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FULL COMMITTEE HEARING ON BUSINESS 

INCUBATORS AND THEIR ROLE IN JOB CREATION 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

March 17, 2010 

Small Business Committee Document Number 111-060 

Available via the GPO Website: http://www.access.gpo.gov/congress/house 


Congress.#13
HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

DENNIS MOORE, Kansas 

HEATH SHULER, North Carolina 

KATHY DAHLKEMPER, Pennsylvania 

KURT SCHRADER, Oregon 

ANN KIRKPATRICK, Arizona 

GLENN NYE, Virginia 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

DAN LIPINSKI, Illinois 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

JOE SESTAK, Pennsylvania 

BOBBY BRIGHT, Alabama 

DEBORAH HALVORSON, Illinois 

SAM GRAVES, Missouri, Ranking Member 

ROSCOE G. BARTLETT, Maryland 

W. TODD AKIN, Missouri 

STEVE KING, Iowa 

LYNN A. WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

BLAINE LUETKEMEYER, Missouri 

AARON SCHOCK, Illinois 

GLENN THOMPSON, Pennsylvania 

MIKE COFFMAN, Colorado 

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KAREN HAAS, Minority Staff Director 

(II) 

STANDING SUBCOMMITTEES 

Subcommittee on Contracting and Technology 

GLENN NYE, Virginia, Chairman 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

KURT SCHRADER, Oregon 

DEBORAH HALVORSON, Illinois 

MELISSA BEAN, Illinois 

JOE SESTAK, Pennsylvania 

AARON SCHOCK, Illinois, Ranking 

ROSCOE BARTLETT, Maryland 

W. TODD AKIN, Missouri 

MARY FALLIN, Oklahoma 

GLENN THOMPSON, Pennsylvania 

Subcommittee on Finance and Tax 

KURT SCHRADER, Oregon, Chairman 

DENNIS MOORE, Kansas 

ANN KIRKPATRICK, Arizona 

MELISSA BEAN, Illinois 

JOE SESTAK, Pennsylvania 

DEBORAH HALVORSON, Illinois 

GLENN NYE, Virginia 

MICHAEL MICHAUD, Maine 

VERN BUCHANAN, Florida, Ranking 

STEVE KING, Iowa 

W. TODD AKIN, Missouri 

BLAINE LUETKEMEYER, Missouri 

MIKE COFFMAN, Colorado 

Subcommittee on Investigations and Oversight 

JASON ALTMIRE, Pennsylvania, Chairman 

HEATH SHULER, North Carolina 

BRAD ELLSWORTH, Indiana 

MARY FALLIN, Oklahoma, Ranking 

LOUIE GOHMERT, Texas 

(III) 

Subcommittee on Regulations and Healthcare 

KATHY DAHLKEMPER, Pennsylvania, Chairwoman 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

BOBBY BRIGHT, Alabama 

LYNN WESTMORELAND, Georgia, Ranking 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

GLENN THOMPSON, Pennsylvania 

MIKE COFFMAN, Colorado 

Subcommittee on Rural Development, Entrepreneurship and Trade 

HEATH SHULER, North Carolina, Chairman 

MICHAEL MICHAUD, Maine 

BOBBY BRIGHT, Alabama 

KATHY DAHLKEMPER, Pennsylvania 

ANN KIRKPATRICK, Arizona 

YVETTE CLARKE, New York 

BLAINE LUETKEMEYER, Missouri, Ranking 

STEVE KING, Iowa 

AARON SCHOCK, Illinois 

GLENN THOMPSON, Pennsylvania 

(IV) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1 

Graves, Hon. Sam .................................................................................................... 2 

WITNESSES 

DMonkman, Mr. David, President and CEO, National Business Incubation 

Association, Athens, OH ...................................................................................... 3 

Cooperhouse, Mr. Lou, Director, Rutgers Food Innovation Center ..................... 5 

Lewis, Dr. David A., Assistant Professor, Department of Geography and Planning, SUNY Albany, Albany, NY ........................................................................ 7 

Strom, Dr. Robert, Director of Research and Policy, The Ewing Marion 

Kauffman Foundation, Kansas City, MO ........................................................... 9 

Linder, Mr. Peter, Chair, Mid-Atlantic Angel Group Fund, Board Member, 

Angel Capital Education Foundation, Malvern, PA .......................................... 10 

Early, Mr. Timothy, President and CEO, Hampton Roads Technology Council, 

Hampton, VA ........................................................................................................ 12 

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 25 

Graves, Hon. Sam .................................................................................................... 27 

DMonkman, Mr. David, President and CEO, National Business Incubation 

Association, Athens, OH ...................................................................................... 29 

Cooperhouse, Mr. Lou, Director, Rutgers Food Innovation Center ..................... 42 

Lewis, Dr. David A., Assistant Professor, Department of Geography and Planning, SUNY Albany, Albany, NY ........................................................................ 51 

Strom, Dr. Robert, Director of Research and Policy, The Ewing Marion 

Kauffman Foundation, Kansas City, MO ........................................................... 61 

Linder, Mr. Peter, Chair, Mid-Atlantic Angel Group Fund, Board Member, 

Angel Capital Education Foundation, Malvern, PA .......................................... 68 

Early, Mr. Timothy, President and CEO, Hampton Roads Technology Council, 

Hampton, VA ........................................................................................................ 76 

(V) 

(1) 

FULL COMMITTEE HEARING ON BUSINESS 

INCUBATORS AND THEIR ROLE IN JOB 

CREATION 

Wednesday, March 17, 2010 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 1:00 p.m., in Room 2360 

Rayburn House Office Building, Hon. Nydia Vela ́zquez [chairwoman of the Committee] presiding. 

Present: Representatives Vela ́zquez, Dahlkemper, Clarke, Bright, 

Graves, Fallin, and Luetkemeyer. 

Chairwoman VELA ́ ZQUEZ. I call this hearing to order. 

In recent weeks, our economy has started showing signs of economic recovery. Gross domestic product has swung from negative 

6.4 to 5.7 percent growth, the biggest nine- month swing in nearly 

30 years. While indicators like these are promising, we are still not 

seeing the kind of job creation Americans deserve. 

When it comes to creating new jobs, small businesses are always 

central to the equation. Following the recession of the early 1990s, 

small firms created 3.8 million jobs. After the recession of 2001, 

micro-businesses alone generated one million jobs. Entrepreneurs 

will be just a important to bringing our nation out of today’s downturn as they were during those previous recoveries. 

Business incubators have long been a powerful tool for helping 

new businesses launch and existing firms grow. In 2005 alone, incubators assisted 27,000 start-up companies that provided full-time 

employment for over 100,000 Americans and generated $17 billion 

in revenue. 

Beyond promoting business growth, business incubators also 

bring proven benefits to the communities in which they are located. 

Nearly eight out of ten incubator graduates stay in their local communities, meaning job opportunities and economic development remain in that region for the long term. 

Today, the role of incubators is changing as the business world 

evolves. Although many of us think about traditional incubator 

services, like office equipment or meeting space, contemporary incubators offer everything from technical assistance to financing options, to marketing and manufacturing advice. 

One promising trend has been the emergence of incubators that 

are especially tailored to an industry located in their community. 

For example, we have seen the development of a fashion focused 

incubator in New York City. Agribusiness incubators have sprouted 

2 

up in areas with a high concentration of food production. In other 

parts of the country with a history of technological innovation, software business incubators are taking root. 

These industry-specific incubators allow new firms to tap into 

local knowledge and business networks that are already in place. 

By leveraging a town or city’s existing assets, these incubators can 

accelerate economic development and create local jobs. 

After all, that is what today’s hearing is really about, putting 

Americans back to work. We already know the job creating potential of small, growing firms. Now the question becomes how to create conditions that maximize the chances for budding enterprises 

to get off the ground. Business incubators have a proven track 

record in this area. In fact, 80 percent of firms that graduate from 

these institutions remain in operation to this very day. 

During today’s hearing, we will hear from some of the most innovative business incubators from around the nation. I look forward 

to your testimony, and I take this opportunity to thank you for 

coming today and participating in this hearing. 

