UC Berkeley press release


UC Berkeley professor and student set up badly needed incubators for students' fledgling business ventures

by Gretchen Kell

Berkeley -- Just as some newborn babies need an incubator before they're strong enough to survive on their own, a professor and an MBA student at the University of California at Berkeley each is setting up an "incubator" for fragile young businesses.

Unlike the kind in hospitals, these incubators, popping up nationwide, are small offices where entrepreneurs -- including college students -- can test launch their dream businesses. Incubators provide a range of equipment and services that can include computers, fax machines, phones, Internet access, business and technical advice and financial support.

The incubators, sometimes located near but not on college or university campuses, are a welcome sight for students. For decades, struggling young entrepreneurs have had to start up their own businesses in their apartments and garages. For legal and ethical reasons, students cannot use campus resources for such ventures.

"Incubation is the garage of the '90s," said Thorne Sparkman III, a second-year MBA student at the UC Berkeley Haas School of Business and president of Incubator, Inc., a new company on Durant Street, one block from campus.

"You could use your garage and get by as best as you could -- Hewlett-Packard and other Silicon Valley businesses were born in the garage. But it's hard to do, " said John Freeman, a professor at the Haas School. He plans to set up an incubator near campus this semester with enough work space for about 28 students.

Freeman, who teaches entrepreneurship, said the benefits of an incubator are many.

"First, it gives students a business address, a phone number and some infrastructural support like computers and fax machines," he said. "When you're starting your own business, you often use valuable time to scrounge around for such things.

"But the incubator also will give them a focal point for making connections with the business world. We'll have an advisory board of accountants and lawyers and venture capitalists and other business professionals who will give sage advice and judgment. There also is peer support that can continue after graduation."

Despite developing different businesses, teams of young entrepreneurs working under the same roof can learn together how to overcome common hurdles, said Sparkman.

"You're solving problems every day at a time when everything about Internet-related business seems so new and difficult," he said.

The idea behind Incubator, Inc., was first proposed by two MBA students at UC Berkeley. After they graduated, the business school's Internet Business Club developed the plan further. Nat Goldhaber, a UC Berkeley alumnus and chief executive officer of CyberGold, brought the venture to life by agreeing to finance it.

Young entrepreneurs who sign up with Incubator, Inc., can use the office free for the first year, said Sparkman, but they agree to return to the incubator a 4 percent equity stake in their company. That money will be used to cover operating expenses, he said. The incubator's investors also get first crack at financing start-up companies that grow out of the incubator.

The modest office will hold up to five fledgling businesses a year, said Sparkman. Both UC Berkeley students and Berkeley residents can apply.

While Incubator, Inc., is designed for people launching Internet businesses, Freeman's proposed incubator would hatch many types of business ventures. He will require that at least one person on each team be a student from the Haas School. "All I'm doing," said Freeman, "is giving people a place to hang their hat, whether their business has to do with the Internet, semiconductor design or specialty retail."

Freeman said that the Haas School's well-known entrepreneurship program produces large numbers of students interested in starting up both high-tech and low-tech businesses, and this prompts the need for incubators.

"Although it's not the objective of the program for them to start a business, if you have 100 students a year who are eager-beaver, smart young people, they will sometimes go out and actually do it," he said. "In the past few years we've been seeing eight to 10 businesses per year come out of Haas. Sometimes the business students are teaming up with students from other places, such as the College of Engineering."

Freeman said he is gathering private investors to help establish a corporation "that will donate any profits to the university." Unlike at Incubator, Inc., investors in this incubator would not have an advantage over others when it comes to funding the students' businesses. Instead, they would act only as mentors, providing advice and business connections.

While professors and other members of the campus community may help get the incubators onto the drawing table and later may serve as advisors, Freeman said the incubators must operate independently and off campus.

"When a student walks in the door and signs a contract, it will establish their independence from the university, and then their business is the creature of that incubator," said Freeman. "Nobody, including myself, can take a nickel out of this as a university employee. We're working with attorneys to structure this in a way that's both legally and ethically appropriate."

Freeman said he was not sure what fees, if any, students would be charged to use the incubator he's establishing.

It seems natural, he said, for the university to help young entrepreneurs make the transition from classroom to corporation. After all, many UC Berkeley graduates have started or helped to start successful companies -- including Sun Microsystems, The Gap and Otis Spunkmeyer, Inc. -- that today employ large numbers of Californians.

Sparkman said the top-notch entrepreneurial training offered at UC Berkeley makes students eager to devise their own business plans and test them out. As a student, he already has set up Reel-Time, a

World Wide Web-based interactive journal about saltwater fly fishing.

An incubator is the best place to get started, he said, adding, "I wish I'd had resources like these two years ago."

"It's a natural outgrowth of students' skills and opportunities to want to go for that brass ring. You want to test these skills out," said Sparkman. "And the first step is to find a place to build something and see how it works."

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