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BUSINESS INCUBATORS IN THE CZECH REPUBLIC: WELL SPENT MONEY?
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- 2.Introduction
- 3.Theoretical background
- Defining incubators
- Business incubator typology
- 6.Conclusion
- 7.Acknowledgement
BUSINESS INCUBATORS IN THE CZECH REPUBLIC: WELL SPENT MONEY?1.Michal Andera – Martin LukešAbstract The aim of this study is to analyze business incubators in the Czech Republic using publicly available data. Business incubators are used worldwide to support creation and development of entrepreneurial ventures. In the Czech Republic, there have been many incubators founded in the last decade, visibly due to inflow of EU funding. Surprisingly, there is no public register of incubators. This study offers the first overview of business incubators in the Czech Republic. Due to instable terminology concerning business incubators, we took the support of new entrepreneurial activity as a defining characteristic of a business incubator and created a list of organizations that offers this kind of services. Result of our study is a list of 51 institutions offering support to new companies or teams with ideas. This support takes various forms ranging from office rental to funding. The highest number of venues are in Prague and majority have been financed from EU funds. There are 21 publicly owned venues, 23 privately owned and 7 privately and publicly co-owned organizations. Almost eighty percent of incubators offer office space rental. Results show that business incubators in the Czech Republic differ and we need to start monitoring their performance in order to understand their added value, not just for incubated companies, but also for the economy as a whole. It is surprising, that in relation to huge funding by public money, there has been no effort made to systematically analyze incubators in the Czech Republic. Keywords: business incubator, Czech Republic, EU funding, accelerator, entrepreneurship support JEL code: M13, O38 2.IntroductionStartup support has various forms. Ranging from education, mentoring, competitions, financial support and various forms of business incubation. Business incubation activities done in various facilities are widely considered an effective tool for entrepreneurial support (Grimaldi & Grandi, 2005). They help new ventures minimize negative effects of newness and increase their probability of survival. Business incubation support is realized by providing resources, social connections and management advice that is not available to independent firms. Most successful business incubators (in terms of number of high growth startups) are in Silicon Valley. It is the source of inspiration for business incubators worldwide. Many regions have tried to replicate the success of those facilities, but very few can say they have succeeded (Aaboen, 2009). Is it even a right decision to copy best practices developed in highly specific environment of Silicon Valley? We believe, that in order to improve their operations, it makes more sense to learn from past data of specific countries and regions. In order to understand something and learn from it, you need to measure the performance first. That is why the United States, Italy and other countries monitor their incubators performance for many years. There are official state registers of incubators in the above mentioned countries. There are over 400 facilities in operation in neighboring Germany (Schwartz and Hornych, 2008). Sternberg did the first comprehensive evaluation study of German business incubators and companies graduating from them in 1988. The history of incubators in the Czech Republic is younger, but there was done nothing comparable between the years 1990-2016. There is no official statistics of business incubation in the Czech Republic, moreover there is even no official list of business incubators. This paper aims at closing this gap. We provide an overview of incubators in the Czech Republic with focus on their founding, owners and regional distribution. This is the first step on the path towards benchmarking the incubators in a more detailed way and creating an official list. This study is the first attempt to monitor business incubator activity in the Czech Republic and create a knowledge base for future monitoring and research. 3.Theoretical backgroundEntrepreneurship and start-up firms contribute substantially to job creation. In 2010 US start-up firms created 2.3 million new jobs, exceeding the 1.8 million new jobs created by the remainder of private sector firms (Haltiwanger, Jarmin & Miranda, 2012). New companies are vulnerable and not all of them become successful job creators. The probability of exiting is the highest during the first two years of company life and linearly decreases with maturing beyond the two years (Calvino, Criscuolo, & Menon, 2015). That is exactly the time when incubators can help lower the failure rate. The failure rate of start-ups is around 60 % within 3 years from inception (OECD, 2015). Study of the European Commission (2002) showed that the survival rate of incubator tenants was significantly higher than the business success rate amongst the wider SME community. Almost 90 % of incubated companies run their business after five years according to European Commission. Ferguson and Olofsson (2004) compared Swedish companies that