It is my hope that this discussion will not only highlight their 

success stories, but also identify how we can replicate those stories 

in communities across the nation. 

With that, let me thank our witnesses for being here, and I yield 

to the Congress Member Ms. Fallin for an opening statement. The 

Ranking Member will be joining us at a later point. 

Ms. FALLIN. Thank you, Madam Chairman. I appreciate that. 

And I am sitting in for Congressman Graves right now, and so 

it is a pleasure to be able to help out on this hearing. 

And I think this hearing is very timely, Madam Chairman, as we 

are very concerned about our national economy and certainly about 

our local states and the recession that we have experienced, but 

we, as you just said, heard some better numbers, and I hope that 

we can continue to climb out and help our businesses grow and 

flourish. 

I want to thank all of our participants here today for coming to 

this hearing. We know that you all are very busy. You have businesses and companies and associations that you are running. So we 

appreciate you taking time to lend your expertise and to talk about 

a very important topic with us today, and that is how we can create more jobs and opportunity and capital and investment and encourage our economy to grow. It is all about jobs right now, and 

that is what people need to have in America is jobs. We are very 

excited to hear your expertise about incubators and small business 

and what our small business owners needs and entrepreneurs need 

so they can grow. 

Our Committee has actually held several hearings, numerous 

hearings on the credit crunch, on access to capital, on lending, and 

I know that small businesses are finding it harder and harder to 

come by the capital that they need to be able to create those jobs 

and to expand their businesses, and not to even mention the purchasing of inventory, making payroll, expansion of their businesses 

or even just to pay the rent. And so this is a very important topic 

for us. 

I know that the Small Business Committee is very anxious to 

learn how we can further help support our small business incubaVerDate Aug 31 2005 15:04 Apr 07, 2010 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\55460.TXT DARIEN
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tors and help you be successful in the local communities and in the 

capacities in which you operate. 

So we are looking forward to hearing from you and taking your 

recommendations, hopefully hearing some what I call the best practices around the industry, and that we can further share and take 

back to our individual states. 

So thank you so much for coming today, and Madam Chairman, 

I yield back my time. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Our first witness is Mr. David Monkman. He is the President 

and Chief Executive Officer of the National Business Incubation 

Association based in Athens, Ohio. The National Business Incubation Association is the world’s leading organization in advancing 

business incubation and entrepreneurship, focusing on early stage 

companies. 

Welcome, and you have five minutes to make your presentation. 

STATEMENT OF DAVID MONKMAN, PRESIDENT AND CEO, 

NATIONAL BUSINESS INCUBATION ASSOCIATION 

Mr. MONKMAN. Thank you, Madam Chairperson, Representative 

Fallin, and the Committee for giving us a chance to speak about 

business incubation. 

As you have introduced, I am President of NBIA. The National 

Business Incubation Association is perhaps the leading business incubation association in the world, with 1,900 members in 65 countries. We have 1,400 members in the United States alone. 

I also represent entrepreneurs. I have started ten companies in 

different countries, and I think I have something to say about entrepreneurs and their interests in incubators. Thank you for the 

opportunity. 

Indeed, I think business incubation does have an important role 

to play in creating jobs, and I am delighted that you are thinking 

about this. 

Entrepreneurs are the secret to creating jobs, as we will talk 

more about soon, but as you know, starting a business is not easy. 

There are many obstacles entrepreneurs face in their process of 

starting companies. That is where incubators come in to play a 

role. 

You could think of an incubator as a university of a kind where 

the incubator manager is very careful in selecting the right companies to come in and gain access to comprehensive services that help 

improve the sustainability of these firms. Incubator clients usually 

stay for about a two or three-year period of time, depending on the 

industry they operate in. They expect to graduate, having internalized the assistance over time, too. They are going to graduate, and 

there are strong indications that they stay also in their industry; 

they stay in their communities for time afterwards. So it is an important consideration. 

The institution is 50 years old here in the States. We developed 

it out of upstate New York, the Batavia Industrial Center is still 

in business today. 

The institution is growing as local residents recognize that it is 

easier to build businesses locally than to chase smoke stacks from 

4 

elsewhere. That is part of the reason why the industry has grown 

to now have more than 1,100 incubators in the United States. 

Business incubators do create jobs, as you have summarized. In 

a recent study, we have seen that in 2005, 27,000 businesses were 

assisted by American incubators, creating nearly 110,000 jobs, and 

it is worth repeating, $17 billion worth of income was produced. 

In a study that was conducted for the EDA, we see that relative 

to other infrastructure projects that were supported, business incubators created 20 times more jobs than infrastructure projects like 

sewer and water projects. 

Now there are 7,000 incubators around the world. Unfortunately, 

the United States is beginning to trail behind the growth in incubation overseas where over the last 30 years alone, we have seen 

16 percent growth on a year-on-year basis of incubators in the 

States. We see that growth overseas is closer to 25 percent. 

Also we see that today the U. K. and Germany have between 40 

and 45 percent more incubators per capita than we do in the 

United States, despite our having an early lead in this. One of the 

largest sources of federal funding for business incubators is the 

EDA. Unfortunately EDA allocates funding to business incubation 

only through its public works program. In other words, they finance the bricks and mortar aspect of a business incubator, which 

is tantamount to building a university without covering the professors and the programs that make an education experience rich. 

But the story is not over yet. I would like to make some policy 

recommendations that I think are important here. I would like to 

recommend that we consider widening the scope of funding support 

that is offered to business incubators. I think that we need to include the support for their operations. So I would implore you to 

think about that. 

Also, I suggest that we also not consider business incubation as 

a tool for serving only distressed areas. In today’s economic crisis, 

this is a time we need to consider a much larger set of sectors and 

locations than before. 

Now, you are going to hear today that business incubators that 

follow best practices out performed those that do not. So we are 

hoping to help develop legislation that encourages incubation programs to use best practices. Indeed, we expect responsibilities associated with any additional funding that is made available to business incubators. 

Also we find that incubators that network and collaborate together are in a better position to out perform others. They share 

best practice and they understand each other’s businesses more effectively. So we would like to see more support allocated to the development of new state associations where local work programs can 

be developed. 

We would also like to see that we standardize outcome measures 

and develop better ways to monitor return on investment for incubation programs, increase the frequency of data collection, and synthesize and act upon the lessons we learn from the process. 

And NBIA is prepared to help. We can convene a panel, an advisory panel, comprised of some of the leading experts in the United 

States, advising on better ways to disseminate best practices, idenVerDate Aug 31 2005 15:04 Apr 07, 2010 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\55460.TXT DARIEN
5 

tify better proposals and proposal funding models, and develop 

evaluation criteria that improve federal funding allocations. 

We can play a continued and larger role in business incubation 

education, and we can, most importantly perhaps, mobilize our 

members to respond to and act on recommendations and queries 

that are required to make more important legislation. 

There are a couple of points I would like to highlight. High risk 

start-ups are instrumental in creating jobs, and business incubators play a role in making and leveraging the investments these 

entrepreneurs make. We have to recognize these entrepreneurs 

often have these barriers. They may be experts in a particular 

product or service area, but in the commercialization of this, this 

is where they face challenges. The roles that incubators play both 

on the technical assistance side and the network assistance side 

are crucial for commercialization. 

Chairwoman VELA ́ ZQUEZ. Mr. Monkman, the time has expired. 

Mr. MONKMAN. Thank you. 

Chairwoman VELA ́ ZQUEZ. But you will have an opportunity to expand during the question and answer period. 

Mr. MONKMAN. Thank you. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

[The prepared statement of Mr. Monkman is included in the appendix.] 

Chairwoman VELA ́ ZQUEZ. Our next witness is Mr. Lou 

Cooperhouse. He is the Director of Rutgers Food Innovation Center 

based in Bridgeton, New Jersey. The center is a university-based 

business incubation program that supports start-up and established food and agricultural companies throughout New Jersey and 

the northeast region with business, technical and operational expertise. 

