In the Global Startup Ecosystem Report 2020, it was indicated that as the number of startups in an ecosystem grows, the whole economic community related to the ecosystem — talent, universities, venture development organizations, investors — produces more value. An ecosystem that is 3X larger creates about 5X more economic value.
That speaks to the importance of supporting startups – not just a few startups, but a large number of startups – for the sustained growth of a strong economic ecosystem.
Supporting startups at scale is non-trivial. Supporting deep tech startups at scale is even more challenging – it frequently requires larger capital investment, state-of-the-art R&D facilities, a large network for strategic partnerships with prospective manufacturers, suppliers and customers, and a long incubation period.
Deep tech incubators across the nation have been striving to play this role in the last few decades, providing space, facilities, mentoring, fundraising, networking and even seed funding support to startups. While some have had great success, some have struggled to be financially sustainable themselves.
Every incubator’s business model is unique. Their revenue can come from a range of sources, including rent, facility user fees, federal and state grants, non-profit foundations, philanthropic sources, and even startup equity in some cases. Some incubators have had to change their focus frequently to meet the requirements of different grants and funding programs. They also need to be very agile because these various initiatives come and go. And many deep tech incubators do not take startup equity due to their long runway to the marketplace, making it a much less reliable source of funding for incubators.
When a deep tech incubator does not have a sustainable, viable business model, it is hard to expect consistent, sustained commercialization support to startups in its portfolio, making it even more challenging for those startups’ survival, let alone growth.
We are at a pivotal time to plan for post-pandemic economic recovery. It calls for technology breakthroughs and a robust number of startups to fuel the healthy and sustained growth of our economic ecosystem. Innovative models are needed to not only support core programs, but also the ongoing operations of deep tech incubators with long-term, consistent investment.
To get there, we must rethink how we support deep tech incubators going forward.