were part of a science park with companies that developed their venture outside of business parks. Their results showed that companies, which spent some time in science parks, have higher survival rates than comparable companies that develop on their own. On the other hand, research done by Schwartz (2008, 2011) in Germany indicates that long-term survival after graduation from business incubator can be negatively correlated with participation in incubator. Thus, benefits of business incubation are not straightforward and it is important to monitor and observe the incubators and their best practices. Defining incubatorsUnfortunately, there is no unified definition of a business incubator. We can search for patterns among the existing ones. Business incubators guide starting enterprises through their growth process and as such constitute a strong instrument to promote innovation and entrepreneurship (Aerts, Matthyssens, & Vandenbempt, 2007). In general, business incubator is an organization that supports the creation and growth of new businesses by providing a variety of services like office space, shared administrative services, marketing, access to capital and financing, legal advice, networking opportunities, and management training (Hackett & Dilts, 2004; Aaboen, 2009). In 2012, there were 1250 business incubators in the United States, compared to just 12 incubators in 1980 (Business incubation – NBIA, 2016). In order to support innovation and job growth US government wanted to create a regional network of incubators. In 2009, they invested $250 million annually to this endeavor (Romero, 2009). European countries have also heavily invested to support the emergence of new business incubators (Phan, Siegel & Wright, 2005). Even emerging economies believe in the business incubators as a source of employment and wealth (Ratinho & Henriques, 2010). According to International business innovation association, there are seven thousand business incubators worldwide. Various definitions of a business incubator can be found in the literature. Usually, they share some similarities. Bergek (2008) distilled them down to four components that majority of venues offer to their members:
The literature varies over time in the opinion on what is essential for the incubator in terms of support. Initially, the focus was on facilities and administrative services. Currently the emphasis is strongly on the business support activities (Peters et al., 2004). More recently, the focus shifted to the networking activities specifically (Bøllingtoft & Ulhøi, 2005). Without business support, the denomination “hotel” might be a better description than incubator (Bergek, 2008). No doubt though that colocation is a necessary feature of an incubator (Nolan, 2003; von Zedwitz, 2003). Business incubator typologyWe can divide incubators in two main groups according to their owners. There are public incubators founded by universities, city or regional governments. They fulfill a public service of helping new entrepreneurs get their ventures off the ground. They are based on a belief that entrepreneurship has not just economic but also social impact. They are often of a non-profit nature. Private incubators constitute the second group. They are founded and owned by private entities with various motivations that influence the vision and mission of the venue. It could be complementary to the core activities of the owner or their main goal is to find good investment opportunities. They search for companies and new ideas to invest in or they want to create creative environment that serve as an inspiration for employees of owner organization. Previous focus of incubators was mainly on job creation and real estate offering to its members. Later intangible services were added and now we can speak of third generation of incubators. Their focus is on high-tech, ICT and new technology based firms (Aerts et al., 2007). The range of services offered in different modes of operation differ as well. E.g., some incubators offer more specialized programs like acceleration focused on fast growth of member start-ups or they target industry specific ideas. It is difficult to compare different types of incubators or to compare incubators across countries, because there is not only one type of business incubators. Different owners have different motivations and goals. That is why we need to build a list of existing incubators in the Czech Republic and start monitoring their development. 4.MethodsFirst, we compiled a list of incubators and accelerators in the Czech Republic. This was rather complicated process as there is no official list we could build on. Moreover, there is no unified definition of business incubator used. Due to the non-existence of previous verified list of incubators, we adopted more benevolent approach in the initial phase of the research. We built a preliminary contact list and included every organization that publicly declares focus on supporting new venture creation and company growth. Aside to the incubator list, we compiled also list of co-working spaces in the Czech Republic as they may provide efficient support for start-ups as well. Co-working space might be serving as a sort of incubator for their tenants. The focus is mainly on one dimension of the entrepreneurial support and that is shared office space. But some of the components of incubators could be