Welcome. 

STATEMENT OF LOU COOPERHOUSE, DIRECTOR, RUTGERS 

FOOD INNOVATION CENTER 

Mr. COOPERHOUSE. Chairwoman Vela ́zquez and distinguished 

members of the Committee, thank you for giving me the opportunity to address you today. 

As you mentioned, my name is Lou Cooperhouse. I am Director 

of the Rutgers Food Innovation Center, a university-based incubation program located in rural southern New Jersey, which has been 

globally recognized for our economic development impacts, including the award of Incubator of the Year by NBIA. 

I speak to you as a practitioner of a leading business incubation 

program and as an individual that has extensive leadership experiences in new business start-ups, gained in both an entrepreneurial 

and corporate environments. 

There are some common misconceptions about business incubator 

programs. So it may be best if I begin my comments today by describing what an incubator is not. An incubator is not a program 

that offers one-time or episodic business and financial assistance to 

aspiring entrepreneurs. Also, an incubator is not a building or research park that simply offers cheap, subsidized space for tenants 

or shared administrative resources. 

6 

The heart of a true business incubation program is the ongoing, 

personalized, and comprehensive services that are provided to clients. By following best practices, an incubator will customize its 

mission, clients targeted, services provided, and infrastructure that 

is required in order to integrate its program into the fabric of the 

community and the broader economic development goals of the region. 

A best practice incubator will provide the expertise, networks, 

tools, and a social capital environment that will dramatically enhance the success of a new entrepreneurial venture. An incubator 

can become the catalyst for the creation of a business cluster in a 

community, county, state or region by creating concentrations of 

interconnected companies, suppliers, service providers and associated institutions. 

As a case in point, our Rutgers Food Innovation Center has created a statewide food industry cluster where we have aggregated 

the entire food industry value chain, and where we have also aggregated a network of resources to meet the diverse needs of our 

clientele. 

Because of the depth and breadth of their services, business incubators do not duplicate any programs administered by the SBA or 

any other federal agency, but instead utilize and integrate a number of federal, state, and community agencies as part of their comprehensive resource network strategy. 

With your help, we now have an opportunity to enhance and expand our nation’s business incubator programs which will serve as 

a catalyst for effective and efficient economic development in regions across our country. With strong conviction, I feel that what 

is needed first is a dedicated federal program that specifically supports existing incubator programs nationwide and also supports 

new incubator programs under consideration. Currently there is no 

dedicated federal program that supports business incubators and 

very few state agencies have this capability either, and the situation at the state level is only getting worse. 

Incubators today must create a continually evolving patchwork of 

funding programs every single fiscal year in order to enhance and 

in some cases even continue their operations. Ongoing operational 

funding for existing incubation programs is critically needed and 

will sustain and leverage our nation’s established infrastructure 

and enable these programs to do so much more. 

Funding should also be available for the development of feasibility studies and business plans for entities considering establishment of new incubator programs so that we can proactively develop 

a continual pipeline for new innovative companies in the years 

ahead. In my opinion, our objective should be twofold: substantially 

increase the already compelling impacts of our existing incubator 

programs and double the number of incubator programs in the U.S. 

during the next five years. We must take a leadership position 

globally in our support of business incubation. 

I also feel strongly that federal support to incubators should not 

be biased to distressed communities or to urban or rural or technology or any other industry sector, but instead focus on the programs that exhibit best practices and can create the greatest potential impacts. 

7 

Second, I suggest that a series of targeted programs be developed 

that result in collaborations between business incubation programs 

and our nation’s universities and colleges. In doing so we can foster 

experiential learning among students who represent our next generation of entrepreneurs and dramatically improve the technology 

transfer capacity among our nation’s faculty. 

In addition, I propose that programs be developed to benefit 

statewide or regional incubator networks which will result in enhanced collaboration and synergy at the local level and sharing of 

best practices. 

Third, we need to create new programs for entrepreneurial client 

companies. We need to target, identify, attract and retain existing 

and potential gazelle companies which are responsible for the majority of the total net new jobs to maximize their potential for success by nurturing them with our incubator resource networks. 

In addition, we need to provide a mechanism for increased access 

to risk capital for entrepreneurial companies that show strong potential for business success. Federal funding that supports business 

incubators will yield a significant return on investment and result 

in enhanced regional economies across our nation. 

Thank you very much. I would be happy to answer any questions 

you may have and participate in any further discussions over the 

weeks and months ahead. 

[The prepared statement of Mr. Cooperhouse is included in the 

appendix.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Cooperhouse. 

Our next witness is Dr. David Lewis. He is an Assistant Professor in the Department of Geography and Planning at SUNY Albany in New York. Dr. Lewis has taught economic development 

planning, regional economic development, and metropolitan structures and function for nearly a decade. Dr. Lewis has also conducted over 12 years of research on business incubation. 

Welcome. 

STATEMENT OF DR. DAVID A. LEWIS, ASSISTANT PROFESSOR, 

DEPARTMENT OF GEOGRAPHY AND PLANNING, SUNY ALBANY 

Dr. LEWIS. Thank you, Chairman Vela ́zquez and the other distinguished members of the Committee. 

I am honored to share with you my experiences and knowledge 

that I have gained from 15 years of research and my public interest 

in research has been I went to the School of Planning because I 

was interested in helping communities to effective invest their 

scarce resources in creating sustainable economies. 

My work has guided policy from the local level, including the 

Rutgers Business Incubator, as well as working with the State of 

New Jersey, as well as the Ministry of Economic Trade and Industry in Japan on developing technology business incubation policy. 

My testimony today will work on five interrelated themes. We 

have already heard some definition about what a business incubator is. I am going to link that to the theory of why they work, 

and then talk about what best practices are available, then think 

about the efficacy. Do we have any evidence that they really do 

work? We have heard pretty good numbers on that. A little bit 

8 

about the gaps in the research, and I would like to support the policy recommendations that have already been made by Lou and 

David ahead of me. 

So in thinking about what a business incubator is, there is really 

a distinction between a business incubator and a business incubation program. In my view, and the research has always defined a 

business incubator as a multi-tenant facility with on-site management that delivers an array of entrepreneurial services to clients 

that are collocated in that facility. 

Incubation is a broader definition which includes clients that 

may not be located in the facility but may be known as the virtual 

incubation or incubation without walls, and where their clients are 

not collocated and they receive services indirectly that way. 

From the reason to the point of view of talking about why small 

businesses have such difficulty in remaining in business, the literature on business suggests that it is three primary reasons. One 

is the lack of access to capital. One is that they lack managerial 

skills, and the third is that they lack knowledge about how to estimate their markets and to gauge growth and potential, business 

basics essentially. 

Incubators are the only economic development tool that I know 

that specifically address these three issues. They do this through 

the best practices program, and I will talk a little bit about that 

now. 

And so the consensus opinion in the literature is that successful 

incubation programs have capable staffing, have program stability, 

and policies and procedures and things such as entrance and exit 

criteria. 

But what really happens is the delivery of entrepreneurial services, as Lou has suggested. It is the periodic meetings with the 

manager and the client. It is also the peer-to-peer relationships 

that develop within the incubator, the delivery of basic services 

such as how do you actually incorporate a business; what are my 

legal issues; how do you do intellectual property protection; how do 

you do basic accounting and cash flow; how do you do business 

presentations. Those kinds of skills are what are transmitted as 

part of the incubation process. 

In this there is also significant cost savings for businesses, the 

things that economists refer to as transaction costs. The cost of the 

time, money and effort to locate the correct services for your business is actually helped through the management in sort of identifying the problems that small business has and then also identifying the service provider that can help them meet their needs. 

This also results and many of these services are provided at either reduced cost or no cost at all to that business. We have heard 

before another thing about getting capital, is that the evidence 

within the academic literature is that incubator clients actually 

have been successful in attracting venture and in-fill capital relative to other non-incubated firms. 

And so with that in mind, another thing is that the reduced cost 

for rent, the shared services are, again, a capital savings for these 

small businesses. 

