Feature of the Week

September 24, 2012 12:09 am

Take one start-up, add expertise and grow with care

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The University of California, Berkeley’s Skydeck incubator for student start-ups, has a decidedly un-student like feel. The incubator, which Haas School of Business, Berkeley helped establish and fund, occupies the penthouse suite of the tallest building in downtown Berkeley, with premium office space and views over San Francisco Bay.

Inside, 14 competitively chosen teams, most with at least one MBA, are developing companies based on everything from social media websites to medical devices and software. Each team can use the incubator for up to a year, receiving mentoring from Haas faculty and entrepreneurial alumni, hands-on help from Skydeck staff and the opportunity to pitch to the investors of nearby Silicon Valley.

It is the kind of extracurricular set-up that is on offer to more and more students at business schools, as the institutions realise that offering a few lectures about entrepreneurial businesses is no longer enough.

Bart Clarysse, who holds a chair in entrepreneurship at London’s Imperial College Business School, has noticed that more business schools have been establishing incubators for student enterprises over the past two or three years. Entrepreneurship is becoming increasingly popular among MBA students, he explains. But students do not just want to study others’ cases any more – they want real experience too.

From business plan to fully fledged venture

When 31-year-old Dave Gilboa and his three co-founders graduated from Wharton in 2010 they left not only with their MBAs but also a fledgling eyewear company, Warby Parker.

Today the company, which sells its own brand of boutique spectacles online directly to consumers, has its headquarters in New York and employs 100 people. For every pair of glasses sold, another is given away to someone in need. The company was started in the Wharton school’s Venture Initiation Program. The incubator provided “a lot of resources we would not have had access to otherwise”, says Mr Gilboa. That included a $2,500 seed award and that crucial introduction to what turned out to be their initial investors.

An option would have been to apply to a private incubator instead, Mr Gilboa adds, but they did not want to loose any equity in the company that a private incubator would take. “What appealed to us about the resources Wharton provided was that everything was free,” says Mr Gilboa.

Current MBA Mitch Gordon, 33, chose Haas knowing he wanted a course where he could “really focus” on entrepreneurship and start a company. He launched GoOverseas, a website listing opportunities and providing reviews for teaching, studying and volunteering overseas in 2010. The venture employs seven full-time staff as well as freelancers and is “almost breaking even”. It was one of the first teams to move into Skydeck when it opened in January.

Being selected for Skydeck gives the company credibility, he says. “If I went straight to a private incubator I wouldn’t have had the access to professors who have been great advisers ... Our business wouldn’t be where it is today if I didn’t go to school and develop the concept in classes.”

Private start-up incubators and accelerators are already an established part of the technology venture capital scene. Y Combinator in the US and Seedcamp in Europe, for example, operate by making a small cash investment in a company in return for equity. University equivalents such as Skydeck also provide resources and support for student and recent alumni start-ups, but have the goal of education and learning, rather than profit.

The Stanford Venture Studio run by Stanford Graduate School of Business for Stanford students across the university is due to launch next week after a short pilot period. And the Harvard Innovation Lab (i-lab) – housed in a $22m purpose-built building – was opened last autumn with considerable input from Harvard Business School. Other initiatives are more specifically focused on MBAs. In June, in response to student feedback, Columbia Business School opened the Columbia Business Lab in downtown New York and London Business School established an incubator for its entrepreneurial alumni in 2010.

All typically involve some competitive entry process, access to time-limited workspace, mentoring, help with contacting investors, events and networking sessions. Most are professionally run.

Following the internet boom in 1999 a number of business school incubators were established, says Joseph Lassiter, a professor at HBS and faculty chair of i-lab. “[But] the recent elevation is based much more on a belief that education needs to emphasise putting ideas to use.”

The Wharton School at the University of Pennsylvania established its incubator programme after noting that some of its MBA students who were working on business plans were dropping out to pursue their ventures.

The Venture Initiation Program (VIP), which has been operating since 2001, assists Pennsylvania students as they build companies, even offering small grants to the best. It has recently expanded to executive MBA students at Wharton’s San Francisco campus.

That the incubation programmes are accessible to students from all departments, not just MBAs, makes for a richer educational experience say Kartik Hosanagar, the academic adviser of VIP and Andre Marquis, executive director of Haas’s Lester Center for Entrepreneurship and Innovation, who oversees Haas’s involvement in Skydeck. MBAs learn what scientists and engineers do, while others see at first hand the value of having an MBA on the team.

Moving the entrepreneurial launch pads outside a business school also reflects the reality of where great ideas come from. From Google to Sun Microsystems, many start-ups come out of universities, but not so often from business schools.

However, it would seem that some potential MBA students with entrepreneurial ambitions are having their heads turned by private incubators.

“[They] are taking some of the more entrepreneurial students away from business schools and I’ve heard of quite a few people who instead of quitting their jobs to do an MBA have left to start a start-up instead,” says Paul Miller, a London entrepreneur and co-author of a report for the UK’s National Endowment for Science, Technology and the Arts on the rise of accelerator programmes.

“When you go to business school you pay a lot of money, it takes you two or three years and you learn how other people did stuff so you can imitate them,” says Silicon Valley investor Naval Ravikant. “When you go to an incubator it is almost the complete opposite – you do it for 10 weeks, you do original work and you get paid.”

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Some on the business school side acknowledge the tension. “A student committed to entrepreneurship and on a very clear path [to a start-up], would certainly wonder, ‘should I be spending all that money for an advanced business degree or just go to an incubator?’ ,” says Prof Hosanagar.

But business schools argue that they are the right place for some budding entrepreneurs. Many students who are committed to entrepreneurship do not necessarily have an idea or a business plan, for example.

“In that case, your MBA helps you a lot,” says Prof Clarysse. Teaching entrepreneurship is entirely possible, he reiterates, but it has to be done in a different way, which is exactly where institutional incubators and accelerators come in.

It is “pretty smart” that business schools are setting up incubators, admits Mr Ravikant. “They are realising that their best and brightest don’t need so much education as they need operational support.”

But whether school incubators will produce great start-up companies, he believes, will depend on how they are run and executed. From their brands to their connections and networks, and their bright, young, energetic students who want to be involved in the start-up world, “they have all the raw materials”, he says.

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