Tech Success Breeds New Incubators

High-tech business incubators seem to be sprouting up in Southern California faster than the high-tech start-ups themselves. And look for this trend to continue in 2000.

Business incubators have long nurtured all manner of companies by providing cheap rent, shared access to amenities such as conference rooms and photocopiers, and business guidance that entrepreneurs would otherwise be hard-pressed to find.

But another reason for the spread of incubators is that they have adopted some characteristics normally associated with true venture capital firms. Southern California-based incubators such as Idealab, ECompanies, EVentures and SiliconLosAngeles.com have raised money to invest in the companies they nurture. They also play a more hands-on role with the management teams leading their start-ups. In some cases, they even help their tenant companies find key executives.

“Incubators are the future of business,” said Howard Morgan, vice chairman of Pasadena-based Internet incubator Idealab. “The model has created a way for start-ups to hit the ground running by learning from and collaborating with other companies in the incubator.”

Some local tech experts credit 4-year-old Idealab and the successes of some of its high-profile offspring--such as Santa Monica-based online toy seller EToys and Pasadena-based search engine firm Goto.com--with spawning the legions of incubator copycats that dot the Tech Coast landscape.

But there are other reasons for this proliferation of incubators catering to local Internet entrepreneurs. For starters, there’s simple economics. As long as the economy demands more Internet firms, those firms will fuel the demand for incubators.

“Incubators can only handle five to 10 ventures per year,” said Richard Koffler, chief executive of Koffler Ventures, a consulting firm in Pacific Palisades. “There are tens of thousands of ventures out there, and most of them need help, support, guidance and mentoring. Incubators fill that hole.”

Another reason for the spread of incubators is that they compliment the work of venture capitalists. “Venture capitalists should love incubators because they do a lot of the work that [venture capitalists] would otherwise do,” said Susan Prado, director of the Business Technology Center in Altadena, a high-tech incubator funded by the L.A. County Community Development Commission.

Indeed, by subjecting companies to a rigorous screening process, incubators can help venture capitalists squeeze some of the risk out of their investments, said Mariana Danilovic, senior manager of the Digital Media Business Incubator run by KPMG in Century City.

This year will also see the growth of specialized incubators that focus on a particular segment of the market, such as electronic commerce or biotechnology, Danilovic said. Some incubators will merge, and a few may even go public, she said.

But none of these trends ensures that incubators will continue to multiply. If the stock market’s love affair with Internet companies were to wane, so too would the incubators that nurture them, Koffler said. But that’s not what he expects to happen.

“The growth of the products and services related to the Internet won’t dry up any time soon,” Koffler said. “The economics of it may change, but the demand will continue to grow.”

Times staff writer Karen Kaplan can be reached at [email protected].