In terms of efficacy, we have heard some great numbers. A range 

of literature has suggested that there is a very low public sector 

9 

cost per job created in investment in a business incubator, roughly 

between $144 per job to 11,000. Relative to the State of New Jersey, their industrial recruitment and retention program was costing 

about $44,000 per job that was created. This was work that I did 

with my colleague Sea DiGiovanna. 

EVA research was already mentioned. We mentioned how these 

business incubators anchored their businesses in their local communities. This means a really high return on investment for the 

local community in terms of the taxes paid by the firms, by the client firms, and their employees. It ranges from about one dollar to 

1.2 returned in tax investment to one dollar to seven dollars returned in tax payments. 

I would also say that based on the limited research, and this is 

one of the gaps in our knowledge, they do compare quite favorably 

to other economic development investments that we have made. 

Still we do have some gaps in our knowledge which I will be 

more than happy to talk about in the question and answer period, 

and the one piece of policy that I would like to also mention is that 

any kind of public support needs to be linked to the implementation of best practices as well as the collection of outcome data, 

which has been a gap in our knowledge. 

Thank you for your time. 

[The prepared statement of Dr. Lewis is included in the appendix.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Dr. Lewis. 

Our next witness is Mr. Timothy Early. He is the President and 

CEO of Hampton Roads Technology Council in Hampton, Virginia. 

Hampton Roads Technology Council is the technology center for the 

Southeastern Region of Virginia in Hampton Roads. This not- forprofit is dedicated to fostering growth, education and communication within the region’s high tech community. 

Welcome. 

STATEMENT OF TIMOTHY J. EARLY, PRESIDENT AND CEO, 

HAMPTON ROADS TECHNOLOGY COUNCIL 

Mr. EARLY. Thank you, Chairwoman Vela ́zquez and other distinguished members of the Committee, for the opportunity to appear 

before you. 

My colleagues noted a number of the things that I intended to 

mention. So I will skip forward to save time and talk specifically 

about our incubator. The Hampton Roads Technology Incubator 

System was started in 1998. It’s a division of the Tech Council. It 

was a three- year NASA grant requiring matching funds. 

We have graduated 27 clients, resulting in 35 companies, and advised over 400 others. Typically it takes three to six years for a client to graduate, and that depends on whether they have certain 

federal regulations to hurdle. Existing clients and graduates have 

annual revenues in excess of $200 million with over 650 employees. 

Of our current clients, 60 percent are minorities, 20 percent are 

disabled vets, and 33 percent are women-owned. It just happens 

that way. It’s not something we focus on. 

Others have already talked about what Incubators do. So I won’t 

go through that, but I will add what perhaps is most important we 

10 

try to prevent companies from needless spending. Only in incubator 

environment can entrepreneurs get this vast array of services customized from one client to the next, from one organization that is 

truly invested in their success. 

The Hampton Roads Technology Incubator System each year cre- ates the following tax impacts: for Hampton Roads, $1.5 million; for 

the State of Virginia, $6 million; and for the federal government, 

$18 million. Yet our only investor is the City of Hampton. Fortunately, they are very forward thinking. We run the incubator on an 

annual budget of $185,000 when it usually takes around 400,000. 

This can only be done because of our association with the Hampton 

Roads Tech Council. 

Could we do more with more money? Absolutely. Our plans, however, are to be self- funded one day through the establishment of 

a for-profit. We have tried everything else, and incubators are just 

not sustainable without some sort of government subsidy. 

Should you wish I would be happy to answer any questions you 

might have on incubators or their associated programs. 

Thank you very much. 

[The prepared statement of Mr. Early is included in the appendix.] 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Our next witness, Dr. Robert Strom. He is the Director of Research and Policy at the Ewing Marion Kauffman Foundation, located in Kansas City, Missouri. This foundation promoted innovation and research and awards grants to advance entrepreneurship 

and improve youth education. 

Welcome, sir. 

STATEMENT OF DR. ROBERT STROM, DIRECTOR OF RESEARCH AND POLICY, THE EWING MARION KAUFFMAN 

FOUNDATION 

Dr. STROM. Thank you, Chairwoman Vela ́zquez, and thank you 

for the opportunity to testify to this Committee on the role that 

small businesses, entrepreneurs, and business incubators play in 

job creation. 

If there is a silver lining to the economic crisis our country faces, 

it is the tremendous attention now paid to job creation and economic growth from policy makers and academics as well as everyday citizens. For far too long the sources of job creation in our economy have been taken for granted. The Ewing Marion Kauffman 

Foundation has been interested in these questions for many years, 

and we welcome the renewed focus on the issue of job creation. 

Today’s conversation is particularly exciting to us because it 

moves the discussion of job creation to the level of new firms. Much 

of the debate regarding job creation in the past has focused on 

large, mature firms, but young, growing firms actually create the 

vast majority of jobs in this country. 

The Kauffman Foundation research has found that young firms, 

less than five years old are responsible for virtually all net new 

jobs. Absent start-ups, net job creation would have been negative 

for 22 of the 29 years between 1977 and 2005. When start-ups are 

included there are only three years of net job loss. 

11 

Entrepreneurs alone cannot lead us out of our current economic 

problems, but economic recovery and job creation will not happen 

without them. In fact, a minority of firms generate a majority of 

new jobs in this country. The top five percent of companies is measured by employment growth, create two-thirds of the new jobs. 

Even more impressive, the top one percent of companies generate 

40 percent of new jobs. Most of these companies are young firms, 

less than five years old. 

It is true that new businesses have higher failure rates than 

older firms, contributing significantly to job destruction and churning of jobs and businesses. While this churning does lead to a great 

deal of turbulence in the economy, it is also very important to the 

health and productivity of the overall economy. Less productive 

businesses fail, leaving strong businesses with the greatest potential for future growth. The firms that survive and growth more 

than make up for the companies that fail. 

But how are young, small, and growing firms created? Economists have elucidated a great deal about firm and industry dynamics. That is how firms and industries are born, grow and die. Incubators provide one important way that young, small firms may be 

born and start to grow. 

Others on this panel have first-hand experience in dealing with 

incubators. So I am going to not comment a great deal about the 

business incubators and the business incubation process, except to 

say that it is critically important in the early stages of a firm’s life. 

What I do want to do though in conclusion is to say that it is 

important to remember that as important as incubators are, they 

were one piece of the entrepreneurship and job creation puzzle, albeit a very important piece of that puzzle. There are many ways 

that firms start and grow, and institutions and public policies that 

support entrepreneurship are vitally important to the young, small, 

growing firms within incubators, as well as the much larger group 

of new businesses growing outside of incubators. 

Among others, these policies include immigration policies that 

welcome talented, potential entrepreneurs and even favor those immigrants who plan to start innovative, new business in the U.S.: 

regulatory frameworks that do not impose onerous compliance requirements on small businesses; intellectual property laws that 

strike the right balance between giving sufficient incentives to inventors and imposing legal roadblocks to new entrants; bankruptcy 

protection that mitigates the risk of business failure; antitrust laws 

that allow for healthy competition; marginal income tax rates that 

do not discourage entrepreneurial endeavors by minimizing their 

economic rewards; and finally, and very importantly as we have 

talked about already, financial systems that offer access to both 

debt and equity capital for new firms. Policies in these arenas and 

others can work together to create environment that is conducive 

to the birth and growth of new companies and will help incubators, 

accelerators, and other organizations be even more successful in 

their work. 

Thank you. 

[The prepared statement of Dr. Strom is included in the appendix.] 

12 

Chairwoman VELA ́ ZQUEZ. Thank you, Dr. Strom. 

Our next witness, Mr. Peter Linder. He is the Chair of the MidAtlantic Angel Group Fund and a Board Member of the Angel Capital Education Foundation in Malvern, Pennsylvania. Mr. Linder 

has invested his own capital in numerous start-up companies, has 

been a limited partner in 15 private equity funds, and has been a 

director of several start-up companies. 

Welcome. 

