Special  Report Has the ERDF successfully 
supported the 
development of business 
incubators?EN 2014  NO 07
EUROPEAN
COURT
OF AUDITORS
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Luxembourg:  Publications  Office  of the European  Union,  2014
ISBN  978-92-872-0120-1
doi: 10.2865/32195
© European  Union,  2014
Reproduction  is authorised  provided  the source  is acknowledged.
Printed  in Luxembourg
EN 2014  NO 07
Special  Report Has the ERDF successfully 
supported the 
development of business 
incubators?
(pursuant to Article 287(4), second subparagraph, TFEU )
02
 Contents
Paragraph
 Glossary
I – VII Executive summary
1 – 9 Introduction
10 – 17 Audit scope and objectives
18 – 78 Observations
19 – 28 The quality of infrastructure was generally good, but incubators’ performance lagged behind
20 – 23  In most cases, incubation facilities were well adapted and had been constructed and equipped as planned
24 – 28 Audited business incubators were comparatively less effective
29 – 58 Audited ERDF incubators had not made sufficient use of good practices
31 – 34 When business incubators were being established, too little attention had been paid to the effectiveness of 
their business support functions
35 – 48 Incubation services were only loosely linked to clients’ needs
49 – 51 Monitoring systems within the incubators did not provide adequate management information
52 – 58 Incubators’ financial sustainability was conflicting with the objective of providing adequate incubation 
services to relevant businesses
59 – 72 ERDF management systems did not focus on efficiency of the services provided by business 
incubators
60 – 68 The procedure for selecting incubators did not give due consideration to certain crucial elements for 
incubation activity
69 – 72 ERDF co-funded incubators were not required to continue incubation activities for a sufficiently long period 
of time
03 Contents
73 – 78 Limitations in the dissemination of knowledge by the European Commission hampered the 
promotion of good practices
79 – 85 Conclusions and recommendations
 Annex  — List of audited incubators
 Reply  of the Commission
04
 Glossary
Client : An entrepreneur or a company receiving assistance on the basis of a cooperation agreement with a business 
incubator. This assistance may take the form of facility rental and/or participation in business support activities.
EBN : European Business and Innovation Centre Network. 
EC-BIC incubator : An incubator which is a certified member of the European Business and Innovation Centre 
Network.
ERDF : European Regional Development Fund.
High -growth potential company : A company performing better, or expected to perform better, than its industry 
or the market as a whole. 
Incubation programme : An individually tailored document describing planned events and actions for each 
individual start‑up hosted in the incubator. The objective of the incubation programme is to establish business 
objectives for a client company and to define a range of targeted resources and services which would support its 
development. The implementation of the programme and the achievement of business goals are monitored using 
indicators.
Networking : A business activity which involves businesspeople and entrepreneurs establishing personal contacts 
and arranging business opportunities.
Regional innovation strategy (RIS) : A document defining regional priorities in a systematic and target‑oriented 
manner, and addressing them using actions aimed at developing local innovation by academic and business 
organisations. 
Scouting activity : Actively searching for clients and exploring potential markets.
SMEs : Small and medium‑sized enterprises. This category comprises enterprises which employ fewer than 250 
people and which have an annual turnover of less than 50 million euro, and/or an annual balance sheet total not 
exceeding 43  million  euro.
Spin -off: An independent company created when a division or a part of an existing company or organisation splits 
off and becomes a separate entity.
Start- up: A newly created company or a partnership which is carrying out the initial development of its product or 
service and conducting market research. 
Virtual incubation : A scheme which allows a company to benefit from an incubator’s support without actually 
being located on the incubator’s premises.
05
 Executive   
summary
IV
The disappointing results delivered by the audited 
incubators can be explained by the fact that estab ‑
lished good practices had only been applied to 
a limited extent. More specifically, too little attention 
had been paid to the effectiveness of incubators’ busi ‑
ness support functions when incubators were being 
established. Secondly, incubation services were only 
loosely linked to clients’ business objectives. Thirdly, 
monitoring systems within the incubators did not 
provide adequate management information. Finally, 
concerns about financial sustainability had hampered 
incubation activity.
V
At the level of the managing authority, management 
systems were too focused on output and did not 
pay sufficient attention to the operational activity of 
business incubators. In particular, the procedure for 
selecting incubators for co‑funding had not given due 
consideration to several elements which are crucial 
for incubation activity such as staff qualifications, the 
scope and relevance of incubation services and finan ‑
cial sustainability. In most cases, the expected benefits 
for the regional economy had not been evaluated.
VI
Although the Commission has made some effort to 
obtain knowledge about the activities and character ‑
istics of business incubators in Europe, the support 
which it has offered cannot be considered to be ade ‑
quate. The Commission’s activities to promote incuba ‑
tors and good practices were too limited to mitigate 
the risk of failure for inexperienced and immature 
co‑financed incubators.I
Small and medium‑sized enterprises (SMEs) play an 
important role in the creation of growth and jobs. As 
a result, the provision of support to SMEs has become 
an increasingly important political priority over the 
years. The amount of aid from the Structural Funds 
earmarked for the support of SMEs during the two 
last programming periods amounted to 23 billion and 
15 billion  euro respectively. Business incubators aim 
to support the successful establishment and further 
development of start‑up enterprises.
II
The main objective of the audit was to assess whether 
business incubation facilities co‑financed by the 
European Regional Development Fund (ERDF) had 
successfully supported high‑potential start‑up com ‑
panies. The audit team carried out an on‑the‑spot 
audit of a sample of incubators in four Member States. 
It also visited managing authorities in these Member 
States, and carried out a benchmarking exercise on an 
extended sample including incubators in two addi ‑
tional Member States.
III
The Court concludes that the ERDF has made a signifi ‑
cant financial contribution to the creation of business 
incubator infrastructure, particularly in Member States 
in which this type of business support was relatively 
rare. However, the performance of audited incubators 
was modest.
Executive summary 06
VII
The Court makes the following recommendations.
Firstly, the Commission should require Member States 
to make authorisation for the establishment of new 
incubators using EU co‑funding dependent on the fol ‑
lowing considerations:
(a) Business incubators should be established on 
the basis of detailed and realistic business plans, 
paying particular attention to the sustainability of 
their non‑profit incubation activity.
(b) From the outset, incubation activity should be car ‑
ried out by suitably skilled staff who can provide 
relevant individual support to clients and potential 
future entrepreneurs.
(c) Incubators should proactively seek and acquire 
new clients irrespective of their geographical 
origin, focusing on those with innovative busi ‑
ness ideas with high growth potential in order 
to maximise the efficiency of public funding and 
therefore the value added by EU funds.
(d) The incubation process for each client company 
should start with the preparation of a detailed, 
tailor‑made incubation programme. The imple ‑
mentation of this programme should be followed 
up, and the degree to which the business’s objec ‑
tives have been achieved should be assessed.
(e) Incubators should offer their services to non‑  
resident companies, thereby allowing incubation 
support to have a larger impact on the local busi ‑
ness community and improving possibilities for 
networking.
(f) Incubators should set up a monitoring system 
based not only on the data obtained from their 
own activity, but also on business data produced 
by supported clients.Secondly, the Commission should require Member 
State authorities to incorporate the following ele ‑
ments into the design of the procedures for selecting 
and supervising ERDF co‑financed incubator projects:
(g) In the project selection criteria, greater emphasis 
should be placed on the expected results of the 
projects rather than on the delivery of physical 
outputs.
(h) During the project assessment process and when 
contractual obligations are being defined, more 
use should be made of expert knowledge of busi ‑
ness incubation activities.
(i) The level of public support should be based on the 
defined results forecast for the incubator project. 
The value of ERDF payments should be linked to 
the results achieved by the incubator.
(j) The sustainability period should be adjusted to 
correspond to the actual life cycle of the business 
incubator assets co‑financed by the ERDF.
Thirdly, the Commission should:
(k) update its knowledge concerning the effective ‑
ness and efficiency of business incubation, and 
should apply this knowledge with a view to ensur ‑
ing that ERDF support is well adapted to the needs 
of the business incubation sector;
(l) resume its efforts to support the community of 
business incubators, and in particular those in 
receipt of EU support, for instance by organising 
knowledge and experience exchange with re ‑
sponsible bodies in Member States. The initiative 
should target all business incubators, which could 
present their success stories, exchange knowledge 
and access peer support at European level.
07
 Introduction
Why are business  
incu  bators important?
01 
Small and medium ‑sized enterprises 
(SMEs) play an important role in the 
creation of growth and jobs. It is 
estimated that, as a whole, Europe’s 
20,7 million SMEs account for 67 % of 
total employment and 58 %1 of gross 
value added2. As a result, the provision 
of support to SMEs has become an 
increasingly important European polit ‑
ical priority over the years. The Lisbon 
strategy paid particular importance to 
the SME sector. Later, the Europe 2020 
strategy attached great weight to the 
importance of SMEs and innovation for 
the European Union economy and the 
key role they play in achieving smart, 
sustainable and inclusive growth.
02 
Business incubators aim to provide 
broad and intensive support to young 
businesses. This support is most need ‑
ed at the beginning of a company’s life 
cycle, when it is most at risk of failure. 
The Court’s definition of a business 
incubator is provided in Box 1 .03 
Published research suggests that SMEs 
which have received incubation sup ‑
port are significantly less likely to fail 
during the first few years after their 
establishment. The general 3‑year sur ‑
vival rate of new companies is around 
56 %3, whereas the rate for companies 
which have been assisted by business 
incubators is around 90 %4.
04 
The incubation process is most effec ‑
tive if it is individually tailored to the 
specific needs of the entrepreneur. The 
scope, variety and intensity of support 
depends on various factors. In gen ‑
eral, though, it varies according to the 
stage of the assisted company in its life 
cycle (e.g. establishment, expansion), 
the market sector it operates in (e.g. 
information and communication tech ‑
nology, biotechnology) and the type 
of business which it is (e.g. start‑up, 
spin‑off).5
Definition of a business incubator
A business incubator is an organisation designed to support the successful establishment and further devel ‑
opment of enterprises. It often offers access to physical business infrastructure, individually tailored business 
support services and networking opportunities.
Incubators vary in many ways, in particular in the scope of the incubation programmes they offer, in their 
internal organisation, in the economic sector they specialise in and in the types of clients they serve.Box 11 Ecorys, EU SMEs in 2012: at 
the crossroads , European 
Commission, September 2012 
(http://ec.europa.eu/
enterprise/policies/sme/
facts‑figures‑analysis/
performance‑review/files/
supporting‑documents/2012/
annual‑report_en.pdf ).
2 Gross value added is the value 
of products and services 
produced minus the cost of all 
inputs and raw materials that 
are directly attributable to that 
production.
3 Eurostat: http://epp.
eurostat.ec.europa.eu/
statistics_explained/index.
php/Business_demography_
statistics
4 The European Business and 
Innovation Centre Network 
(EBN) stated that the survival 
rate of companies during the 
incubation period was 92 %; 
the survival rate in the 3 years 
following graduation was 
90 %. ‘BIC Observatory 2012©’ 
report ( http://www.ebn.
be/assets/assets/pdf/2012/
bic_obs_2012.pdf ). 
UK Business Incubation 
Ltd reported a survival 
rate of 98 % during the 
incubation period, and of 
87 % after 5 years ( http://
www.ukbi.co.uk/resources/
business‑incubation.aspx ). 
The US National Business 
Incubation Association 
reported that the 5‑year 
survival rate was 87 %, 
(2012 State of the Business 
Incubation Industry).
5 See paragraph 14.
08 Introduction
05 
Three typical phases of incubation 
activity are identified in the European 
Commission’s Smart Guide to Innov‑
ation‑Based Incubators (IBI)6. Examples 
of activities performed at each stage 
are described in Chart 1 .
(a) Pre‑incubation. This stage com ‑
prises activities aimed at support ‑
ing potential entrepreneurs in 
developing business ideas, busi ‑
ness models and business plans. 
The objective is to increase the 
chance that the entrepreneurs will 
be able to create a business effec ‑
tively, and proceed successfully to 
the start‑up phase. Typical services 
provided at this stage include 
a first assessment of the business 
idea and individual guidance on 
all aspects of preparing a business 
plan.
