and grants accounted for only 18 percent of revenue. Even worse, “grants are not available for operations,” Adkins notes.

Meanwhile, start-ups who don’t fit the RPI model may yet find help. A real estate owner has set up a collective space for start-ups in one of his buildings, offering month-to-month rent, Internet connections and shared office equipment. As of mid-February, he had signed four RPI refugees as tenants of the fledgling Tech Valley Innovations Center.

Keywords: best practices, budget – incubator, incubator failure, incubator management – general, sponsor, university partnerships

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