STATEMENT OF PETER LINDER, CHAIR, MID-ATLANTIC ANGEL 

GROUP FUND; BOARD MEMBER, ANGEL CAPITAL EDUCATION FOUNDATION 

Mr. LINDER. Thank you, Chairwoman Vela ́zquez, Ranking Member Graves and all of the members of the Committee. Thank you 

very much for holding this hearing on business incubators and 

their role in job creation. 

I am please to discuss for a few minutes how Angel investors 

support innovator start-up companies, many of which got their 

start in business incubators and accelerators. I am a long-term 

Angel investor in the Philadelphia area. I have invested in 17 

start-up companies as an individual and 14 companies through my 

Mid-Atlantic Angel Group Fund, which in itself brings together 90 

Angels investors. 

I am also a member of the foundation of ACF’s sister organization, the Angel Capital Association, which is a professional alliance 

of 150 Angel groups in 44 states, representing about 1,600 active 

Angel investors. 

Innovative, high growth, start-up companies are critical for job 

growth and economic vitality in any year, and even more so during 

this bad economic times. A 2009 Census Bureau study funded by 

the Kauffman Foundation found that start-up companies create 

new jobs at a higher rate than all other companies as a whole. On 

other words, if you excluded the new jobs each year in a normal 

years from small business start-ups, overall employment in this 

country would probably be negative. 

I know from my own investment and mentoring activity in Pennsylvania that the entrepreneurs that will create jobs, innovations 

and companies in our future need support from a large community 

of experts and organizations, and clearly, the services and facilities 

of incubators and private accelerators are very, very helpful to the 

start-up and growth of these businesses. 

Let me share a few examples of incubators and companies that 

came out of incubators in Pennsylvania. In Pittsburgh, Carnegie 

Speech, a developer of spoken language assessment and training 

software, was incubated at the Language Technology Institute at 

CMU. My Angel Investment Fund, the Mid-Atlantic Group, made 

two investments in that company. I am personally active with the 

company providing business advice and attending board meetings, 

and Carnegie Speech is a healthy, young business that employs 17 

people and has been growing. 

Morphotek, a Philadelphia company that develops therapeutic 

antibodies for treatment of cancer, began at the University City 

Sinai Center incubator, received capital from local economic develVerDate Aug 31 2005 15:04 Apr 07, 2010 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\55460.TXT DARIEN
13 

opment organization and later from Angel investors. The company 

now employs 130 people, is building a 60,000 square foot plant. 

From my personal standpoint, I have used my own background 

to help companies that I have invested in. Of the 31 Angel investments that I have been involved in, I have served on the boards 

of seven of those companies. The CEOs of those companies appreciate the fact that I have been through what they have been 

through since I built two companies of my own, and that is the 

kind of advice they generally look for. 

In the seven companies where I serve of boards or have served, 

I work with the CEO or his team usually once a month over a 

three to five-year period and we tackle many problems, many 

issues, from detailed planning to cash shortages when sales are 

slower than forecast, and insuring the right leadership that was on 

the board to help the company and the community to grow. 

I would like to take just a minute to point out some issues of 

public policy that are of great concern to the Angel community in 

the United States. Specifically, there are threats to the health of 

Angel investment in the Senate Financial Reform Bill. Specifically, 

the bill calls for increases in the requirements to be an accredited 

investor, which is not necessary and which could significantly reduce the number of Angel investors in this country. 

In addition, the bill opens the door to the elimination of federal 

regulation of the accredited investor rules to states, potentially 

meaning that different states could have different rules, and it 

would impede cross-state business deals. 

I want to thank you for the opportunity to describe the unique 

role and the significant impact that Angel investors have in our 

economy supporting the innovative start-ups that create important 

new jobs in this country. Angel investors enjoy being part of the 

ecosystem for these companies, along with incubators, accelerators, 

and other private partners. Angel investors are very, very passionate about helping build great new companies in their own communities. 

I would be happy to answer any questions you have, and I thank 

the Chair for the invitation to appear today. 

[The prepared statement of Mr. Linder is included in the appendix.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Linder. 

Dr. Lewis, the number one challenge that we have today is job 

creation, and we know that if we want to get this economy growing 

again, job creation is a very important component for that. In preparing myself for this hearing, I was just impressed by the Commerce Department report that found that they need between $144 

dollars and $216 to create one job. This is in terms of incubators. 

Compared to infrastructure projects that cost up to close to 

$6,000 per job, can you discuss how these facilities create jobs so 

efficiently? 

Dr. LEWIS. I think that in part, as we know, small businesses 

tend to grow a little bit faster than larger businesses. This is partly 

just a relative game in terms of if you have two employees and you 

add two, then they have 100 percent growth. 

14 

But in aggregate jobs, they actually do add quite a few jobs to 

the economy as a whole. The efficiency is because, I believe, that 

in the design of best practices that tailor services to individual 

companies, they really are addressing what the academic business 

literature says are the reasons for business failure. 

So SBDCs cover one part of it, and often SBDCs are a large part 

of the incubation programs. That is where entrepreneurial services 

as through an SBDC, and they are joint, and it optimizes the 

SBDC investment as well. 

I do think that it is the collocation that is also very important. 

Entrepreneurs, I mean, it is sort of like going to college. You do not 

just learn from your instructors. You learn from your peers. You 

form study groups, and for me I sort of think of the incubation period as being a period of we talk about graduates. They have 

learned; they have internalized these lessons; and so when they go 

out and they hit the stiff market forces in the real world, they are 

better able to adapt to changing economic environments due to the 

lessons that they have learned while they were in the incubation 

program. 

This also explains their high survival rate. The SBA has estimated that roughly about 51 percent of firms survive after five 

years. Relative to incubator firms that number reaches in some regions up to 86 percent of them are surviving after graduation. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Dr. Strom, during economic expansion employment rates from 

business incubators have been high, and in 2005, some of you mentioned 100,000 jobs were created through incubators, and in the 

last year and a half what we have seen is the economy has contracted and has only recently begun to recover. 

Can you discuss how effective incubators are at creating jobs? Do 

you have any data in terms of the type of job creation during this 

economic downturn? 

Dr. STROM. Certainly. All excellent questions, and I will try to 

summarize and address all of the points. 

Yes, job creation is vital, and the key thing is young, growing 

firms. Most firms that start, the majority will fail within five years. 

Of those that succeed, most of those will employ a few people, but 

not many. The minority of firms that grow rapidly are the ones 

that account for most of the job growth. 

And the reason is that those firms are able to either reach a new 

market or be more productive than existing firms in industry and, 

therefore, out compete those firms. And to the extent that incubators could assist those firms in understanding the markets and in 

enhancing their productivity, incubators will then enhance job 

growth. 

The focus though, I believe, needs to be on potentially if the key 

is job creation rather than firm creation, the focus needs to be on 

firms that are in those industries or with the kinds of technologies 

or with the kinds of innovative processes that are potentially high 

growth firms. So focusing more narrowly on the high growth firms 

will pay rewards in job creation. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

15 

Mr. Cooperhouse, incubators like the one that you run at Rutgers 

are increasingly specialized in specific industries. What are the 

benefits and the drawbacks of this type of specialization? 

Mr. COOPERHOUSE. An excellent question as well. Correct. Historically there have been quite a few mixed use incubators that 

provide a variety of services to a diversity of industry sectors. I 

think we are, in fact, now seeing more and more specialization; 

whether the sector is life science, telecommunications, biotechnology, food and agriculture or, particularly today, environmental technologies. 

The advantages of focusing on a specific sector are that we can 

provide much more specific services to clientele. In our case, as I 

mentioned, we can also provide a cluster opportunity to really aggregate all of the elements of a particular industry together, the 

whole value chain, as well as aggregate resources that could provide the expertise that is needed, whether it is business marketing, 

production development, quality assurance, technology, and so 

forth to really meet the need of small businesses. 

So in terms of service, what has been quite evident in our discussions today is that best practices are all about service, not about 

space. Providing services to clients is critical to an incubator’s success in their model of excellence. So, in fact, a sector-based program 

does, in fact, enable that to occur. 

