Measuring the success of incubators as a tool for fostering entrepreneurship – case of Aalto Start-

Up Center?

Research Director Markku VirtanenAalto University School of BusinessSmall Business CenterVentspils University College, CEIRD

2013 © Markku Virtanen

Questions

1. How should we measure the success of incubators?

2. What kind of performance the incubated firms of ASUC have had in 2005 - 2011?

3. What is the share of gazelles among post-incubation firms?

4. How much do post-incubation gazelles contribute to the job creation i.e. are these gazelles high impact firms?

2013 © Markku Virtanen

Incubator researchHacket and Dilts (2004) discovered five primary research orientations

1) incubator development studies2) incubator configuration studies3) incubatee development studies4) incubator-incubation impact studies 5) theoretical studies about incubators - incubation

Former studies• Amezcua (2010):19 000 incubated companies, no

significant difference in survival rate compared with non incubated firms

• Abetti (2004): the proactive approach a viable method for accelerating economic growth and entrepreneurship

• Colombo and Delmastro (2002): “due diligence” process of incubators strives to select high potential ventures which are probable to grow and perform well in the future if they succeed well in their development process

• Hansen et. al. (2000): many incubators offer only a place to set up a shop and nothing more

• Rothaermel and Thursby(2005): some signs of knowledge flows from university to incubated firms but clear sign of absorptive capacity i.e venture’s ability to recognize the new information and to absorb and apply this information in itsdevelopment process

2012 © Markku Virtanen

Aalto University Start-up Center Incubator established in 1997 80 tenants mainly from ICT and knowledge intensive services and

creative industries~ 60 in the premises, 20 virtual clients, TOTAL 80 start-ups ~ Have a team of three, 80% academic background, aged 30- 40 years~25% of all applicants are selected ( ~ 200 appl. year 2010)

• VC investments in 50 + companies• Rovio Entertainment Oy (“Angry Birds), Entrepreneur of the Year

2011• Futurice Oy / one of Europe’s fastest growers, Deloitte Technology

Fast 50, “Best place to work 2012 and 2013”, European Award

2013 © Markku Virtanen

Post incubation gazelles

• Financial data 2005-2011 (Voitto + Data base)• Every single firm checked:

– growth, – profitability – size

• Categorisation in 4 groups:1. Gazelles (all the conditions fullfilled)2. Fawns of the Gazelles (growth and profitability fullfilled)3. Prodigal Gazelles (growth and size fullfilled)4. Premature Infant Gazelles (Growth fullfilled)5. Other businesses

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Distribution of gazelles in 2005 - 2011

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2005‐2008 2006‐2009 2007‐2010 2008 ‐ 2011

GAZELLES 12 11 7 10

PRODIGAL G 1 2 3 2

FAWNS OF G 11 9 9 7

PREMATURE INFANT G 5 6 4 9

GAZELLES TOTAL 29 28 23 28

Post incubation gazelles in 2008 - 2011

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Growth of the turnover of post-incubation firms in 2006 – 2011 (%)

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Growth of the gross profit of post-incubation firms in 2006 – 2011 (%)

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Growth of operating income of post-incubation firms in 2006 – 2011 (%)

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Operating margin of HGS companies in 1999 – 2012 % (N=49)

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The sum of turnover, gross profit and operating income of selected gazelles in 2005 -2011

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The number of employees and growth of jobs (%) in the selected gazelle firms

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Characteristics of selected gazelles• On the average it takes more than 6 years before the

businesses receive the level of gazelle they are notstart-ups

• Measured by the amount of job creation and growth of the jobs and value added they are High Impact Firms

• The impact of Rovio Entertainment Oy (Angry Birds) huge: growth of turnover in 2011 about 1400 %

2011 2012 2013• Sales 75 M€ 152 M€• Profit 48 M€ 75 M€• Personnel 114 311 650

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Summary and Conclusions

• The share of post incubation gazelles is larger than the share of gazelles in the whole population of firms

• The share of real gazelles has been quite stable in four year samples in 2005 - 2011

• Compared to the total business population gazelles seem to perform better than the total population and other small businesses

• Post-incubation firms of ASUC have created about 1500 jobs the share of 9 gazelle companies is more than one third of job creation

• Support from public sources and sponsors 0,5 M€ euros / year price of the created job for the society 8000 euros per job

2013 © Markku Virtanen

Thank you for your atention!

2013 © Markku Virtanen