Importance of business incubators in e-commerce
Incubators An incubator is a company that offers start-up companies a physical location with offices, accounting and legal assistance, computers, and Internet connections at a very low monthly cost. Sometimes, the incubator offers seed money, management advice, and marketing assistance as well. In exchange, the incubator receives an ownership interest in the company, typically between 10 percent and 50 percent.Business incubators are programs designed to support the successful development of entrepreneurial companies through an array of business support resources and services, developed and orchestrated by incubator management and offered both in the incubator and through its network of contacts. Incubators vary in the way they deliver their services, in their organizational structure, and in the types of clients they serve.
When the company grows to the point that it can obtain venture capital financing o launch a public offering of its stock, the incubator sells all or part of its interest and reinvests the money in a new incubator candidate. One of the first Internet incubators was Idealab, which helped companies such as CarsDirect.com, Overture, and Tickets.com get their starts.
More recently, companies such as Matsushita Electric’s U.S. Panasonic division have started internal incubators to help launch new companies that will grow to become important strategic partners. The companies launched in the incubator will retain their individual management teams and the assets they develop. The prospects for these strategic partner incubators appear to be much brighter than those of the old-style technology development incubators.
Fast Venturing Often, large companies struggle to emulate the entrepreneurial spirit of smaller companies as they launch their Internet business initiatives. Many of these companies are trying to expand the internal incubator model and create an effective support system for new business and technology ideas, such as electronic commerce initiatives.
One approach that is becoming popular is called fast venturing. In fast venturing, an existing company that wants to launch an electronic commerce initiative joins external equity partners and operational partners that can offer the experience and skills needed to develop and scale up the project very rapidly. Equity partners
are usually banks or venture capitalists that sometimes offer money, but are more likely to offer experience gained from guiding other start-ups that they have funded.
Operational partners are firms, such as systems integrator's, consultants, and Web portals, that have experience in moving projects along and scaling up prototypes. The roles of each participant in fast venturing are described in Figure:
The venture sponsor is the existing company that wants to launch the electronic commerce initiative. The equity partners are entities that have provided start-up money to new ventures in the past and have developed knowledge about operating new ventures.
The equity partners provide advice based on this knowledge to the venture sponsor, which typically
has little experience in developing new ventures. The operational partners are people and companies that previously have built Web business sites. Thus, they can provide expertise in the technologies and business practices needed to create a successful operating electronic commerce site.