(b) Incubation. This stage begins 
when the SME starts up, and ends 
at the moment when it becomes 
self‑sustainable and prepared to 
operate independently on the 
free market. This stage lasts for 
around 3 years. During this time, the incubator offers access to 
finance, training and coaching 
for entrepreneurs, as well as to 
networks of potential business and 
technology partners, office space 
and, in some cases, access to fully 
equipped laboratories, workshops 
and prototyping facilities. Physical 
incubation (when companies are 
actually present in the incubator) 
is important in certain economic 
sectors (e.g. biotechnology and ad ‑
vanced materials). In some sectors, 
though, (e.g. software develop ‑
ment), virtual incubation can also 
be an effective solution.
(c) Post‑incubation. This stage com ‑
prises activities carried out when 
a company has reached operation ‑
al and financial independence and 
is capable of continuing operations 
without external support. Various 
services may still be needed by 
the SME — for example, measures 
aimed at increasing its levels of 
sales, improving its productive 
processes using methods such as 
internationalisation, or introducing 
innovation.
Schematic representation of the three stages of the incubation processChart 1
Source:  European Court of Auditors based on the ‘Smart guide’ published by the Commission.Pre-incubation Incubation Post-incubation
 ο Innovation assessment
 ο Business plan preparation
 ο Training ο Access to finance
 ο Coaching, mentoring and training
 ο Physical hosting, labs and workshops
 ο Commercialisation
 ο Advanced business planning
 ο Association of business partners ο Business development
 ο Internationalisation
 ο Clustering
 ο Networking
Business idea Start-up company Substainable SME 6 European Commission, 
February 2010 ( http://
ec.europa.eu/regional_policy/
sources/docoffic/2007/
working/innovation_
incubator.pdf ).
09 Introduction
How does the European 
Regional Development 
Fund (ERDF) support  
business incubators?
06 
Together with regional convergence 
and European territorial cooperation, 
increasing regional competitiveness 
and employment are the main objec ‑
tives of the EU’s cohesion policy. In 
practice, the Structural Funds and in 
particular the European Regional De ‑
velopment Fund (ERDF) are the main 
sources of EU funding for programmes 
supporting SMEs.
07 
The Structural Funds are programmed 
and budgeted for a 7‑year period. The 
total Structural Funds budget for the 
2000–06 programming period was 
around 225 billion euro; for the 2007–
13 period, the total budget was around 
345 billion euro. The funds earmarked 
for the support of SMEs amounted to 
23 billion and 15 billion euro respec ‑
tively. There are no available figures 
on the amounts specifically dedi ‑
cated to the development of business 
incubators.
08 
The Structural Funds are subject to 
shared management. The Commission 
bears overall responsibility for manag ‑
ing the Structural Funds. It does so by 
assessing the operation of national 
management systems and approving 
operational programmes. Measures 
defined in operational programmes, 
notably the selection of projects, are 
implemented by bodies at Member 
State level.09 
For the purposes of this report, busi ‑
ness incubator projects co‑financed by 
the ERDF can be split into two distinct 
phases:
Phase I: Establishment  
This phase begins when the grant 
agreement is signed. The project 
manager then begins to make plans 
for the construction (or refurbishment) 
of the facility and the purchase of the 
necessary equipment. It ends when 
the incubator is equipped, staffed, and 
physically ready for operation, and 
when the investment has been settled 
from a legal and a financial point of 
view. The incubator is then ready to 
admit its first tenants. This phase typi ‑
cally lasts for up to 2 years.
Phase II: Operation  
This phase begins when the incuba ‑
tor’s first clients are admitted and the 
incubation process starts; it lasts until 
the end of the sustainability period 
(in other words, until the moment 
from which the grant conditions no 
longer oblige the owner of the project 
to maintain project results or to keep 
assets for the purposes of incubation 
activity). In the case of the audited 
projects, this phase ended 5 years after 
the signature of the grant agreement, 
and normally lasted for around 3 years 
after the end of phase I.
10
 Audit scope  
and objectives
10 
The main objective of the audit was 
to assess whether business incubator 
facilities co‑financed by the ERDF had 
successfully supported start‑ups with 
a high potential for growth. The Court 
asked the following three audit ques ‑
tions, each relating to a different level 
of management:
(a) Had beneficiaries applied good 
practices in establishing and oper ‑
ating incubators?
(b) Had the bodies responsible for 
managing the ERDF7 put in place 
effective mechanisms for selecting 
appropriate incubators to receive 
support and ensuring their suc ‑
cessful operation?
(c) Had the Commission taken ap ‑
propriate action to maximise 
the impact of ERDF support on 
co‑financed incubators?
11 
The audit was carried out at the 
premises of the European Commission, 
and in the four Member States which 
had allocated the largest amounts of 
ERDF funding to the establishment 
of business incubators (the Czech 
Republic, Spain, Poland and the United 
Kingdom). On the basis of an analysis 
of lists of projects (which was carried 
out due to the lack of official figures 
described in paragraph 7), the Court 
estimates that 1,2 billion euro in fund ‑
ing was allocated to actions contribut ‑
ing to the establishment of incubators 
in the four visited Member States in 
the 2000–13 period.12 
The Court performed an on‑the‑spot 
audit of a sample of 27 incubators 
(see Annex ) which had received ERDF 
support in the 2000–06 program ‑
ming period, and which had been in 
continuous operation for at least 3 
years. The Court examined all aspects 
of the incubators’ operations, from 
the planning decisions upon which 
their construction had been based to 
the practices and procedures which 
they had in place. The average total 
cost of a single project was 6,1 mil ‑
lion  euro. Contributions from public 
funds covered an average of 82 % of 
this amount: 42 % of the average total 
cost was covered by the ERDF (a total 
of 70 million euro); the other 40 % was 
covered by the Member States.
13 
The Court also assessed the man ‑
agement systems which had been 
implemented by the six managing 
authorities responsible for these 
27 incubators. The assessment focused 
on the project selection process, on 
the grant agreement conditions and 
on how these conditions were sub ‑
sequently monitored to ensure that 
contractual objectives were met.
14 
The standards used as audit criteria 
are based on good practices described 
in the ‘Smart guide’ published by the 
European Commission, and in other 
literature which has been published on 
this topic8.7 e.g. managing authorities and 
intermediary bodies.
8 National Business Incubation 
Association, Best practices 
in action — Guidelines for 
Implementing First‑Class 
Business Incubation Programs , 
2nd Edition 2010.  
European Commission, 
Benchmarking of Business 
Incubators , February 2002
11 Audit scope and objectives 
15 
An integral part of the audit was 
a benchmarking exercise which col ‑
lected key figures and indicators in 
order to assess the performance and 
efficiency of the operations of selected 
incubators which had received ERDF 
support. In total, 49 incubators9 (see 
Annex ) in the four visited Member 
States as well as in Italy and Germany, 
two Member States which had also 
allocated significant amounts of EU 
co‑funding to the operation of busi ‑
ness incubators, submitted detailed 
information about their operational 
activity and financial situation.
16 
The 49 ERDF co‑funded incubators 
in the sample were compared with 
a benchmark based on the results 
achieved by the 65 EC‑BIC certified 
incubators10 which were members of 
the European Business and Innovation 
Centre Network (EBN)11, and therefore 
applying best practice recognised by 
the Commission, in the six selected 
Member States. These 65 incubators 
are referred to in this report as the 
‘benchmarked incubators’.
17 
Audit evidence was collected from 
interviews with Commission and 
Member State officials, as well as 
with project managers. Documents 
obtained from EU and national author ‑
ities and business incubators were also 
reviewed.9 Incubators audited on the 
spot (21) as well as certain 
other ERDF co‑funded 
incubators (28).
10 In order to be awarded with 
the EC‑BIC trademark, an 
incubator must go through an 
accreditation process which 
ensures compliance with the 
EC‑BIC label criteria.
11 The EBN is a European 
non‑governmental association 
of around 200 incubators. 
It is the only organisation 
allowed to certify incubators 
with the EC‑BIC label, which is 
recognised by the European 
Commission.
12
 Observations
18 
This section begins with an assessment 
of the performance of the audited 
incubators. It goes on to describe the 
observations arising from each one of 
the Court’s three audit questions.
The quality of infrastruc -
ture was generally good, 
but incubators’ perfor -
mance lagged behind
19 
The Court assessed the performance of 
the audited ERDF co‑funded incuba ‑
tors in terms of the process of con ‑
structing and equipping or refurbish ‑
ing them (their output) and in terms of 
the results which they achieved. These 
two dimensions correspond approxi ‑
mately to the two phases of the im ‑
plementation of an incubator project 
described in paragraph 9.In most cases, incubation 
facilities were well adapted 
and had been constructed 
and equipped as planned
20 
The Court considers that physical 
incubator space is especially important 
for certain high‑growth sectors (e.g. 
biotechnology, advanced materials) 
which depend on otherwise unaf ‑
fordable equipment being available 
in the incubator. Incubators should 
be designed to provide a comfortable 
working and meeting space equipped 
with gen  eral‑purpose office and com ‑
munication equipment. It is also im ‑
portant to create shared leisure spaces 
to encourage tenants to integrate and 
to maximise the potential for collabo ‑
ration and the free exchange of ideas.PhotographERDF co -financed ‘Delta’ building in the Wrocław Technology Park
In most cases, audited ERDF incubator projects offered well -adapted working conditions.
Source:  European Court of Auditors. Architect: Anna Kościuk.
13 Observations
21 
The vast majority of the visited incuba ‑
tors were successfully offering attrac ‑
tive working spaces for their clients. 
The profile of audited facilities ranged 
from simple office buildings to fully 
equipped laboratories. In all, 23 out 
of 27 of them were offering working 
conditions which were adapted to 
the individual needs of hosted SMEs 
and encouraged collaboration. In the 
arrangement of their physical space, 
incubators had taken into account 
the importance of networking: they 
provided a leisure area for the use of 
hosted companies where spontaneous 
networking could occur.
22 
The Court’s assessment of this phase 
also covered the process of plan ‑
ning and constructing the audited 
facilities. All incubators had been built 
in accordance with their planning 
documentation, which in 23 out of 27 
cases contained detailed information 
about the intended characteristics 
of the facility, and which established 
fixed construction schedules. Most 
of the incubators (23 out of 27) had 
been delivered in line with these plans; 
however, only 15 out of 27 of them had 
been completed in compliance with 
the deadlines set out in the project 
application.23 
The Court did not detect any major 
cost overruns, and 20 out of 27 pro ‑
jects had been completed within their 
planned budget. Cost overruns had 
been covered by applicants’ own re ‑
sources and had had no effect on the 
EU budget.
Audited business incuba -
tors were comparatively less 
effective
24 
The Court assessed the effectiveness 
and efficiency of incubator projects in 
phase II by measuring their operational 
activity and evaluating their outcomes 
in terms of their main objectives:
(a) the number of business plans cre ‑
ated with incubator support;
(b) the number of start‑ups incubated;
(c) the number of jobs created.
25 
During the reference period, the aver ‑
age audited incubator helped to draw 
up 20 new business plans. This led to 
the creation of 15 start‑ups and 27 new 
jobs. On average, 164 people were 
employed in each audited incubator 
over the reference period; however, 
start‑ups accounted for only a small 
proportion of these.
14 Observations
26 
The effectiveness of the benchmarked 
EC‑BIC certified incubators, which 
were of a comparable size to the 
ones audited by the Court, was much 
higher. The average benchmarked 
incubator had helped to draw up 
101 new business plans and assisted in 
the establishment of 65 new start‑ups 
over the reference period; this had led 
to the creation of 147 new jobs. Sup ‑
port offered to businesses beyond the 
scope of physical incubation (i.e. the 
provision of pre‑incubation and virtual 
incubation services to entrepreneurs) 
had contributed to this high start‑up creation rate. The value of virtual incu ‑
bation is demonstrated by the fact that 
the number of start‑ups created by the 
audited incubators greatly exceeds the 
number of tenants in the incubators. 
