Recent Research: Potential Impacts of University Incubators on Graduated Firms

A popular development strategy at the state and regional level, incubators seek to support economic growth by providing entrepreneurs with business assistance, access to capital, and networking. As of 2012, approximately one-third of the 1,250 business incubators in the United States were connected with universities, up from one-fifth in 2006, according to International (formerly National) Business Incubation Association data featured in The New York Times. Despite the proliferation of these programs at universities, there have been relatively few conclusions to date on the impacts of these incubators beyond anecdotes. Recent research from faculty at the University of Central Florida (UCF), however, finds evidence that firms in university incubators experience positive growth in number of employees and sales at a statistically significant rate compared to non-university incubated firms. On average, the authors find that university incubated firms were responsible for 3.965 more jobs than non-university incubated firms.

In April’s volume of The Journal of Technology Transfer, five UCF researchers – Vernet Lasrado, Stephen Sivo, Cameron Ford, Thomas O’Neal, and Ivan Garibay – asked, do graduated university incubator firms benefit from their relationship with university incubators? Using a variety of statistical techniques, the authors sought to describe the extent and fashion that university incubators affect the performance of startup firms above and beyond their time in the incubator.

To conduct their analysis, the authors developed a dataset that matches firms from university incubation programs with similar companies.  After combing the National Business Incubation Association (NBIA) website to identify 152 university-based incubator programs, the authors swept current and archived websites for these incubators, yielding 7,651 firms. Using the “wayback machine,” the authors were able to determine entry and exit dates for most firms by determining when they were added and removed from client lists on archived incubator websites. Of these identified firms, the authors compiled a list of 653 companies that successfully graduated from a university incubator and had complete firm-level data on the National Employment Time Series 2012 database. The authors then were able to match companies – those with the same birth year, similar industry classification, and approximately the same number of employees in the first year, but did not graduate from a university incubator – for more than one-third of these firms. Overall, the incubated firm cohort and the non-university incubator cohort each contained 224 firms for further analysis.

The number of jobs and sales for university incubated firms increased over time, the authors found, even beyond the incubation period. This finding held regardless of whether the firm was knowledge-based. The authors also found that university incubated firms had performance that was superior to non-incubated firms, as measured by job and sales growth.

The authors suggest that, as large institutions serving an important role in regional economies, universities have specialized assets – such as human capital, innovation, and other resources – that are hard for non-university affiliated incubators to match. Among all incubators, the authors argue that university programs provide firms with a more comprehensive set of resources, as well as greater connectivity and legitimacy with key industry and community stakeholders. Previous research that found less substantial evidence for incubator programs may be a result of surveying more resource-constrained incubators, the authors hypothesize.

Despite the authors’ findings, several issues with their methodology prevent broader policy applications, though many are outside the scope of the article. For example, many, though not all, university incubators require a pre-existing relationship (e.g., student, faculty, alumni) prior to entrance. The authors do not discern between these differences in their evaluation or explore this relationship. Furthermore, the control group used by the authors in the article represents companies not in university incubators; this does not, however, necessarily mean the control firms did not participate in other types of business incubation programming. Similarly, the authors do not differentiate between incubator programs and accelerators, as that is beyond the scope of the research.

Ultimately, the authors suggest that a better understanding of how individual components of a regional innovation system complement or depend on each other could drive better decisions concerning how public investments can spur economic prosperity. This is particularly important to emphasize, the authors note, because of regional differences in innovation assets, entrepreneurial talent, and other factors, such as access to capital.