tacitly involved. Many co-working spaces offer educational and networking activities, they can also provide advice to partner companies in terms of support services. The data set used in this article was built up as a first of its type in the Czech Republic. We used an existing list of science and technology parks of the investment and business development agency (Czechinvest, 1994; 2007) and also a catalogue of Science and Technology Parks Association CR (Science and Technology Parks Association CR, 2016). We combined those two lists for a preliminary list. To further add missing venues, we searched on google.com for terms business incubator, entrepreneurial incubator and accelerator. We also explored articles concerning business incubators of major online newspapers ihned.cz, idnes.cz and regional news portals. Following the preliminary list, we visited each page of the venues to gather further information like year of foundation, ownership etc. We focused on their vision, what services they offer, whether they organize events and contact information. We excluded venues that did not mention focus on new business creation and entrepreneurial support on their home page or subpages. We also excluded venues that ceased their existence. This was for example a case of Wayra business incubator that left the Czech Republic following its mother company Telefonica. We also excluded venues with solely academic focus or science and technology parks with no pronounced entrepreneurial focus. 5.ResultsThis section describes the results of the empirical research. We show the numbers in terms of business incubators with the major findings in terms of facility characteristics. We had a 59 venues in the preliminary list of business incubators. After the online research we ended up with 51 organizations that qualified as business incubators. The highest number of incubators (10) is in Prague, the second place is shared by Moravskoslezský (8) and Zlínský (8) region. For detailed locations, see Figure 1. Figure Map of regional distribution of business incubators 
Source: Authors It is obvious that the majority of incubators are based in large cities throughout the country. If the incubators want to be sustainable, they need to have constant influx of members. Majority of new companies need to be located close to their customers. When growing, they search for new employees to hire. Both customers and employees are easily attainable in urban areas with higher density of population than in countryside. It is evident that incubators located further from cities are mainly in Moravia, especially in Zlín region. These are mainly financed from EU money (see Figure 2). It gives them more freedom in terms of location, but one must necessarily question their sustainability. Figure Region and EU Funding 
Source: Authors Business incubators were mostly founded in several waves. The first organizations were founded shortly after the velvet revolution, but majority of venues were founded shortly after Czech Republic joined European union. The high peak was in the first years after the accession. There were 18 business incubators financed from structural funds out of 20 in the first four years. The Figure 3 illustrates the ownership of incubators founded in different time periods. Basically all public and mixed, and some of the private business incubators have been financed or co-financed from EU money. Figure Years of foundation and ownership 
Source: Authors There are 23 incubators run only by private entity, 21 solely public incubators and 7 incubators have mixed ownership. Out of the 23 private incubators 15 are financed from EU funds. Only two private incubators were founded before Czech Republic joined European Union. For the public incubators 5 were founded before the year 2005, the remaining 16 were founded between years 2005 and 2016. Concerning the 7 incubators with mixed ownership 4 were founded before 2004. There are 12 venues, i.e. 23,5 % of the sample, that are founded or co-founded by a higher education institution. Out of those 12 organizations with university involvement, there are 7 business incubators run only by University, that is 14 % of the sample. Four university incubators have involvement of other public entity (e.g. city, regional government). Only one university incubator - Podnikatelský inkubátor Vysoké školy podnikání - is run by a private entity. There are some doubts about the way some incubators use funds from European Union. You can find stories of incubators changing ownership from public to private, receiving funds and going bankrupt. For example the TechnoPark incubator from Pardubice. It was founded in 2008 and heavily financed from EU funds. In 2012 it changed its ownership to offshore tax paradise in Panama. Czech authorities were unable to trace down its real owners. It was sold below price due to bankruptcy and is not a business incubator anymore (Lidové Noviny, 2014). In general, it is hard to trace down the number of closed incubators, because there is no official list since the first incubators were open. We were able to document 4 cases of closed business incubators in course of this study. The number of institutions using EU money is 36. Which is 70,6 % of entities in the sample. Many of the venues were founded in years 2005 to 2009, shortly after CR entered European Union and the support from EU funds was available.