Detailed data on the effectiveness of 
both groups of incubators is given in 
the Table .
Average outcomes achieved by business incubators
Audited ERDF incubators were comparatively less effective.Table
Average across
Audited ERDF incubators Benchmarked incubators
Pre-incubation activity
Enquiries about support 92 738
Business plans prepared 20 101
Enterprise creation projects 19 91
Incubation activity
Start-ups created (incl. non tenants) 15 65
Jobs created in start-ups 27 147
Jobs created per start-up 1,8 2,3
All tenants in incubator 26 35
People employed by all tenants 164 166
Employees per tenant 6,4 4,7
Post-incubation activity
Existing SMEs supported 54 168
Jobs created in SMEs in post-incubation 20 49
Jobs created per SME in post-incubation 0,4 0,3
Source:  ECA benchmarking data for 2011.
15 Observations
27 
To assess efficiency, these results were 
then examined in the light of the level 
of resources which had been deployed 
(operations costs and staff employed). 
The outcome of this measurement was 
compared with the results achieved by 
the benchmarked EC‑BIC incubators. 
Details are given in Chart 2  below. 
As an example, the audited incuba ‑
tors generated an average of 5,3 jobs 
for each 100 000 euro of operational 
cost compared to 9,6 for benchmark 
incubators, which gives a cost of 
around 18 000 euro per job, compared 
to 10 400 euro in the benchmarked 
incubators. There is a difference of a similar magni ‑
tude between the incubators audited 
by the Court and the EC‑BIC incubators 
used as a benchmark in terms of the 
cost per business plan created and the 
cost per new business created. Simi ‑
lar conclusions can be drawn when 
the number of staff employed by the 
incubator is taken as a basis for the 
calculation.
Efficiency of incubators’ operations  — results for 2011
Audited business incubators were comparatively less efficient.Chart 2
12,00
Business
plansStart-ups Jobs Business
plansStart-ups Jobs2,244,89
1,753,115,319,60
1,735,27
1,353,354,0910,35
10,00
8,00
6,00
4,00
2,00
0,00Audit ed inc ubators
Benchmark ed inc ubators
created per 100 000 euros of operational costs created by staﬀ employed by the incubators
Source:  ECA benchmarking data for 2011.
16 Observations
28 
Most of the audited ERDF incubators 
had commenced operations relatively 
recently, and this lack of experience 
undoubtedly hampered their effi ‑
ciency. However, the magnitude of the 
difference between the two groups 
of incubators demonstrates the rela ‑
tive underperformance of the ERDF 
co‑financed incubators audited by the 
Court. A discussion of the various pos ‑
sible reasons for this appears below, 
following the structure of the three 
audit questions asked in paragraph 10.
Audited ERDF incubators 
had not made sufficient 
use of good practices
29 
A business incubator is a complex 
system whose success depends on 
external factors such as the macro ‑
economic situation, the legal system in 
which the incubator operates and the 
entrepreneurial culture in the coun ‑
try in which the incubator is located. 
However, internal practices also affect 
an incubator’s success.
30 
Recognising this, the Court examined 
the quality and relevance of the prac ‑
tices and procedures of the audited 
incubators in four areas:
(a) their internal business planning;
(b) the relevance of the services pro ‑
vided to their clients;
(c) the systems they used for monitor ‑
ing clients;
(d) and their business models.When business incubators 
were being established, too 
little attention had been paid 
to the effectiveness of their 
business support functions
31 
The Court considers that a business 
incubator’s mission and objectives 
should be clearly defined from the 
very beginning. Its future operations 
should be precisely outlined in a busi ‑
ness plan. This plan should include 
information about the incubator’s key 
business support activities, as well 
as details of the human and material 
resources needed for the incubator 
to successfully achieve its incubation 
goals. It should also include details of 
networking arrangements.
32 
Although 22 out of 27 audited incuba ‑
tors had prepared a business plan in 
line with the formal obligations aris ‑
ing from legislation governing ERDF 
support12, only half of them included 
details of their activity and result‑  
oriented goals.12 In the five other cases there 
was no legal obligation to 
develop a business plan.
17 Observations
33 
An analysis of incubators’ business 
planning documents revealed weak ‑
nesses affecting factors which are 
essential for the sound operation of 
a business incubator. Most commonly, 
descriptions of incubation pro ‑
grammes were missing; the resources 
to be assigned to incubation processes 
(e.g. qualified staff) had not been 
specified; or items of information on 
the cost of incubation activities were 
incomplete or missing. Without this 
essential information, it is not possible 
to make a reliable assessment of the 
future economic sustainability of any 
incubator.
34 
Most of the numerous objectives 
included in the planning documents 
concerned the facilities of incuba ‑
tors themselves, rather than focusing 
on the activities which the incubator 
would actually carry out. Insufficient 
attention was thus paid to the impor ‑
tance and the results of incubation 
processes. This bias towards phys‑
ical objectives (e.g. construction and 
equipment) gave undue prominence 
to the objectives of the construction 
phase (phase I) instead of concentrat ‑
ing on achieving the fundamental 
objectives of incubation activity 
(phase II).Incubation services were 
only loosely linked to clients’ 
needs
35 
The Court considers that the core ac ‑
tivity of any business incubator is the 
provision of business support services 
to its clients. A wide range of services13 
can be offered to entrepreneurs; 
these include the rental of physical 
space; mentoring; training; consulting 
in various areas; networking; access 
to financing; and many other things. 
However, if results are to be delivered 
effectively, incubation support cannot 
be offered in the form of a simple list 
of available services. The most effec ‑
tive incubators apply an individual 
approach, providing a tailor‑made 
incubation programme in combination 
with other entrepreneurial support 
initiatives (such as lectures given by 
invited speakers) aimed at preparing 
newly created SMEs to operate on the 
free market.
Services offered
36 
In the audited incubators, the support 
provided to hosted companies gener ‑
ally14 took the form of subsidised office 
space (offered by 94 % of incubators). 
In addition to this, ‘soft services’ were 
also provided free of charge, or for 
a low fee. The most common were 
coaching, training courses and support 
in the areas of law, marketing, account ‑
ing and intellectual property rights.13 The ‘State of the business 
incubation industry’ report 
produced by the United States 
National Business Incubation 
Association in 2006 identifies 
33 distinct services which can 
be offered to client companies 
by business incubators.
14 Discounted rental costs were 
not usually offered in the 
United Kingdom.
18 Observations
37 
Chart 3  shows the range of services 
being offered by ERDF incubators 
audited by the Court in comparison 
with the range of relevant services 
offered by incubators in the bench ‑
marked EC‑BIC population. In par ‑
ticular, only 53 % of incubators were 
able to provide advice about financial 
planning and financing. This is a cause 
for concern: insufficient access to 
finance is recognised as a key barrier 
to the development of SMEs15, and the 
lack of financial advice provided by 
incubators did not help to reduce this 
problem. This hampered clients’ and 
potential clients’ overall perception 
of how useful the support offered by 
incubators to hosted companies was.
Type and frequency of principal services offered by audited ERDF incubators
Audited ERDF incubators offer a more limited range of services.Chart 3
Source:  ECA benchmarking data for 2011.Business modelling supportEntrepreneurial skills
assessment support Risk analysis supportStart-up services
Delivery of training
Assessment of training needs
Rental of incubation space
Fundraising support
Financial planning support94 %
80 % 53 %
76 %78 %51 %41 %69 %67 %
71 %90 %
Audited incubators
Benchmarked incubatorsIdentiﬁcation of target clients
Business planning support100 %
90 %
80 %70 %60 %50 %40 %30 %20 %10 %
0 %15 ‘The SME financing gap, 
Volume I: Theory And 
Evidence’, Organisation 
For Economic Cooperation 
and Development ( http://
ec.europa.eu/enterprise/
newsroom/cf/_getdocument.
cfm?doc_id=624 ).
19 Observations
Incubation programmes
38 
During the audit, the Court observed 
that the relatively limited range of 
services offered by the audited incuba ‑
tors was a direct consequence of the 
approach they took to incubation. In 
general, ERDF co‑financed incubators 
were not directly involved in the busi ‑
ness development of their clients and 
were not actively working with hosted 
companies to identify and set business 
objectives for them. The incubators 
did not require hosted companies to 
collaborate closely with them in this 
way; for their own part, hosted com ‑
panies often saw no benefit in shar ‑
ing sensitive business data, and were 
therefore reluctant to do so.
39 
Structured comprehensive incuba ‑
tion programmes involving intensive 
cooperation between incubators and 
their clients were scarce. Only 4 out of 
27 audited incubators systematically 
drew up a comprehensive incubation 
programme together with each indi ‑
vidual client, establishing specific per ‑
formance and development objectives. 
Only 6 out of 27 audited incubators 
were subject to quality audits which 
aimed to improve the overall quality of 
incubation services.40 
This limited level of cooperation led to 
a sense of ‘isolation ’ from the incuba ‑
tor, and also had a negative effect 
on the sense of community between 
tenants. This did not facilitate synergy 
between tenants.
Staff skills
41 
The absence of a culture of intensive 
cooperation between incubators and 
clients meant that there was no incen ‑
tive for incubator staff to possess or 
to acquire specific skills and expertise 
which would allow them to assist 
hosted companies more effectively. 
The resulting lack of skills meant that 
incubator staff were unable to take 
steps to engage more effectively with 
hosted companies, creating a vicious 
circle. The range of skills and expertise 
possessed by incubator staff  was less 
extensive in the audited incubators 
compared to the benchmarked incuba ‑
tors, as Chart 4  shows.
42 
In particular, relatively few members 
of staff who were engaged directly in 
business incubation activities pos ‑
sessed skills which allowed them to 
offer more specialised assistance to 
companies in areas such as specific 
sector‑related expertise (39 %) or ac ‑
cessing financing possibilities (43 %).
20 Observations
43 
A further effect of this lack of coop ‑
eration was that incubators had only 
limited structured knowledge about 
the individual needs and achievements 
of the companies they hosted.Pre-incubation and virtual 
incubation
44 
Weaknesses in programmes and 
low levels of engagement were also 
detected in two other important areas 
of incubator activity: pre‑incubation 
support (see paragraph 5a) and virtual 
incubation (see paragraph 46). Both 
services are provided to prospective 
clients and to clients who are not 
necessarily physically located on the 
incubator’s premises.Comparison of main available staff skills and expertise
The range of skills and expertise possessed by incubator staff was less extensive in the audited incubators.
Source:  ECA benchmarking data for 2011.Chart 4
14 %49 %39 %55 %
35 %
43 %43 %39 %
22 %High-tech SME
creation & support
Speciﬁc sector-related 
expertise
Access to ﬁnanceBenchmarked incubatorsAudited incubatorsInternational cooperation
Legal adviceOther
Promotion of assisted SMEs
Advanced use of ICT for
SME developmentHuman resource development90 %
80 %70 %60 %50 %40 %30 %20 %10 %
0 %
21 Observations
45 
Providing intensive pre‑incubation 
support to potential entrepreneurs 
is important. Firstly, it allows an 
incubator to develop a pool of pro ‑
spective clients irrespective of their 
geographical origin. It also enhances 
the incubator’s engagement with its 
local community. However, it requires 
a significant commitment of time by 
incubator staff. In all, 14 out of 27 au ‑
dited incubators failed to offer it. The 
absence of this service was one of the 
reasons behind the low number of 
enquiries received by incubators, as 
the Table  shows.
46 
Virtual incubation refers to the provi ‑
sion of incubation programmes to 
clients who are not based on the incu ‑
bator’s premises. It is a service which 
increases the effectiveness of incuba ‑
tors (see paragraph 26). Interest in 
receiving this type of business support 
largely depends on the quality and ef ‑
fectiveness of incubation programmes. 
Weak incubation programmes (see 
paragraphs 38 and 39) and limitations 
in the range of services offered were 
two main reasons for the fact that only 
11 out of 27 audited incubators pro ‑
vided virtual incubation to externally 
located clients.Networking and embedded 
incubators
47 
The audited incubators had a good 
understanding of the need for net ‑
working and of the benefits which it 
brought. In all, 19 out of 27 of them 
had attempted to build up a network 
of connected stakeholders. Further ‑
more, almost all audited incubators 
had links with a recognised local part ‑
ner, or were embedded within one. 
