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What Is Incubator Space?

By Ray Hawk
Updated May 17, 2024
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Incubator space is generally defined as industrial space or office space that is set aside in a building for various forms of business start-up or entrepreneurial projects. It is often designed with reduced business tax rates, lower rental fees, and access to shared equipment in the incubator space provided by the building owner to facilitate the chance that the start-up firms will survive and grow. Business start-up projects are targets of government aid both at federal and local levels, as well as private and university investment capital, with the intention that as they grow they will create new jobs and fuel the growth of new sectors of the economy.

Though the idea for business incubator space has been around since the first one opened in the US in 1959, the concept only really took off in the mid 1980s when the Small Business Administration (SBA) of the US federal government began to promote it. It is estimated that as of October 2006, there were over 1,400 business incubators in North America, with the bulk of them — 1,115 — being in the United States, 191 in Mexico, and 120 in Canada. By comparison, North America officially only had 12 locations for incubator space in 1980. Worldwide, there are estimated to be over 7,000 locations for business incubator space.

Higher education programs at various universities around the globe fueled the growth of incubator space through the 1980s and 1990s, as their prototype products and services were increasingly seen as worthwhile targets of attempted commercialization. This has produced a climate in North America where 94% of start-up firms in incubator space begin as non-profit corporations to maximize their ability to develop viable commercial processes and products before trying to establish a for-profit structure. Only a minority, however, at 39% occupied high-tech space, with 54% of start-ups using incubator space as mixed use companies, and minority percentages exclusively service oriented at 4%, or manufacturing oriented at 3%.

Small businesses with less than 500 employees account for over half of all US employment, and this trend is generally reflected around the world. This fact, coupled with the reality that at least 52.7% of all small businesses fail within the first four years of operation, has focused investment agencies on creating incubator space where new firms have an increased chance of survival. From a financial point of view, about 66% of all incubator-based firms are not capable of being self-sustaining for the first ten years of operation, and, therefore, incubator space is seen as a long-term investments in community development.

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