Only eight venues offer acceleration program. Forty-seven business incubators offer office rental. This means only four operate as a virtual incubator. Non-members can attend public events in 34 incubators. 6.ConclusionAccording to our knowledge, we have built the first list of incubators ever published in the Czech Republic. The weakness so far is that we relied only on publicly available data. We believe follow up studies are needed in order to understand the benefits of the incubators for the incubated firms, employment, innovation and economy as a whole. Also, to identify successful incubators and document their best practices. We also found that only eight venues offer acceleration program geared towards fast growing companies in later than startup phase. Further, it is stunning, if we take into account the huge amounts of money that were poured in the development of business incubators, that there are no control mechanisms that would be able to ensure that they serve their purpose. To understand the incubation ecosystem, we need to study the various organization in detail. This opens new research opportunities. We make our list of incubators publicly available and hope this study leads to further research that continues to analyze business incubators, their performance and their impact. 7.Acknowledgement:This study was conducted thanks to the financial support of Internal grant agency of the University of Economics in Prague (IG303013) and Erasmus + project Super (2015-1-SK01-KA203-008915). 8.ReferencesAaboen, L. (2009). Explaining incubators using firm analogy. Technovation, 29(10), 657–670. doi:10.1016/j.technovation.2009.04.007 Aerts, K., Matthyssens, P., & Vandenbempt, K. (2007). Critical role and screening practices of European business incubators. Technovation, 27(5), 254–267. doi:10.1016/j.technovation.2006.12.002 Business incubation - NBIA. (2016). Retrieved May 20, 2016, from https://www.inbia.org/resources/business-incubation-faq Bøllingtoft, A., & Ulhøi, J. P. (2005). The networked business incubator—leveraging entrepreneurial agency? Journal of Business Venturing, 20(2), 265–290. doi:10.1016/j.jbusvent.2003.12.005 Calvino, F., Criscuolo, C., & Menon, C. (2015). Cross-country evidence on start-up dynamics. OECD Science, Technology and Industry Working Papers. doi:10.1787/5jrxtkb9mxtb-en Czechinvest. (1994). CzechInvest. Retrieved May 21, 2016, from http://www.czechinvest.org/inkubatory Czechinvest. (2007). Akreditované parky Společností vědeckotechnických parků ČR (www. Retrieved from http://www.czechinvest.org/data/files/parky-203.pdf Ferguson, R., & Olofsson, C. (2004). Science parks and the development of NTBFs— location, survival and growth. The Journal of Technology Transfer, 29(1), 5–17. doi:10.1023/b:jott.0000011178.44095.cd Grimaldi, R., & Grandi, A. (2005). Business incubators and new venture creation: An assessment of incubating models. Technovation, 25(2), 111–121. doi:10.1016/s0166-4972(03)00076-2 Hackett, S. M., & Dilts, D. M. (2004). A systematic review of business incubation research. The Journal of Technology Transfer, 29(1), 55–82. doi:10.1023/b:jott.0000011181.11952.0f Haltiwanger, J. C., Jarmin, R. S., & Miranda, J. (2012). Business dynamics statistics briefing: Where have all the young firms gone? SSRN Electronic Journal. doi:10.2139/ssrn.2049909 Lidové noviny. (2014, September 24). Zájemce vydražil zkrachovalý TechnoPark za méně, než firma dluží | Firmy a trhy | Lidovky.Cz. Retrieved May 21, 2016, from http://byznys.lidovky.cz/zkrachovaly-technopark-vydrazil-zajemce-za-183-milionu-korun-prj-/firmy-trhy.aspx?c=A140924_175558_firmy-trhy_sho Phan, P. H., Siegel, D. S., & Wright, M. (2005). Science parks and incubators: Observations, synthesis and future research. Journal of Business Venturing, 20(2), 165–182. doi:10.1016/j.jbusvent.2003.12.001 Ratinho, T., & Henriques, E. (2010). The role of science parks and business incubators in converging countries: Evidence from Portugal. Technovation, 30(4), 278–290. doi:10.1016/j.technovation.2009.09.002 Romero, D. (2009, April 10). A new take on Incubators. Retrieved April 18, 2016, from Entrepreneur Magazine, https://www.entrepreneur.com/article/201228 Schwartz, M., & Hornych, C. (2008). Specialization as strategy for business incubators: An assessment of the central German Multimedia center. Technovation, 28(7), 436–449. doi:10.1016/j.technovation.2008.02.003 Science and Technology parks Association CR. (2016). Interaktivní Katalog VTP. Retrieved May 21, 2016, from http://www.svtp.cz/katalog/
Ing. Michal Andera michal.andera@vse.cz Department of Entrepreneurship University of Economics, Prague
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