These partners included universities, 
business support organisations and 
public authorities. However, few in ‑
cubators had successfully established 
a network which engaged all types of 
relevant stakeholders (e.g. universities, 
industry leaders and their own former 
client companies in the post‑incuba ‑
tion stage).
48 
Incubators should play an important 
role in each region’s business support 
infrastructure. However, only 14 out of 
27 incubators had been consulted at 
any point in the past during the prep ‑
aration of regional innovation strat ‑
egies. This low figure demonstrates 
indirectly that the value of incubators 
as important business support centres 
often fails to be recognised.
22 Observations
Monitoring systems within 
the incubators did not  
provide adequate manage -
ment information
49 
The Court considers that a monitor ‑
ing system should be established in 
each business incubator. This system 
should collect and record statistics and 
other relevant information about the 
activity of the incubator and its clients. 
The goal of gathering this information 
is to assess whether resources were 
invested effectively and efficiently, 
and whether they contributed towards 
achieving strategic objectives. These 
objectives can only be achieved when 
business data is obtained from the 
incubator’s management system as 
well as from incubated companies in 
the form of standardised financial and 
activity indicators.50 
Only 15 out of 27 incubators had put 
in place a system whereby incubation 
activities were regularly observed and 
recorded. The collection of data in 
the remaining incubators was limited 
to the mandatory statistics required 
by accounting rules and tax regula ‑
tions. Incubators were often unable 
to provide detailed financial data on 
the value of the aid granted to each 
of their clients. This makes it more dif ‑
ficult to properly assess their incuba ‑
tion activity. The practice of integrat ‑
ing data concerning clients’ business 
activity with the incubator’s monitor ‑
ing data was even more infrequent. 
Some incubators did not collect basic 
performance data because they had 
only a limited amount of oversight 
over their clients’ development. Only 5 
out of 27 incubators used their clients’ 
performance data to improve the man ‑
agement of their facility. An example 
of an incubator which did so is given 
in Box 2 .
Good practice  — Integrated monitoring system
One of the most successful audited incubators in the Czech Republic regularly monitored the performance 
of hosted companies and the relevance and quality of the support offered to them. To do so, the incubator 
had developed a system of key performance indicators integrating exhaustive information about the activ ‑
ity of the incubator (e.g. number of training sessions organised, number of lectures given) and the perfor ‑
mance of hosted companies (e.g. turnover, number of patents applied for, number of full‑time equivalent jobs 
created). The resulting information was used by the management to assess the effectiveness of incubation 
programmes.Box 2
23 Observations
51 
All of the monitoring systems used 
by the incubators which did carry 
out measurements of their activity 
involved performance indicators. 
However, only in 10 out of 27 cases 
were these defined with reference to 
standards set out by recognised na ‑
tional or international organisations16. 
This lack of standardisation made it 
more difficult to compare individual 
incubators’ performance with available 
benchmarking data or to assess their 
impact on the local economy.
Incubators’ financial sustain -
ability was conflicting with 
the objective of providing 
adequate incubation services 
to relevant businesses
52 
The Court considers that a relevant 
business model should allow an incu ‑
bator to achieve its strategic objec ‑
tives, taking into account economic 
constraints. This should mean that the 
incubator is selective in providing sup ‑
port and services to a targeted group 
of tenants. Only those entrepreneurs 
who are able to put forward feasible, 
innovative and competitive busi ‑
ness ideas should be supported. That 
means that appropriate entry criteria 
should be in place, and that scouting 
activity should take place to ensure 
that a sufficient number of quality 
candidates are available.53 
Incubation activity is not usually 
a profitable endeavour: support and 
services are provided free of charge 
or at a rate which is not sufficient to 
cover the incubator’s costs. In the 
audited population of 27 incubators, 
only 7 had made sure that the finan ‑
cial support provided by stakeholders 
would be continuously available. An 
example of such an arrangement is 
described in Box 3 . The other 20 incu ‑
bators were intended to be financially 
self‑sustaining; this forced them to 
focus excessively on the financial side 
of their activity.
54 
As a result, audited incubators de ‑
pended heavily on income generated 
internally from incubation activities 
(mainly office space rental), which ac ‑
counted for 72 % of their total revenue. 
In the benchmarked population of 
EC‑BIC incubators, this activity gener ‑
ated only 34 % of revenue and the 
rest was covered by public and private 
funding.
55 
In order to minimise their structural 
deficit, audited incubators whose con ‑
tinued financing was not guaranteed 
were forced to reduce their costs and 
maximise their income. Cost reduc ‑
tions inevitably led to reductions in 
the level of support offered, and to 
simplified incubation programmes. It 
also meant that fewer resources were 
available for carrying out scouting 
activities. As office rental was the main 
source of income, incubators had at ‑
tempted to maximise this.16 There are various 
organisations publishing this 
type of information. They 
include the European Business 
and Innovation Network, 
the US National Business 
Incubation Association and 
the European Commission.
24 Observations
56 
The number of applicants rarely ex ‑
ceeded a few per month, even in the 
busiest audited facilities. Incubators 
therefore had little incentive to oper ‑
ate a formal entry procedure in which 
potential clients were selected on the 
basis of an examination of the level of 
innovation and potential for growth 
of the business ideas which they were 
proposing. Only 12 out of the 27 au ‑
dited incubators had such a procedure 
in place.
57 
This allowed businesses with a lower 
potential for growth to move into the 
incubator, reducing the efficiency with 
which incubators’ resources were used.
58 
Due to insufficient financing and a lack 
of external funding (e.g. from a share ‑
holder), 8 out of 27 audited incubators 
had to limit the scope of the incuba ‑
tion support which they offered after 
their ERDF grant agreement expired. In 
four cases, they had completely aban ‑
doned incubation activity, turning 
themselves into normal commercial 
office suites with no business support 
function. Weak selection criteria and a lack of 
development goals for hosted com ‑
panies had a negative impact on the 
effectiveness of the incubators audit ‑
ed, and adversely affected the overall 
efficiency of their incubation activities.
ERDF management sys -
tems did not focus on the 
efficiency of the services 
provided by business 
incubators
59 
These audit results, including the sup ‑
porting benchmarking data, clearly 
indicate that audited incubators did 
not provide their services efficiently 
enough. This means that it is par ‑
ticularly important to examine ERDF 
management systems established by 
managing authorities covering the ex ‑
penditure of public funds. The Court’s 
assessment focused on two important 
issues: how projects to be co‑funded 
were selected, and how the sustain ‑
ability of their operations was ensured.Good practice — Financial support from the parent organisation
In Spain, in order to ensure stable operations and financial sustainability, the chambers of commerce, the 
organisations by which the incubators were managed, had formally committed themselves to making up any 
yearly deficit. This formal commitment is tangible evidence of the willingness of the incubators’ stakeholders 
to take part in the business creation policy, which is perceived as a public mission coherent with the activity of 
the parent organisation.Box 3
25 Observations
The procedure for select -
ing incubators did not give 
due consideration to certain 
 crucial elements for incuba -
tion activity
60 
The Court considers that public au ‑
thorities should generally design aid 
measures in a way which takes into 
account the needs identified by their 
enterprise policy and which ensures 
sustainability and an adequate return 
from invested public funds in the form 
of new SMEs and jobs. To achieve this, 
projects should only be selected for 
co‑financing if their future sustainabil ‑
ity is ensured.
61 
The two project implementation 
phases described in the introduction 
in connection with business incubators 
(see paragraph 9) are reflected in the 
ERDF management procedures applied 
by managing authorities. The ERDF is 
principally used to co‑finance invest ‑
ments in physical infrastructure in EU 
regions. The management process 
applied by managing authorities fo ‑
cuses mainly on ensuring the effective 
delivery of physical outputs.
Project assessment and selection
62 
In the case of business incubators, this 
outputs‑oriented approach can first 
be detected at the project selection 
stage. In particular, the project assess ‑
ment and selection process did not 
pay enough attention to some key ele ‑
ments of incubation activity, which is 
part of the operational phase (phase II) 
of a project.(a) Staff qualifications. The selection 
procedure failed to adequately as ‑
sess the suitability of staff mem ‑
bers responsible for providing 
business incubation services. The 
Court noted in particular that, in 
one third of cases, co‑funding was 
granted for projects where it could 
not be demonstrated that any 
member of staff had the necessary 
knowledge of, or any experience 
in, the subject matter. In some 
cases, this lack of specific expertise 
was supposed to be addressed 
by additional ERDF co‑funded 
projects.
(b) Incubation services. The scope 
and relevance of the incubation 
services which would be offered, 
and in particular of incubation pro ‑
grammes, was not assessed during 
the process for approving grants 
for business incubators.
(c) Financial sustainability. Applicants 
were not required to provide 
detailed information about the 
scope of business support and its 
expected costs or results. Nor were 
they required to provide informa ‑
tion about their strategies for 
covering any shortfall in operating 
expenditure and guaranteeing the 
continued provision of incubation 
services.
(d) Expected project impact. The 
assessment procedure did not 
evaluate expected benefits for 
the regional economy. The lack of 
standardised assessment criteria 
also made it impossible to assess 
the efficiency of planned projects 
in terms of the cost per job created 
or per new SME.
26 Observations
Project objectives and indicators
63 
Some of the project objectives defined 
in the application were quantified 
using indicators, with defined targets 
to be achieved. Output indicators had 
been applied appropriately: examples 
included the number of square metres 
of office space built, or the number of 
printers installed.
64 
However, none of the visited manag ‑
ing authorities had used a system of 
indicators based on good practice 
guidelines issued by an experienced 
national or international grouping of 
business incubators.
65 
It is particularly important to define 
indicators precisely in setting objec ‑
tives for incubation operations (phase 
II). In general, indicators were largely 
defined by applicants themselves.
66 
The lack of structure in the use of 
indicators to establish specific project 
objectives and to monitor the op ‑
erational activity also had an impact 
on the overall efficiency of public 
spending. Specifically, when signing 
grant agreements, managing authori ‑
ties were unable to ensure that the 
value of the ERDF grant or the level 
of co‑financing was proportionate to 
the results which the applicant ex ‑
pected to achieve, or to the impact on 
local entrepreneurship. The benefits 
of providing public funding were not 
quantified and assessed at the project 
selection stage.Project monitoring and follow -up
67 
The physical establishment of incuba ‑
tors had generally been monitored 
properly. Member State authorities 
had carried out on‑the‑spot visits and 
reviews of financial documentation.
68 
However, Member State authorities 
had not been able to appropriately 
measure incubators’ effectiveness in 
achieving results. One main reason for 
this was that they had not taken steps 
to ensure that management systems at 
incubator level would fulfil their basic 
performance monitoring role. The lack 
of adequate results monitoring meant 
that they had been unable to proper ‑
ly follow up the achievement of the 
anticipated outcomes.
ERDF co -funded incubators 
were not required to con -
tinue incubation activities 
for a sufficiently long period 
of time
69 
The Court considers that particular 
attention needs to be paid to the 
financial and operational sustainability 
of co‑financed projects, to the quality 
of incubation services offered and to 
the overall expected positive impact 
on the local, and possibly the wider, 
economy.
27 Observations
70 
In this respect, the minimum length of 
the sustainability period17 (5 years) was 
not adapted to the characteristics of 
the business incubation process; nor 
did it accurately reflect the life cycle 
of the assets built and purchased with 
ERDF support (20–30 years)18. This 
meant that managing authorities had 
relinquished their control over the 
assets immediately after the minimum 
sustainability period stipulated in the 
Structural Funds regulation19 expired. 
An example of how a Member State 
successfully addressed this problem is 
given in Box 4 .
71 
After the sustainability period had 
expired, the entity responsible for 
project delivery was released from its 
contractual obligations and was able 
to dispose freely of the assets which it 
had obtained. In the audited projects, 
8 out of 27 incubators had partially 
or entirely stopped their incubation 
activity after the 5‑year sustainability 
period expired.72 
In situations like this, the actual ben ‑
efit from public funding was trans ‑
ferred to facility owners (e.g. private 
companies, local authorities, chambers 
of commerce and universities) instead 
of to local entrepreneurs and start‑ups. 