On the other hand, mixed use incubators are certainly very powerful in many parts of the country where there is not a particular 

sector that is as well defined as might be in a particular region. 

Chairwoman VELA ́ ZQUEZ. Okay. Mr. Monkman, you mentioned 

that SBA does not have a specific incubator program, or I do not 

recall, but I think that you were the one who mentioned it. However, there are some who might say that SBA provides support, 

and that there are different program that could fill the basis of an 

incubator program. 

What is your views on that? And if Congress were to establish 

a national incubator program, how would it differ from the services 

already being provided by SBA? 

Mr. MONKMAN. I think that is a very good question and one that 

is worth exploring in detail. SBA does have some interesting small 

business development support that is offered through such programs as SCORE and the Small Business Development Centers. 

That network, the SBDC network, is extensive, and I believe that 

it extends into over 1,000 or maybe even 1,100 points of presence 

around the country. 

The difference between what business incubation is about perhaps and what SBDCs are about is SBDCs provide episodic support 

in a very equal way to people who come choosing to avail the services. It can be a very light type of intervention. It can be more comprehensive than that, but SBDCs are measured in terms of their 

effectiveness on how much outreach they have accomplished, how 

many people they have served. 

Business incubation is a longer programmed approach. It is 

something that extends over a period of two and in some industries 

maybe seven years, where an incubator manager is packaging technical assistance and networking assistance as it is required by the 

clients that are being served. 

16 

I think that there is still a very important role for SCORE programs and SBDCs and, indeed, many incubators are making use 

of them today. However, I think we need to look at incubators to 

provide more concentrated, comprehensive, tailored support that is 

packaged. That is where I would say the distinction is at. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Graves. 

Mr. GRAVES. Dr. Strom, you mentioned as far as job creation, obviously focusing on those high growth areas or those areas, I guess, 

that are going to explode, for lack of a better term, what sectors 

right now if you can? 

Dr. STROM. Picking winners is always a dangerous job. 

Mr. GRAVES. Yes. 

Dr. STROM. You know, but certainly the— 

Chairwoman VELA ́ ZQUEZ. Especially around here. 

Dr. STROM. Yes, yes, yes. 

[Laughter.] 

Dr. STROM. But certainly the high technology sectors, the life 

sciences, the biological sciences are the key areas where there is 

potential for high growth. Those also require a much longer gestation period in many cases, and much more concentrated research, 

and kind of combining the kind of scientific research that goes on 

in the academic community with the kind of entrepreneurial and 

commercialization capabilities that many organizations have, including some incubators and other organizations as well. 

So the key is really the industries and in some cases geographic 

clusters as well as industries. So those are probably the two most 

important factors. 

Mr. GRAVES. And all of those areas obviously take a lot of capital, 

too. 

Dr. STROM. Yes, yes, both human intellectual capital and financial capital. 

Mr. GRAVES. Mr. Linder, I am fascinated by the whole Angel investor idea. Is it normal practice—and I am just asking out of curiosity—is it normal practice to always sit on the board? 

Obviously if your firm has a stake in it, you want to have some— 

I mean, are there firms out there or companies out there that you 

see that you just give funding to or do you always provide mentoring, I guess you might say, or help or kind of oversee everything 

sitting on the board and kind of moving forward? 

I also would by very curious on how you pick and, you know, 

what goes into that process because you are risking dollars. You 

obviously want to try to pick the winners, anyway, the ones that 

have the most potential. 

Mr. LINDER. Thank you very much, Congressman, for asking me 

that question. 

First of all, I think the straight out answer is we never make an 

investment from our fund, from our Angel fund where we do not 

either take a seat on the board or act as an observer to the board. 

Some of our members do not want the liability of board seats, but 

there is never a case where we make the investment and do not 

do that. 

Some of our members are more active; some are less active, depending on the strength of the board itself. 

17 

I want to point out, too, that this year, which was a bad economic 

year for everybody, we did not really miss a beat in our Angel investing. We have invested in as many deals this year as we did in 

any year. So I think our field is very, very healthy at this point 

in time. 

I do not think I addressed your second question. What was, that 

Congressman Graves? 

Mr. GRAVES. Just as far as making the determination. I mean, 

do they come at you with obviously a very detailed business plan? 

You probably want that. I mean, I am just curious on how that 

works. 

Mr. LINDER. Yes, in a way sometimes it is a mixed bag. They 

things come with very detailed business plans. Sometimes they 

come with a couple of pages worth of summary. We never read 

more than a summary anyway. 

I think the key for us usually in a presentation by an entrepreneur is very subjective. It is our view of how we feel we can relate to this entrepreneur because everybody has got a great idea. 

Everybody is looking for money. And if I could pick one point out 

that we were discussing earlier before the hearing started, that 

was many of our people try to look and see if we believe the entrepreneur is coachable because if everything is going fine, it is not 

a problem. But if the business gets in trouble, will they listen? 

So I think that is the first thing we look for in reviewing a business plan, talking to the entrepreneur. 

Mr. GRAVES. Well, I love the idea that this is, you know, obviously in a time when it is hard to find capital in many cases, and 

particularly with the regulators requiring more of the banks, which 

means the banks have got to require more of the folks that are 

looking for capital, but I think this is fantastic. I mean, you have 

got a good idea and you work hard at it. You are going to be able 

to find investment dollars out there or capital to work with. 

Out of curiosity, what is your success approximately? 

Mr. LINDER. I never measure it, sir. 

[Laughter.] 

Mr. LINDER. It is very hard because I think I would say that in 

the 15 years I have been doing it, all I will say to you is that I 

am cash flow positive, and cash flow positive enough for my family 

not to rise up against me. But it is very hard because a lot of the 

deals really just get lost along the way. I do not do it for fun, but 

it is really hard to measure the ROI sometimes. 

Thank you for asking that question. 

Mr. GRAVES. That says a lot, absolutely. 

Chairwoman VELA ́ ZQUEZ. Mr. Bright. 

Mr. BRIGHT. Yes, ma’am. Thank you, Madam Chairman. 

Let me commend you on having this hearing today and also 

thank the gentlemen for being part of the panel. You have been 

very informative for me. 

You know, I come from an old vintage point as being a mayor 

of some of the cities out there. So I am very familiar with your 

small business incubators. 

Dr. Lewis, you mentioned something that really threw me. What 

is a gazelle company? Did you mention that or Mr. Cooperhouse? 

What is a gazelle company? I had never heard that before. 

18 

Mr. COOPERHOUSE. Perhaps the best answer should come from 

Dr. Strom from Kauffman Foundation, but a gazelle company is 

what he referred to as the high growth company. I will briefly respond to that in that all incubator managers, as they look at companies, do the same thing that an Angel network might do. They 

are measuring their success by impacts. They are looking for the 

most qualified company that can, in fact, become a gazelle. They 

are looking for companies where there is a strong management 

team, strong financial backing, a great idea, a differentiated business concept, and a strong potential for success. 

And those gazelle companies statistically are generating the majority of the net new jobs in this country. 

Mr. BRIGHT. Good. Thank you very much. 

Dr. Strom, anything? 

Dr. STROM. As far as a narrower definition, it is typically companies that grow at a rate of 20 percent or more, three or four successive years. 

Chairwoman VELA ́ ZQUEZ. By 20 percent? 

Dr. STROM. About 20 percent a year. 

Mr. BRIGHT. Twenty percent. Thank you very much. That just 

caught my attention, and I had not heard that terminology. 

Let me ask you something, and the incubators are really key in 

success as far as starting up companies. We found that they were 

so successful that we many times had difficulty deciding who could 

be asked to leave the incubators. In fact, some of the smaller businesses become so attached that they are so dependent on the incubator that they never want to terminate that support. 

How do you determine when a small business or a business is 

ready to turn out into the real world? Mr. Monkman, you look like 

you want to answer that. So go ahead. 

Mr. MONKMAN. It is actually difficult. It is difficult for incubator 

managers often to come to closure on a relationship that they have 

had for some time, especially in successful instances where a company is continuing to grow. 