The Court estimates that the total 
value of funding affected in this way 
may amount to around two fifths of 
total ERDF investment in the audited 
business incubation projects, i.e. 
30 million  euro.17 The period during which 
the beneficiary is obliged to 
respect the commitments 
provided for in the grant 
agreement.
18 The life cycle of the assets in 
question (mainly buildings) 
was determined on the basis 
of depreciation rates applied 
in the respective Member 
States.
19 Council Regulation (EC) 
No 1260/1999 of 21 June 1999 
laying down general 
provisions on the Structural 
Funds (OJ L 161, 26.6.1999, p. 1).
Good practice  — Sustainability period
In Poland, the problem of a short sustainability period had been resolved in the 2007–13 programming period 
in one of the measures included in the horizontal operational programme. The sustainability period laid down 
in the grant agreement had been extended to 20 years, and project operators were obliged to transfer all 
public financing received for the construction of the facility to the hosted SMEs over this period in the form of 
business support.Box 4
28 Observations
Limitations in the dissem -
ination of knowledge by 
the European Commission 
hampered the promotion 
of good practices
73 
The Court’s assessment of the Commis ‑
sion’s contribution focused on those 
activities which, in principle, should 
contribute to the development and im ‑
plementation of incubator projects. In 
particular, the Court assessed whether 
a body of expertise concerning incuba ‑
tion activity had been accumulated by 
the Commission, and whether good 
practice guidelines based on this 
expertise had been made available at 
European level.
Commission initiatives
74 
In the course of this audit the Court 
screened a number of the Commis ‑
sion’s initiatives. It concentrated on ini ‑
tiatives which had been in place since 
the beginning of 2000, and whose 
main focus was on incubators. These 
initiatives had the potential to make 
a contribution to the accumulation of 
relevant knowledge within the Com ‑
mission, and also to the dissemination 
of this knowledge and relevant good 
practices among interested stakehold ‑
ers or responsible authorities.75 
Two important initiatives should be 
mentioned in connection with the 
management of knowledge:
(a) In 2002, the Commission published 
a benchmarking study provid ‑
ing valuable information about 
the state of European incubators. 
The study recommended that the 
benchmarking exercise should be 
repeated; however, this was never 
done.
(b) In parallel to the benchmarking ex ‑
ercise, the Commission set up a da ‑
tabase of incubators20. The data 
was updated on a yearly basis until 
2006, when the system ceased to 
be developed and updated.
Knowledge dissemination
76 
Concerning the dissemination of 
incubator‑related expertise, apart 
from the benchmarking report men ‑
tioned above, a  ‘Smart guide to 
innovation‑based incubators ’ was 
published by the Commission in 2010. 
The document, which was produced 
on the basis of the experience of EBN 
members, describes the main factors 
and processes which exert the greatest 
influence on the success of business 
incubation, and how this can best be 
measured. However, the guide did 
not provide any performance data 
or information about the effective ‑
ness of this kind of business support. 
The guide was published too late to 
allow the audited incubators to take it 
into consideration at the time of their 
establishment. Only a few incubators 
were even aware of its existence.20 http://cordis.europa.eu/
incubators/about.htm
29 Observations
77 
The initiatives described above dem ‑
onstrate that in the last decade the 
Commission did indeed make some 
effort to gather data about business 
incubation. However, the experience 
and knowledge gathered was lost 
due to the lack of continuity in the 
Commission’s initiatives. The Commis ‑
sion had not carried out any further 
systematic studies about business 
incubators, and therefore did not have 
adequate up‑to‑date knowledge to 
share. Such knowledge would have 
been particularly useful to Member 
States which were intensively develop ‑
ing their business incubation network 
(i.e. Member States which joined the 
EU in and after 2004).
78  
The Commission does not have an 
adequate knowledge base which could 
allow it to assess the effectiveness 
of business incubators, or to provide 
advanced support to any business 
incubator — in particular, to those 
co‑funded by the ERDF. The fact that 
the number of incubators is grow ‑
ing makes it especially important for 
the Commission to provide support 
to incubator operators, managing 
authorities and Member States alike, 
in particular by providing examples of 
good practice, successful incubation 
programmes or benchmarking data 
which managing authorities can use 
during the assessment of proposals for 
the establishment of future incubators.
30
 Conclusions and 
recommendations
79 
The ERDF has made a significant 
fi  nancial contribution towards the 
creation of business incubator infra ‑
structure, particularly in Member 
States in which this type of business 
support was relatively rare. However, 
the Court considers that the provision 
of incubation services — and, con ‑
sequently, the  wider impact on local 
businesses — was rather limited, due 
to financial constraints and the low 
level of incubation activities. This was 
mainly explained by a lack of exper ‑
tise concerning incubation practices, 
and by shortcomings in management 
systems.
In general, audited ERDF 
co-financed incubator 
facilities had been estab -
lished properly, but the 
business support offered 
to clients was only moder -
ately successful
80 
The performance of the audited 
incubators was lower than that of the 
benchmarked incubators. Although 
the ERDF had been effective in deliv ‑
ering incubator infrastructure, it had 
been less successful in ensuring that 
they provided effective and efficient 
support to their clients. ERDF‑support ‑
ed incubators were operating in mod ‑
ern and properly adapted co‑financed 
facilities, they were more costly to run 
and required more staff to produce 
a new start‑up than the benchmarked 
incubators.Audited ERDF incubators had 
not made sufficient use of 
good practices
81 
There are several possible reasons 
why the audited incubators were less 
effective and efficient. Most of the 
incubators had commenced oper ‑
ations relatively recently, and this lack 
of experience undoubtedly hampered 
their efficiency. The clearest signs of 
this were weaknesses and gaps in in ‑
cubation programmes and inadequate 
business models, in particular with 
regard to financial sustainability. This 
constraint focused the attention of the 
incubators’ management teams on 
generating income rather than provid ‑
ing quality services for high‑growth 
potential start‑ups. This income‑  
oriented approach led incubator man ‑
agers to relax the eligibility criteria for 
newcomers. As a result, costly incuba ‑
tor support was offered to low‑growth 
ventures. This further increased inef ‑
ficiency in the use of public resources 
invested in business incubators.
82 
Incubators were unable to offer 
comprehensive, individually tailored 
assistance to their clients. The range 
of services offered was limited. Most 
audited incubators did not offer sup ‑
port to prospective entrepreneurs at 
the pre‑incubation stage, or to non‑  
resident clients. The incubation pro ‑
grammes were of a basic nature and 
did not take into account the specific 
individual needs or business develop ‑
ment objectives of their clients. As 
there was no close cooperation with 
them, the incubators lacked detailed 
knowledge of their level of develop ‑
ment. This had an additional adverse 
effect on the quality of business sup ‑
port offered.
31 Conclusions and recommendations
Recommendation 1
The Commission should require Mem ‑
ber States to make authorisation for 
the establishment of new incubators 
using EU co‑funding dependent on the 
following considerations:
(a) Business incubators should be es ‑
tablished on the basis of detailed 
and realistic business plans, paying 
particular attention to the sustain ‑
ability of their non‑profit incuba ‑
tion activity.
(b) From the outset, incubation 
activity should be carried out 
by suitably skilled staff who can 
provide relevant individual sup ‑
port to clients and potential future 
entrepreneurs.
(c) Incubators should proactively seek 
and acquire new clients irrespec ‑
tive of their geographical origin, 
focusing on those with innovative 
business ideas with high growth 
potential in order to maximise the 
efficiency of public funding and 
therefore the value added by EU 
funds.
(d) The incubation process for each 
client company should start with 
the preparation of a detailed, 
 tailor‑made incubation pro ‑
gramme. The implementation of 
this programme should be fol ‑
lowed up, and the degree to which 
the business’s objectives have 
been achieved should be assessed.
(e) Incubators should offer their 
services to non‑resident compan ‑
ies, thereby allowing incubation 
support to have a larger impact 
on the local business community 
and improving possibilities for 
networking.(f) Incubators should set up a moni ‑
toring system based not only on 
the data obtained from their own 
activity, but also on business data 
produced by supported clients.
Management systems had 
been effective in ensuring 
that infrastructure was deliv -
ered, but not in ensuring the 
provision of efficient busi -
ness incubation support
83 
In most cases, management systems 
had been effective in ensuring that 
physical outputs (e.g. buildings) were 
delivered on time and according to 
plan. However, they did not ensure 
the effective and efficient delivery of 
incubation services (e.g. coaching and 
training). Greater emphasis should 
have been placed on the management 
of incubation services in the long term.
84 
The Member State authorities which 
selected projects for co‑funding paid 
insufficient attention to the expected 
outcomes of incubation activity and 
to the feasibility of the incubators’ 
business models. This had serious 
consequences: it affected the objec ‑
tives which were established for indi ‑
vidual incubators, and had subsequent 
implications for the sustainability of 
incubation activities. This latter issue 
is particularly concerning, because 
the length of the sustainability period 
does not correctly reflect the nature of 
ERDF co‑financed incubator projects. 
One important risk resulting from 
this is that the systems in place allow 
a significant part of the value of public 
funding to pass to incubator own ‑
ers after the end of the sustainability 
period.
32 Conclusions and recommendations
Recommendation 2
The Commission should require Mem ‑
ber State authorities to incorporate 
the following elements into the design 
of the procedures for selecting and 
supervising ERDF co‑financed incuba ‑
tor projects:
(a) In the project selection criteria, 
greater emphasis should be placed 
on the expected results of the pro ‑
jects rather than on the delivery of 
physical outputs.
(b) During the project assessment 
process and when contractual ob ‑
ligations are being defined, more 
use should be made of expert 
knowledge of business incubation 
activities.
(c) The level of public support should 
be based on the defined results 
forecast for the incubator pro ‑
ject. The value of ERDF payments 
should be linked to the results 
achieved by the incubator.
(d) The sustainability period should 
be adjusted to correspond to the 
actual life cycle of the business 
incubator assets co‑financed by 
the ERDF.The Commission did not take 
sufficient steps to facilitate 
the exchange of knowledge 
and good practices
85 
Although the Commission has made 
some effort to obtain knowledge 
about the activities and characteris ‑
tics of a large population of business 
incubators in Europe, the support 
which it offers does not capitalise on 
this. The recently published ‘Smart 
guide’ provides a valuable overview 
of the principles of incubation, but it 
is not sufficiently detailed and it omits 
important data concerning the incuba ‑
tion process, e.g. benchmarking data 
for key indicators. The Commission’s 
activities in disseminating relevant 
knowledge and promoting good prac ‑
tices were too limited to mitigate the 
risk of failure for recently established 
co‑financed incubators.
Recommendation 3
The Commission should:
(a) update its knowledge concerning 
the effectiveness and efficiency of 
business incubation, and should 
apply this knowledge with a view 
to ensuring that ERDF support is 
well‑adapted to the needs of the 
business incubation sector;
(b) resume its efforts to support the 
community of business incubators, 
and in particular those in receipt of 
EU support, for instance by organ ‑
ising knowledge and experience 
exchange with responsible bodies 
in Member States. The initiative 
should target all business incuba ‑
tors, which could present their 
success stories, exchange knowl ‑
edge and access peer support at 
European level.
33 Conclusions and recommendations
This Report was adopted by Chamber II, headed by Mr Henri GRETHEN, Member 
of the Court of Auditors, in Luxembourg at its meeting of 9 April 2014.
For the Court  of Auditors
Vítor  Manuel  da SILVA  CALDEIRA
President

34
 Annex
List of audited incubators
Name of the incubator Visited Surveyed
Czech Republic
Agentura pro ekonomický rozvoj Vsetínska, o.p.s. Podnikatelský inkubátor Vsetín
BIC Ostrava spol.s r.o.
Podnikatelský inkubátor Nymburk příspěvková organizace
South Moravian Innovation centre
STEEL IT Třinec Institut EuroSchola, o.s.
TechnoPark Pardubice, k.s.
Vědeckotechnický park Plzeň, a.s.
Vědeckotechnický park Roztoky Trigema a.s.
VŠB–TU Ostrava
VÚSH, a.s. Podnikatelský inkubátor Brno-JihX
X
X
X
XX
X
X
X
X
X
X
X
X
X
Germany
BGI Biotechpark Gatersleben Infrastrukturgesellschaft mbH
Merseburger Innovations- und Technologiezentrum GmbH
Mitteldeutsches Multimediazentrum Halle GmbH
TechnologieZentrum Dresden GmbH
TGZ Halle Technologie- und Gründerzentrum Halle GmbHX
X
X
X
X
Italy
2i3T Società per la gestione dell’Incubatore di Imprese e per il Trasferimento Tecnologico dell’Università’ 
degli Studi di Torino
BIC Pieve di Bono
Bioindustry park Silvano Fumero Spa
Incubatore Comune di Ultimo
Incubatore universitá degli studi di Firenze (strutture di Via Nizza e Strada del Drosso)
Pépinière d’Entreprises Espace Aosta
Polo Scientifico e Tecnologico di Navacchio
Sistema di incubazione policentrico metropolitano Comune di Firenze
Tecnogranda SpaX
X
X
X
X
X
X
X
X
Poland
Agencja Rozwoju Regionalnego S.A. Beskidzki Inkubator Technologiczny w Bielsku-Białej
Akademicki Inkubator Przedsiębiorczości Sp. z o.o.
Bełchatowsko – Kleszczowski Park Przemysłowo – Technologiczny
Fundacja Uniwersytetu im. A.Mickiewicza w  Poznaniu
Inkubator Tecnologiczny ARTERION/Fundacja Wspierania Przedsiębiorczości i Nauki
Łódzki Regionalny Park Naukowo-Technologiczny Sp. z o.o.
Śląski Park Przemysłowo — Technologiczny Sp. z o.o.
Stowarzyszenie Inicjatyw Społeczno — Gospodarczych Inkubator Technologiczny w Białogardzie
Wrocławski Park Technologiczny S.A.X
X
X
X
X
XX
X
X
X
X
X
X
X
XAnnex
35 Annex
Name of the incubator Visited Surveyed
Spain
BIC Granada
Parque Tecnológico de Andalucía
Vivero de empresas de Badajoz
Vivero Castilleja de la Cuesta
Vivero de Azuaga
Vivero de Plasencia
Vivero de Puertollano
Vivero de Vigo
Vivero Nuevo Torneo Sevilla
Vivero de Alcala de Guadaira
Vivero Salamanca
Vivero Talavera de la ReinaX
X
X
X
X
X
XX
X
X
X
X
X
X
X
X
United Kingdom
Chester Innovation Economy Centre
Core Technology Facility
Daresbury Incubator
InfoLab21
Power Technologies Innovation Centre
Technium Springboard
The Media Factory
Swansea Technium II
Aberystwyth Technium
PONTIO — Bangor UniversityX
X
X
X
X
X
X
X
XX
X
X
X
X
X
XAnnex
36
Executive summary
I
Improving SME competitiveness requires a combin ‑
ation of financial and non ‑financial support and an 
SME‑ friendly legal and administrative framework. It 
is reflected in the regulatory framework for the new 
2014–20 programming period accordingly. Support 
for SME competitiveness is a top priority for the 
European Structural and Investment Funds (ESIF). 
The new generation of programmes harbours the 
opportunity to revise and better target SME sup ‑
port and to develop a comprehensive and coherent 
policy mix that makes full use of the range of instru ‑
ments available, including financial instruments, 
SME support services and public procurement 
possibilities.
Common reply to III and IV
The Commission welcomes the Court’s conclusion 
concerning the ERDF financial contribution to the 
creation of business infrastructure.
The Commission notes that the classification of the 
performance of the audited incubators as mod ‑
est is based upon the comparison of the results of 
these more recently established incubators with the 
benchmarks set by well ‑established, more mature 
incubators. 
In particular, in the Member States that joined the 
EU in and after 2004, this kind of business infra ‑
structure was missing in the past and is only being 
built now, also with Structural Funds support. Not 
much experience, therefore, has been gained and 
further efforts should be made to better learn how 
to effectively use these infrastructures to support 
adequately new business ideas/new start ‑ups.
IV
The benchmarks presented in the reports of the 
European Commission Business and Innovation 
Centre and International Association of Science 
Parks and Areas of Innovation would help in com ‑
plementing the assessment with additional data. Reply  of the  
Commission
V
The reform of cohesion policy for 2014–20 will pro ‑
vide the committee monitoring the respective oper ‑
ational programmes with the necessary incentives 
to approve selection criteria ensuring maximum 
impact for this type of investment. Countries and 
regions will have to decide up front what objectives 
they intend to achieve with the available resources 
and identify precisely how they will measure pro ‑
gress towards those goals for each priority axis. This 
will allow regular monitoring and debate on how 
financial resources are used. 
VI
The European Commission created the European 
Commission Business and Innovation Centre (EC ‑
BIC) in 1984. Since then, it has provided continu ‑
ous support through the EC ‑BIC quality insurance 
system. 
To increase the knowledge of managing author ‑
ities in the field, the European Commission drafted 
‘A guide to regional innovation strategies (RIS).’ In 
addition, the Commission provided guidance based 
on the experience of the different generations of 
regional innovation strategies. Furthermore, guid ‑
ance was issued by supported projects/networks. 
The Commission has developed many initiatives to 
encourage this, including ‘Regions for economic 
change’ (started in 2006). This is a learning platform 
for EU regions that includes the annual ‘Regions 
for economic change’ conference and RegioStars 
awards, a policy learning database and inter ‑
regional fast track networks, funded by the Interreg 
IVC and urbact II programmes.
The Commission adopted in June 2008 the Small 
Business Act (SBA), a comprehensive SME policy 
framework for the EU and its Member States. 
The SBA includes entrepreneurship as a priority 
area and has put in place a more comprehensive 
approach for tackling the full range of barriers to 
entrepreneurship at EU and national levels. This 
work has been re ‑enforced by the ‘Entrepreneur ‑
ship 2020’ action plan adopted in early 2013. Within 
this overall framework, the Commission has contin ‑
ued to support the BIC quality mark scheme. 
Reply of the Commission 37
VII (a)
The Commission fully supports the need to estab ‑
lish business incubators on the basis of detailed and 
realistic business plans. They should be integrated 
in the overall regional development strategy and 
Member States are strongly encouraged to enforce 
smart specialisation strategies
VII (b)
Skills, in particular in Member States which joined 
in and after 2004, to incubate business activities 
are currently being built and the main driver is the 
need to ensure the financial sustainability of the 
incubation infrastructure which has just been built. 
These skills did not exist before and newly built 
incubation infrastructure is triggering the process 
of building the skills.
VII (c)
The Commission agrees. The 2014–20 programming 
period makes incubator activities conditional on the 
existence of an appropriate development strat ‑
egy. Incubators are erected primarily to foster the 
indigenous economic development of a region and 
to respond to the needs and potential identified by 
the economic (or innovation) strategy. 
VII (d)
The Commission agrees. The Commission will advise 
Member States to include the recommendation of 
the Court as a requirement to be taken into consid ‑
eration when selecting operations and preparing 
support contracts between intermediate bodies 
and the management of incubation facilities.VII
Within the framework for cohesion, the Commission 
is not involved in the selection of projects, except 
for the approval of major projects.
The new regulatory framework for 2014–20 never ‑
theless ensures from the start that, through the 
content of the adopted programmes and the 
intervention logic including results indicators for 
objectivesand outputs encapsulated in priority 
axes, the selection of projects will be done by Mem ‑
ber States as far as possible according to the Court’s 
recommendation. 
Also, based on the performance framework estab ‑
lished for each operational programme, the Com ‑
mission will be in a position to encourage and 
review the performance of programmes through 
milestones and indicators. Where there is evidence 
resulting from a performance review that a prior ‑
ity has failed to achieve the milestones set out and 
that the Member State has not taken the neces ‑
sary steps to rectify the problem, the Commission 
may suspend all or part of an interim payment or 
apply ultimately financial corrections. The per ‑
formance reserve should not be allocated to such 
programmes.
Under the 2014–20 legal framework, the Commis ‑
sion is also strengthening the  ex ante  condition ‑
alities for the funds to ensure that the necessary 
conditions for their effective implementation are 
in place. As regards SMEs, the ex ante  conditional ‑
ity refers to the specific actions carried out by the 
Member States to underpin the promotion of entre ‑
preneurship taking into account the Small Business 
Act.
In addition, the Commission, through its active 
and continuous work with the Member States, will 
advise managing authorities to include recom ‑
mendations of the European Court of Auditors in 
the selection process and the selection criteria for 
business incubators. A contribution to the expected 
results of the priority axis is now required to be 
included in the selection criteria.
Reply of the Commission 38
VII (h)
The Commission agrees. Expert knowledge in 
business incubation, particularly in Member 
States which joined in and after 2004, has been 
built mainly through learning by doing. It is now 
more probable that experts can be found in these 
countries who have some experience in incubation 
and can disseminate their knowledge to train other 
actors involved in incubation, like, for example, 
labour offices. The Commission will advise Member 
States to follow this recommendation.
VII (i)
The Commission agrees in principle. The ERDF con ‑
tribution to the project is based on a cost–benefit 
analysis derived from the business plan. The results 
of a business incubator can, however, be influenced 
by external factors that cannot always be known in 
advance and by the level of public sector support 
per job created. Linking ERDF payments with results 
would be challenging for this reason.
VII (j)
The Commission disagrees. The Commission con ‑
siders that the sustainability period as defined 
by the Court should correspond to the durability 
period of the operations as defined in Article 71 of 
the common provisions regulation (CPR — Regula ‑
tion (EU) No 1303/2013). There is no legal basis for 
the Commission to impose an adjustment of the 
durability period to the actual life of the business 
incubator assets beyond the 5 years.
In that context, the Commission takes note of the 
good practices identified by the Court in some 
Member States.
VII (k)
The Commission recognises the need to continue 
updating the knowledge. In 2014, the Commission 
will publish a report on ‘Setting up, managing and 
evaluating EU science and technology parks’ which 
will provide advice and guidance and will be dis ‑
seminated to managing authorities.VII (e)
The Commission agrees in principle, but, in line with 
the subsidiarity principle, this recommendation is 
more for the Member States to consider, depending 
on the objectives pursued to foster endogenous 
economic growth. The Commission will recom ‑
mend that Member States encourage incubators 
to open their services to non ‑resident companies 
with a well ‑defined strategy to ensure benefits for 
the local business community. The Commission will 
also recommend that the Member States estab ‑
lish networking and links with other incubators 
to foster knowledge exchange and to encourage 
co‑incubation, notably across borders within the EU 
and beyond.
VII (f)
The Commission agrees. The Commission will rec ‑
ommend that Member States encourage incubators 
to set up such a monitoring system without increas ‑
ing the administrative burden on supported clients. 
Given that some business entities treat business 
information as confidential, this can be done only 
on a voluntary basis.
Under shared management of Structural Funds, 
there is no legal basis for the Commission to expli ‑
citly require the incorporation of these elements 
into the design of procedures. 
The Commission, in its supervisory role, will encour ‑
age Member States to follow the cited recom ‑
mendation. However, under shared management 
Member States are responsible for selecting, imple ‑
menting and monitoring projects.
The Commission considers that the Court’s recom ‑
mendations under (g) and (j) should be addressed 
to the Member States.
VII (g)
The Commission agrees. This is in line with the  
results orientation of the reformed cohesion policy 
and the European Commission will advise that this 
recommendation be included in the relevant selec ‑
tion criteria.
Reply of the Commission 39
Observations
Common reply for paragraphs 21 to 23
The Commission welcomes the Court’s assessment.
26
The size of the incubators is one of many factors 
ensuring comparability between the effectiveness 
of the ERDF audited incubators in relation to the 
benchmarked population. The Commission would 
like to highlight that other external factors are also 
important, such as a regional economy, a profile of 
incubators and the type of businesses accommo ‑
dated, and the principles of market failures.