But at some point a very successful company actually begins to 

antagonize an incubator’s performance because it is taking space 

away from another organization that needs to be there. And in 

most instances, incubators are nonprofit organizations. Maybe 85 

to 90 percent of them are nonprofit organizations. It is important 

to make sure that you are spreading the wealth, making sure that 

you are making equal access to as many people as you can at the 

time. 

Mr. BRIGHT. Sure. 

Mr. MONKMAN. So a lot of it has to do with the absorption capacity of the local community to provide graduate spaces. Indeed, one 

of the types of policy recommendations that we would make is 

making provisions for graduate spaces. 

Mr. BRIGHT. Good. That has been a major issue in our small 

business incubator, and I just did not know if you all had a standard practice throughout the industry that you know of. 

Let me thank you for what you are doing. You are key into our 

economic recovery in what you are doing out there. Continue your 

good work. There is a tremendous number of success stories out 

19 

here and not just from you, but from other people who are doing 

what you are doing out there. 

So thank you very much, and Madam Chairman, I yield back my 

time. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Luetkemeyer. 

Mr. LUETKEMEYER. Thank you, Madam Chairlady. 

Thank you, gentlemen, for being here today. 

Just a quick question. I know that in going through the reading 

materials here on the issue of the day here, I was struck by the 

for-profit and the not-for-profit incubators. Can you give me a little 

insight as to the benefits, the pluses and minuses of each one of 

those? 

Mr. MONKMAN. If you do not mind, may I? 

Mr. LUETKEMEYER. It seemed Mr. Monkman was going to answer 

that questions as the association man. 

Mr. MONKMAN. There was a time during the late 1990s, during 

the dot.com period, when there was a large growth in for profit incubators. I think at one point they became as great as maybe 25 

or so percent of the number of incubators operating in the states. 

I think you might want to think about it from the entrepreneur’s 

perspective. An entrepreneur does not have access to deep pots for 

them to be making great investments in education, though they 

would like to as much as they can afford dynamic programs. So almost by definition, much of the incubation process is to try and 

make the cost of residency and participation as practical as possible. 

So what might happen is you might have a relationship with a 

local sponsor that may have provided at a discount or for free a 

building that is available for collocation, that space that entrepreneurs can share. But to fund programs, incubators might look 

to charge market rates for the space, and those rates are going to, 

in large part, pay for the services that are offered. 

We do not want to give the information and the support away for 

free to the entrepreneur. They need to have some skin in the game. 

But I think that we are seeing that there is probably only so far 

for profit incubators can go before they run into long term problems 

because the incubation process tends to be longer, two years, three 

years, in some instances five years. 

That is a lot of time to carry support to an incubatee client. 

Mr. LUETKEMEYER. Just very quickly, would you define your 

business as an incubator or more of an investor into existing businesses that you see have already gone past this incubation stage? 

Mr. LINDER. Yes, we are clearly an investor that usually sees 

deals that in many cases have been through incubators and have 

been through a friends and family fund raise. They look a little 

more like a company before we see them. 

Mr. LUETKEMEYER. I have another quick question for you. Do you 

maintain an interest in the business forever or do you get rid of 

it after a certain period of time? Is there a structured agreement 

so that you will stay until they get, you know, a certain amount 

of revenues or certain amount of assets? 

How do you do that? 

20 

Mr. LINDER. Well, usually three or four seconds after we cut the 

check we ask them what the exit strategy is. 

[Laughter.] 

Mr. LINDER. That is as partial answer. 

I think on the average if it is a good deal, we are in the deal five, 

six years before either a venture capital for larger dollars comes 

about and takes us out, or there is an acquisition. 

Mr. LUETKEMEYER. Your intention, though, was not to own the 

business forever or be a part of it forever. 

Mr. LINDER. Oh, no. 

Mr. LUETKEMEYER. Your intention is to get them off the ground 

and be able to get in and get out? 

Mr. LINDER. One hundred percent. 

Mr. LUETKEMEYER. Okay. 

Dr. LEWIS. Can I comment or follow up a question? 

Mr. LUETKEMEYER. Yes. 

Dr. LEWIS. Two of the Angel investors in my fund in Philadelphia 

have actually started what is called an accelerator, and I hope nobody asks me the difference between an incubator and an accelerator. I will let the faculty members do that. 

But in any case, to respond to the earlier question about how 

long in an incubator, this group has decided that the entrepreneur 

will have a four-month window with a lot of resources applied, kind 

of high, intense resources, and at the end of the four months, the 

entrepreneur either has an opportunity to present to Angel Investment or they are out. 

We will see how the experiment works, but I wanted to respond 

to the other side of the coin. 

Mr. LUETKEMEYER. Okay. Dr. Lewis, did you have a comment a 

minute ago? 

Dr. LEWIS. In terms of the differences between the public or the 

for-profit incubators is that the goals are really different. A for 

profit incubator really has an interest in exercising the business for 

their own profit, where a not for profit incubator is interested in 

growing a local economy. 

And so from the point of view of a public sector investment in 

terms of what it means for local jobs, if you acquire a company 

through venture firms, you might sell and license that technology 

to Japan or South Korea and Americans might never enjoy the benefit of that, and their time line for success is much shorter, and 

this is what I believe has led to the failure of so many of the for 

profits that grew up in the late 1990s, is that they were anticipating profits in, you know, six to 18 months. It takes three years 

to incubate a firm on average, and so they were unreasonable in 

their expectation. 

Mr. LUETKEMEYER. So you are telling me that there are very, 

very few for-profits left out there right now? 

Dr. LEWIS. Roughly about ten percent is out there at this point. 

Mr. LUETKEMEYER. I understand. Okay. Very good. 

Thank you, gentlemen. Thank you, Madam Chairman. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

I do have some other questions. Mr. Early, we have not seen in 

recent memory a downturn like the one that we are witnessing in 

terms of the difficulty of small businesses accessing credit, capital. 

21 

How has this downturn affected the decision—and this will be for 

Mr. Linder, yes—the decisions of Angel investors? 

Mr. LINDER. Thank you for letting me answer that question. 

Truthfully, we have not witnessed the downturn in Angel investing. At least I can speak certainly for eastern Pennsylvania. We are 

investing at the rate of in my group three or four deals a year. 

That did not change throughout 2009. I guess we were all hoping 

that we would have recovery at some point because we will not be 

able to exit if we do not, but I can tell you the industry right now 

is very, very healthy and has not really seen the disastrous effect 

as other people in the country are seeing. 

Chairwoman VELA ́ ZQUEZ. And can you comment on the differences between businesses developed in an incubator versus those 

that are not? 

Mr. LINDER. The truth of the matter is I am not the best to comment on that because I do not really keep track of that. In fact, 

preparing for this hearing actually made me go back and look and 

realize that I saw a lot of incubator deals that we invested in, but 

I wasn’t really giving them that name at the time because there 

was usually some other small investment round ahead of it and between us and the incubator. So I am sorry I cannot answer that 

question more accurately for you. 

Chairwoman VELA ́ ZQUEZ. Anyone who would like to comment on 

that question? 

Dr. LEWIS. Again, statistically there is research that suggests 

that business incubated firms actually get higher investment rates 

from Angel and venture capital. In part it is because they have received much of that managerial training. They have had the ability 

to develop business presentation skills, and they have learned how 

to be coached, which is something that venture and Angel capital 

firms are interested in. 

And it is that bridge money between I am self-investing to I am 

going to be an IPO and need $20 billion to build a factory; it is that 

Angel Fund; it is those kinds of seed investments that really make 

the difference for the entrepreneurial firms. 

Anecdotally, looking at state seed fund capital in New Jersey and 

Michigan, those people who have the responsibility for selecting clients have given testimony to that. Incubator clients that they are 

managers serve as the first round of evaluation that managers tend 

to be, and that gives them a leg up on firms that have not had that 

kind of association with the training and managerial skills, and so 

they see that as a big benefit and tend to invest in them more. 

Chairwoman VELA ́ ZQUEZ. Okay. Thank you. 