The primary role of the ERDF incubators is to foster 
the development of start ‑ups. Support offered to 
businesses beyond the scope of physical incubation 
can be achieved by other means. As an example, 
business support in the UK is often provided by 
service companies which offer a wide variety of 
business advice.
27
As regards the example given by the Court, the 
Commission notes that the cost per job created 
to assess the incubator’s efficiency can vary from 
country to country as the start ‑up costs, deprecia ‑
tion and accounting policies as well as salary level in 
different Member States impact upon this indicator. 
28
The relative underperformance of ERDF‑supported 
incubators in the Court’s sample can also be 
ascribed to the fact that BIC incubators are subject 
to the quality check of EC ‑BIC’s certification scheme. 
See also the reply to paragraph 16. 
29
Internal performance depends on management 
skills, organisation and the motivational and local 
innovation systems. The Commission will recom ‑
mend that Member States implement accreditation 
or quality systems in ERDF ‑inanced incubators. VII (l)
The Commission agrees and underlines that the 
new orientation of the Enterprise Europe Network 
(EEN) (2015–21) already takes account of these 
recommendations. The EEN will play a role in con ‑
necting regional SME support services (including 
incubators) to good practice at European level. 
Enterprise Europe Network partners in the current 
network are also required to cooperate with other 
European networks and to put in place actions such 
as joint promotion and signposting.
Introduction
01
The Commission reflected the important role which 
the SMEs play in the economy in the regulatory 
framework for the new 2014–20 programming 
period: the SMEs should be primarily supported 
from the European Structural and Investment 
Funds.
Audit scope and objectives
16
The Commission welcomes the Court’s recognition 
that the EBN’s certification scheme, supported by 
the Commission, fosters best practice. ERDF co ‑
funded incubators in the Court’s sample are com ‑
pared with EC ‑BIC incubators which are certified on 
the basis of a wide range of criteria. 
Reply of the Commission 40
37
Incubators go through different stages of the life 
cycle and their provisions depend on their maturity 
and the ecosystem they are operating in. Although 
the Commission shares the view that a broad 
range of services should be offered to enable 
smooth incubation, the services to be offered are 
developing over time in line with the life cycle of 
incubators. 
38
The ERDF supported the construction of business 
incubators but there was a lack of focus on the coop ‑
eration among businesses and business incubators. 
In Member States that joined EU in 2004 and after, 
it is caused by lack of business knowledge (business 
planning, management skills etc.) on both sides, on 
the side of business incubators (new infrastructure 
and no skilled labour to manage it) and on the side 
of enterprises. The same is valid for EU ‑15 Member 
States where the investments aimed to complement 
the mission innovation system infrastructure.
Furthermore, hosted companies are not compelled 
to collaborate with the incubator’s staff as they 
might resort to external services in order to estab ‑
lish their development plan. Sharing sensitive data 
might have negative consequences for the hosted 
companies unless a confidentiality agreement is 
signed.
Business services can be commissioned from out ‑
side service providers instead of entrusting them to 
the incubator staff.
39
The Commission refers to its reply to paragraph 38.
40
As pointed out by the Court, clients are attracted 
by subsidised office space rather than by services 
provided. Tenants should be carefully selected 
and reflect a profile set out in the incubation 
programme. As the selection of projects and the 
definition of selection criteria fall within national 
competences, the Commission will recommend that 
Member States consider these aspects.32
The Commission welcomes the Court’s assessment 
that 22 out of 27 projects audited had prepared 
a business plan in line with the obligations arising 
from the legislation governing ERDF support.
The Commission acknowledges that in some cases 
business plans, although in line with the formal 
selection criterion, lacked quantifiable objectives 
and appropriate results indicators. However, under 
shared management, the selection of projects is 
the responsibility of the Member States. This means 
that when selecting the business incubators, it 
should have been primarily the Member State (the 
managing authority) verifying the quality of project 
application and supporting documents (e.g. quality 
of business plans). 
33
As recalled in the reply to paragraph 32, the selec ‑
tion of projects under shared management is the 
responsibility of the Member States. It is neither the 
role of the Commission nor within its capacity to 
verify all these details for each project application. 
34
In some Member States, especially Member States 
that joined the EU in and after 2004, a predominant 
focus was given to the construction of the physical 
infrastructure because of a lack of previous experi ‑
ence in the implementation of business incubators. 
In order to have a fully operational business incu ‑
bator, time and well ‑performing local innovation 
ecosystems are required. This is the process which is 
going to be enforced with the new result ‑orientation 
approach of cohesion policy.
36
As explained in paragraph 34, the business infrastruc ‑
ture (e.g. business incubators) is underdeveloped in 
the majority of Member States that joined the EU in 
and after 2004. The ERDF supported the construction 
of business incubators and provision of basic ‘soft 
services’ for the  newly in the 2007–13 period. Soon it 
became evident that the support of ‘soft services’ was 
underestimated and improvements are planned for 
the 2014–20 programming period.
Reply of the Commission 41
48
The role played by incubators in a region’s business 
infrastructure differs, depending on Member States 
and each specific national context. 
In the new programming period, the elabora ‑
tion of a smart specialisation strategy, including 
a wide consultation of innovation players, is a pre ‑ 
condition for accessing ERDF support.
49
As a contribution to the expected results of the 
priority axis is now required to be included in the 
selection criteria, the Commission will advise the 
managing authorities to include the recommenda ‑
tion of the European Court of Auditors concerning 
the establishment of a monitoring system in each 
business incubator in the selection process and 
selection criteria.
53
Incubation activity should be sustainable after the 
ERDF co ‑financing comes to an end. The sustain ‑
ability criterion is embedded in the project selec ‑
tion criteria. In line with the principle of sound 
financial management, the continuity of the oper ‑
ation should be ensured without full reliance on 
public financing.
56
An incubator provides primarily rental space for 
hosted companies, especially at an early stage 
of its business life cycle. In order to ensure finan ‑
cial viability, potential applicants are welcome to 
occupy the available space.
The Commission also considers that one of the pri ‑
mary objectives of ERDF‑supported incubators was 
to create jobs and not only high ‑tech SMEs.41
Specialist services can be offered by outsiders as in ‑
house services are of a more general nature. Build ‑
ing the expertise of incubator staff can be costly 
and the incubator might never reap the desired 
benefits. 
43
The Commission considers that the lack of cooper ‑
ation between incubators and clients may be 
a direct consequence of the client’s reluctance to 
share sensitive data.
44
The Commission considers that disbursed EU funds 
have a positive impact on the development of 
en tities which are not physically located in the incu ‑
bator’s premises but use their services and cooper ‑
ate with tenants.
45
The business incubators have been only set 
up in Member States which joined in and after 
2004 in this programming period and time was 
then needed to develop further the cooperation 
between the incubator and its clients and also with 
prospective clients. Another factor which limited 
the cooperation was the quality of the staff manag ‑
ing the business incubators that often possessed 
insufficient business skills. Lastly, some incubators 
lacked the organisational capacity to provide pre ‑
incubation support while providing such support 
usually requires additional own resources.
The same is valid for EU ‑15 Member States where 
the investments aimed to complement the creation 
of an innovation system infrastructure.
47
Weak cooperation between the business sector, 
universities and R & D institutions is well known in 
the Member States which joined the EU in 2004 and 
after and the Commission has been attempting to 
solve this issue in the current programming period 
by establishing proper coordination mechanisms 
where possible. This issue then has an impact on the 
activities of business incubators and their attempts 
to network with R & D and university partners.
Reply of the Commission 42
60
For the 2014–20 programming period, the Commis ‑
sion is requesting Member States to fulfil ex ante  
conditionality to put in place a smart specialisa ‑
tion strategy which shall be developed through 
an entrepreneurial discovery process with a very 
closed involvement of enterprises to meet research 
strengths with business needs.
Common reply to paragraphs 62  
to 62(c)
Under the 2007–13 legal framework, the project 
assessment and selection process falls under the 
responsibility of national authorities, the manag ‑
ing authority and the monitoring committee, with 
the Commission having only an advisory role in the 
latter. 
Under the 2014–20 legal framework, the contribu ‑
tion of an operation to the expected results of 
a priority axis is now required to be included in the 
selection criteria.
62(d)
Investments in business incubators are more of an 
enabler than a driver of growth. Business incubators 
cannot generate economic growth by themselves; 
they need to be combined with other external 
factors. In addition, the interventions may have 
significant externalities, having both negative and 
positive influences on the development of a region. 
Therefore, establishing a direct link between the 
investment in a business incubator and regional 
benefits requires in ‑depth evaluation.
The Commission assesses the stated objectives of 
the priority axes of operational programmes. This 
may not only be jobs created but also, for example, 
new products developed or exports generated.
64
As regards Member States which joined in and after 
2004, they are still (continuously) learning how 
to properly define indicators and evaluate their 
implementation. This also has implications for the 
monitoring of business incubators, which are newly 
built business infrastructures.58
The incubator’s provisions can be viewed from two 
perspectives: services provided and premises. As far 
as premises are concerned, the ERDF has achieved 
the objective of providing suitable office space. The 
service function can be delivered by outside service 
providers. 
Lack of external funding is a frequent issue when 
supporting SMEs or R & D activities. The business 
incubators were built in regions and after the 
sustainability period as defined in the ERDF regula ‑
tion they were allowed to switch to other activities. 
This was primarily caused by improper definition 
of selection criteria; therefore, in the new program ‑
ming period, and in line with the subsidiarity prin ‑
ciple, the Commission will recommend that manag ‑
ing authorities pay more attention to this aspect in 
particular, by establishing more demanding selec ‑
tion criteria in the operation selection process.
59
Under the shared management, the Commission is 
not involved in the selection of projects, except for 
the approval of the major projects.
Indeed, as laid down in Article 125 of the CPR, 
establishing selection criteria falls under the 
responsibility of the managing authority, with the 
approval of the monitoring committee. 
According to Article 48(3) of the CPR, the Commis ‑
sion shall participate in the work of the monitoring 
committee but only in an advisory capacity. 
The European Commission will therefore advise the 
managing authorities to include recommendations 
of the European Court of Auditors in the selection 
process and selection criteria of business incuba ‑
tors. Also, a contribution to the expected results of 
the priority axis is now required to be included in 
the selection criteria. 
Reply of the Commission 43
In order to be awarded this trademark, BICs must 
go through an accreditation process to check their 
compliance with the specific criteria for this trade ‑
mark (EBN quality system). 
The sublicensing of this trademark has been man ‑
aged by the EBN since 2002 under a trademark 
licensing contract concluded with the Commission. 
The current licensing contract was concluded in 
2009 for a duration of 5 years and the Commission is 
currently considering the options for the future. The 
EBN will be invited to step up actions to promote its 
benchmarking scheme more widely and encourage 
further uptake.
75(b)
The database of incubators was implemented in 
the context of a networking project for incubators 
financed under FP6 alongside similar networking 
projects for technology transfer offices and for risk 
funds. In the programme committees for the CIP , 
Member States increasingly questioned the value of 
pure ‘networking projects’ and called for projects 
supporting ‘cooperation around topics’ of com ‑
mon interest such as ‘standardisation and innova ‑
tion’ and ‘innovation in services’. In these projects, 
a vertical integration of different innovation actors 
(SMEs, entrepreneurs, academia, administration, 
etc.) was given preference over networking with 
similar organisations across Europe. For incubators, 
the EurOffice 1 + 2 projects (today the EBN soft ‑
landing club) implemented this new approach to 
work more closely with the community rather than 
expanding it. The projects developed and tested 
coordinated service packages among participating 
incubators assisting a fast internationalisation of 
their tenant start ‑ups. 
Furthermore, although there is no longer a bench ‑
marking, entrepreneurs can easily access informa ‑
tion on individual incubators directly from their 
websites, due to improvements in web ‑related 
technologies.