Yes, Mr. Early. 

Mr. EARLY. Yes. In our community we do not have a known 

Angel network. They are not publicized. They are hidden. They do 

come to me to find out what deals are available out there, and the 

reason we probably have a higher percentage is because I have vetted them pretty carefully. It is my reputation on the line, and I 

cannot waste their time. 

Chairwoman VELA ́ ZQUEZ. Okay. Mr. Early, transaction costs 

often determine whether small businesses survive in a down economy, and in terms of their operational costs and productivity, how 

22 

do incubators make small businesses more competitive during this 

time? 

Mr. EARLY. I do not think that we actually make them any more 

competitive during this time or good times. An incubator client is 

at the beginning of their life. They cannot go out and get bank 

loans. No conventional lenders are going to cover them. You have 

to go Angel investors, and they are just not at that point. 

But we do things. We do their bookkeeping. We do accounting for 

them. We take a lot of that stuff off of them. We want them to 

focus, since we are technology, on their technology and improving 

it and sales. We will handle everything else for them. 

Chairwoman VELA ́ ZQUEZ. Yes, Mr. Cooperhouse. 

Mr. COOPERHOUSE. Just to add to that comment, as I stated, incubators do not necessarily make your company more competitive, 

but an incubator team is really skilled at identifying what it takes 

to be successful, and many entrepreneurs do not know what they 

do not know, and the incubator staff’s role is to really make them 

aware of what it takes to be successful, how to have a really differentiated, unique selling proposition for their business and stand 

out and really provide value to their customers. 

So in doing so, we are making them more competitive by really 

opening their eyes, and frankly, we all measure our impacts by our 

successes, but we also do something that is not measured. We also, 

frankly, tell a lot of people in a nice way that maybe their idea is 

not necessarily the greatest. It is not really special enough, and 

perhaps they should not make that investment just yet and really 

do a little more research. 

So there is an awful lot that goes on behind the scenes for the 

many, many entrepreneurs that we serve. In many cases, we actually save them money by not having them expend it to an idea that 

really is not proven. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Dr. Lewis, I believe that you were the one who mentioned how 

in Germany and England— 

Dr. LEWIS. U. K. 

Chairwoman VELA ́ ZQUEZ. —the U. K., 45 percent of the number 

of incubators compared to the United States. What is it that they 

are doing differently compared to us? 

Mr. MONKMAN. Well, I have been in both Britain and Germany. 

I have talked to the head of the German Business Incubation Association. I think that part of their approach is they are a bit more 

centralized. 

We have conceived of a business incubation community based on 

a bottom-up, grassroots approach. There is a lot of individualization and tailoring of an incubation program to serve the community 

in which it was conceived. We could have an arts incubator program, for example, that is about getting 90, artists together, and 

it will help to feature and showcase the art they produce. 

There, there is a lot more standard national level programming, 

like let’s have a large biotech or an aerospace incubator. We are a 

lot more organic in our approach. I think that is part of it. 

Also, by nature, there is a different funding model in European 

countries than we have here, but there is a far greater role the 

larger states play in programming business incubation. 

23 

Chairwoman VELA ́ ZQUEZ. Obviously, we know that here you can 

access some type of grant from EDA and USDA, and of course, that 

will in some way affect the number of incubators and incubation 

created in this country. So how does this type of funding, you believe, impact the incubators? 

Mr. MONKMAN. You are referring specifically about the EDA support that is currently offered? 

Chairwoman VELA ́ ZQUEZ. EDA and USDA. I believe that USDA 

also provides some type of funding. 

Mr. MONKMAN. I cannot speak about the USDA program in any 

detail. Perhaps others can, but in terms of the funding support that 

is currently offered through EDA, right now it is offered to distressed communities, and there is a very particular type of location 

that qualifies for economic funding from EDA for brick and mortar 

investments. 

I think one of the opportunities for us is to look at an initiative 

that is being promoted by Tim Ryan in the House. Also, Senator 

Sherrod Brown has introduced a Business Incubator Promotion Act 

that is looking to, in the reauthorization of EDA, widen EDA’s 

scope of support. So that it is looking at more programmatic opportunity, as we have discussed earlier. 

I would like to hear what USDA can do. 

Chairwoman VELA ́ ZQUEZ. yes, Mr. Cooperhouse. 

Mr. COOPERHOUSE. If I can add on both fronts, our center has actually received funding from both USEDA and the USDA. And to 

add on to Mr. Monkman’s testimony, the EDA funding through the 

public works infrastructure program particularly provides some 

tremendous funding opportunities for newly established programs 

for bricks and mortar. However, incubator funding is very limited 

in the scheme of the EDA’s total budget. It is a tremendous program, but it is very limited in the amount of new incubators that 

can be created. 

Fortunately, we were a recipient of EDA funding. In addition, the 

USDA has programs that support business incubators, actually 

about half a dozen programs, that support various activities and 

with operations grants. 

There was actually a one time USDA program that awarded one 

million dollars to ten different programs throughout the country 

called the USDA Rural Development Agricultural Innovation Center Demonstration Grant Program. We were the recipient of one of 

those ten grants as well. 

However, it was a one time program, all meant to be spent in 

one year with no ongoing support. So it was not necessarily designed for long-term sustainability of a program. Fortunately, it 

was really the seed funding that enabled us to then leverage that 

and receive in total about $14 million in grants since then. 

But what is really lacking today is operating funding to any incubator program. So what we have instead is limited funding for new 

programs. What is really needed is a tremendous amount of funding to really subsidize the incubator programs around the country 

today that rely heavily on their sponsor and who, in turn, is heavily funded through the state. As states are providing cutbacks, it 

is having effect to all incubators across the country, and we are 

quite concerned about what June 30th of this year might bring to 

24 

the number of incubators around our country that might have some 

funding in jeopardy. 

Chairwoman VELA ́ ZQUEZ. Since you have been lucky since you 

have gotten grants from both USDA and EDA, I just would like for 

you to share with us if you sense that there is coordination or do 

you feel that there is a lack of coordination between the existing 

federal resources that exist today and a lack of strategy in terms 

of long-term strategy regarding the purpose of promoting incubators? 

Mr. COOPERHOUSE. I cannot necessarily speak to how much the 

two agencies interrelate. To the best of my knowledge, they are operating independently to satisfy their particular objectives. As was 

mentioned, this includes the USEDA focusing particularly on revitalization of distressed economies, and the USDA funding in particular rural development. So each has identified a particular bar, 

if you will, that needs to be met in order for funding to be in place. 

So, again, we have very limited funding and very restrictive 

funding. In our case, we are in a distressed community and in a 

rural area. We are the second poorest city of 566 in New Jersey in 

the city of Bridgeton and have the lowest per capita income by 

counties as well. So we are in a federal empowerment zone, and it 

made a lot of sense in our case to fund our particular program. 

But those who are in urban areas and in other areas that do not 

meet these criteria, they are not qualifying. 

Chairwoman VELA ́ ZQUEZ. Mr. Monkman. 

Mr. MONKMAN. I would like to add that in addition to USDA and 

the SBA and EDA and the types of organizations that indirectly 

play a role in business incubation, there is even the Federal Labs 

Consortium. Federal Labs across the country are developing technologies that could be, for example, licensed to entrepreneurs, who 

operate businesses in EDA-funded incubators to improve the opportunities for entrepreneurs in a particular community. 

And I know that right now, the FLC is looking at ways to improve linkages to organizations like ours. The Association of University Research Parks and the like are entering into memoranda 

of understanding with FLC. 

But I think there needs to be a lot more integration and a lot 

more coordination between organizations. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Graves, any more questions? 

Mr. GRAVES. No, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Well, again, thank you very much. We 

will continue to study the issue of incubators in our country and 

how can the federal government best assist the work that you do. 

With that I ask unanimous consent that members will have five 

days to submit a statement and supporting materials for the 

record. Without objection, so ordered. 

This hearing is now adjourned. Thanks. 

[Whereupon, at 2:21 p.m., the Committee hearing was adjourned.] 

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