1 Decisions to grant the EC ‑BIC licence to new candidate 
organisations; renewal or withdrawal of existing licences; selection 
of the BICs to be audited; suggestion of changes to the EC ‑BIC 
certification and quality system; changing and adopting its internal 
regulations.66
The Commission notes that although the system of 
project selection, which falls under the responsibil ‑
ity of the Member States, was correct, it did not 
assure that the level of co ‑financing was propor ‑
tionate to the impact on local entrepreneurship. 
A set of indicators was established by managing 
authorities to monitor the operational programme 
performance in its implementation and not in 
operations. The Commission will recommend that 
Member States put more emphasis on the monitor ‑
ing of operations.
68
The Commission refers to its reply given under 
paragraph 66.
70
The recommendation made by the Court goes 
beyond the regulatory obligation of the ERDF regu ‑
lation, which sets 5 years as the durability period. 
71
There is no legal basis for the Commission to 
impose additional obligations to beneficiaries as 
regards incubation activities beyond the 5 ‑year 
sustainability period. 
It is the responsibility of national authorities to 
decide, in the selection criteria and in conditions for 
providing the grant to the project, on the extension 
of the sustainability period beyond the duration 
laid down in the relevant regulation.
75(a)
The former benchmarking exercise was contin ‑
ued via a more targeted action to benchmark and 
stimulate best practice in European incubators 
applying for accreditation under the EC ‑BIC trade ‑
mark scheme and those wishing to continue their 
membership. In its capacity as owner of the EC ‑BIC 
trademark and member of the BIC Quality Mark 
Committee (BQMC)1, the Commission contributes 
to the work to encourage business and innovation 
centres (BICs) throughout Europe and beyond to 
enhance their quality and practices, with a view to 
obtaining the EC ‑BIC trademark. 
Reply of the Commission 44
82
Incubators have different stages of life cycle and 
their offer depends on their maturity and ecosys ‑
tem they are operating in. Although the Commis ‑
sion shares the view that a broad range of services 
should be offered to enable smooth incubation, the 
services to be offered are developing over time in 
line with the life cycle of the incubators.
Recommendation 1
Under the framework for cohesion, the Commission 
is not involved in the selection of projects, except 
for the approval of major projects.
The new regulatory framework for 2014–20 never ‑
theless ensures from the start that, through the 
content of the adopted programmes and the 
intervention logic including results indicators for 
objectives and the outputs encapsulated in priority 
axes, the selection of projects will be done by Mem ‑
ber States as far as possible according to the Court’s 
recommendation. 
Also, based on the performance framework estab ‑
lished for each operational programme, the Com ‑
mission will be in a position to encourage and 
review the performance of programmes through 
milestones and indicators. Where there is evidence 
resulting from a performance review that a prior ‑
ity has failed to achieve the milestones set out and 
that the Member State has not taken the neces ‑
sary steps to rectify the problem, the Commission 
may suspend all or part of an interim payment or 
apply ultimately financial corrections. The per ‑
formance reserve should not be allocated to such 
programmes.
Under the 2014–20 legal framework, the Commis ‑
sion is also strengthening the ex ante  conditional ‑
ities for the funds so as to ensure that the necessary 
conditions for their effective implementation are 
in place. As regards SMEs, the ex ante  conditional ‑
ity refers to the specific actions carried out by the 
Member States to underpin the promotion of entre ‑
preneurship taking into account the Small Business 
Act.77
The Commission is systematically preparing guid ‑
ance so that it can be used in the 2014–20 program ‑
ming period. Member States are also obliged to 
submit an annual implementation report for each 
operational programme every year, which gives 
an overview of performance of implementation of 
Structural Funds.
78
The Commission recognises the need to continue 
updating the knowledge. In 2014, it will publish 
a report on ‘Setting up, managing and evaluat ‑
ing EU science and technology parks’, which will 
provide advice and guidance, and which will be 
disseminated widely to managing authorities in the 
coming months.
Conclusions and recommendations
80
The Commission notes that the classification of the 
performance of the audited incubators as mod ‑
est is based upon the comparison of the results of 
these more recently established incubators with the 
benchmarks set by well ‑established, more mature 
incubators.
In general, incubators in the Court’s sample were 
relatively less well staffed than those in the bench ‑
mark in all key functions, including entrepreneur 
guidance and support.
81
The Commission shares the Court’s opinion con ‑
cerning the lack of experience of some incubators. 
In the Member States that joined the EU in and 
after 2004, this kind of business infrastructure was 
missing in the past and is only being built now, also 
with Structural Funds support. Therefore not much 
experience has been gained and further efforts 
should be made to better learn how to effectively 
use these infrastructures to support new business 
ideas/new start ‑ups adequately.
Reply of the Commission 45
Recommendation 1(e)
The Commission agrees in principle, but, in line with 
the subsidiarity principle, this recommendation is 
more for the Member States to consider, depending 
on the objectives pursued to foster endogenous 
economic growth. The Commission will recom ‑
mend that Member States encourage incubators to 
open their services to non ‑resident companies with 
a well ‑defined strategy to ensure benefits for the 
local business community. The Commission will also 
recommend that Member States establish network ‑
ing and links to other incubators to foster knowl ‑
edge exchange and to encourage co ‑incubation, 
notably across borders within the EU and beyond.
Recommendation 1(f)
The Commission agrees. The Commission will rec ‑
ommend that Member States encourage incubators 
to set up such a monitoring system without increas ‑
ing the administrative burden on supported clients. 
Given that some business entities treat business 
information as confidential, this can be done only 
on a voluntary basis.
83
The ERDF supported the construction of business 
incubators and the provision of basic ‘soft services’ 
newly in the 2007–13 period. It soon became evi ‑
dent that the support of ‘soft services’ was under ‑
estimated and improvements are planned for the 
2014–20 programming period.
The Commission will recommend that the manag ‑
ing authorities pay more attention to this aspect in 
particular, by establishing more demanding selec ‑
tion criteria in operation selection process for the 
2014–20 programming period.In addition, the Commission, through its active 
and continuous work with the Member States, will 
advise managing authorities to include recom ‑
mendations of the European Court of Auditors in 
the selection process and the selection criteria for 
business incubators. A contribution to the expected 
results of the priority axis is now required to be 
included in the selection criteria. 
Recommendation 1(a)
The European Commission fully supports the need 
to establish business incubators on the basis of 
detailed and realistic business plans. They should 
be integrated in the overall regional development 
strategy and Member States are strongly encour ‑
aged to enforce smart specialisation strategies 
which are developed.
Recommendation 1(b)
Skills, in particular in Member States which joined 
in and after 2004, to incubate business activities are 
currently being built and the main driver is the need 
to ensure the financial sustainability of the incuba ‑
tion infrastructure which has just been built. These 
skills did not exist before and newly built incuba ‑
tion infrastructure triggers the process of building 
the skills.
Recommendation 1(c)
The Commission agrees. The 2014–20 program ‑
ming period makes incubator activities conditional 
on the existence of an appropriate development 
strategy. Incubators are erected primarily to foster 
the endogen ous economic development of a region 
and to respond to the needs and potential ident ‑
ified by the economic (or innovation) strategy. 
Recommendation 1(d)
The Commission agrees. The Commission will advise 
Member States to include the recommendation of 
the Court as a requirement to be taken into consid ‑
eration while selecting operations and preparing 
support contracts between intermediate bodies 
and the management of incubation facilities.
Reply of the Commission 46
Recommendation 2(c)
The Commission agrees in principle. The ERDF con ‑
tribution to the project is based on a cost–benefit 
analysis derived from the business plan. The results 
of a business incubator can, however, be influenced 
by external factors that cannot always be known in 
advance and by the level of public sector support 
per job created. Linking ERDF payments with results 
would be challenging for this reason. 
Recommendation 2(d)
The Commission disagrees. The Commission consid ‑
ers that the sustainability period as defined by the 
Court should correspond to the durability period of 
the operations as defined in Article 71 of the CPR. 
There is no legal basis for the Commission to impose 
an adjustment of the durability period to the actual 
life of the business incubator assets beyond the 5 
years.
In that context, the Commission takes note of the 
good practices identified by the Court in some Mem ‑
ber States.
85
The European Commission created the European 
Commission Business and Innovation Centre (EC ‑BIC) 
in 1984. Since then, it has provided continuous sup ‑
port through the EC ‑BIC quality insurance system. 
To increase the knowledge of managing author ‑
ities in the field, the European Commission drafted 
‘A guide to regional innovation strategies (RIS).’ In 
addition, the Commission provided guidance based 
on the experience of the different generations of 
regional innovation strategies. Furthermore, guid ‑
ance was issued by supported projects/networks. 
The Commission has developed many initiatives to 
encourage this, including the ‘Regions for economic 
change’ (started in 2006). It is a learning platform 
for EU regions that includes the annual ‘Regions 
for economic change’ conference and RegioStars 
awards, a policy learning database and interregional 
fast track networks, funded by the Interreg IVC and 
Urbact II programmes.84
The Commission considers that the ECA statement is 
addressed to entities outside the remit of the Com ‑
mission, namely the Member States.
There is no legal basis for the Commission to impose 
additional obligations on beneficiaries as regards 
incubation activities beyond the 5 ‑year durability 
period. 
It is the responsibility of national authorities to 
decide, in the selection criteria and in the conditions 
for providing the grant to the project, on the exten ‑
sion of the durability period beyond the duration laid 
down in the relevant regulation.
Recommendation 2
Under shared management of Structural Funds there 
is no legal basis for the Commission to explicitly 
require the incorporation of these elements into the 
design of procedures. 
The Commission, in its supervisory role, will encour ‑
age Member States to follow the cited recommenda ‑
tion. However, under shared management Member 
States are responsible for selecting, implementing 
and monitoring projects.
The Commission considers that the Court’s recom ‑
mendations under (a) and (d) should be addressed to 
the Member States.
Recommendation 2(a)
The Commission agrees. This is in line with the results 
orientation of the reformed cohesion policy and the 
Commission will advise that this recommendation be 
included in the relevant selection criteria.
Recommendation 2(b)
The Commission agrees. Expert knowledge in busi ‑
ness incubation, particularly in new Member States, 
has been built mainly through learning by doing. It 
is now more probable that experts can be found in 
these countries who have some experience in incu ‑
bation and can disseminate their knowledge to train 
other actors involved in incubation like, for example, 
labour offices. The Commission will advise Member 
States to follow this recommendation.
Reply of the Commission 47
The Commission adopted in June 2008 the Small 
Business Act (SBA), a comprehensive SME policy 
framework for the EU and its Member States. 
The SBA includes entrepreneurship as a priority 
area and has put in place a more comprehensive 
approach for tackling the full range of barriers to 
entrepreneurship at EU and national levels. This 
work has been re ‑enforced by the ‘Entrepreneur ‑
ship 2020’ action plan adopted in early 2013. Within 
this overall framework, the Commission has contin ‑
ued to support the BIC quality mark scheme. 
Recommendation 3(a)
The Commission recognises the need to continue 
updating the knowledge. In 2014, it will publish 
a report on ‘Setting up, managing and evaluating 
EU science and technology parks’ which will pro ‑
vide advice and guidance and will be disseminated 
to managing authorities.
Recommendation 3(b)
The Commission agrees and underlines that the 
new orientation of the Enterprise Europe Network 
(ENN) (2015–21) already takes account of these 
recommendations. The EEN will play a role in con ‑
necting regional SME support services (including 
incubators) to good practice at the European level. 
Enterprise Europe Network partners in the current 
network are also required to cooperate with other 
European networks and to put in place actions such 
as joint promotion and signposting. 

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QJ‑AB‑14‑007‑EN‑C ISSN  1831 ‑0834
In recent years, the EU has co-financed business 
incubator projects in the context of its cohesion 
policy with the support of the European 
Regional Development Fund. This is in line with 
the EU’s political priorities, especially in view of 
the Lisbon and Europe 2020 strategies of 
supporting the launch and development of small 
and medium-sized enterprises (SMEs), as they 
play an important role in the creation of growth 
and jobs. In this report, the European Court of 
Auditors assesses whether these business 
incubator projects were successful in supporting 
start-up SMEs.
EUROPEAN
COURTOF AUDITORS