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Icehouse to target fewer start-ups in more focused programme

The Icehouse, a New Zealand business growth and start-up incubator, is cutting the number of start-up companies it focuses on in favour of a more in-depth programme designed to get kiwi companies into the international marketplace.

The Auckland-based global business incubator will focus each year on a maximum of 25 small to medium sized enterprises, down from an annual average of 75.

Fledgling companies approved by its newly established Start-up Investment Committee will enter into The Icehouse Incubation Programme, receiving up to $250,000 in funding and be paired with a support manager from Icehouse.

"In the context of what we are trying to achieve, which is ultimately to create more jobs and create more wealth, it is an expansion. It is not really a contraction," Icehouse chief executive Andrew Hamilton told BusinessDesk. "What we're trying to do is dial up the start-ups that have great international potential that we can support with great expertise, networks and funding."

Tech-based start-ups which can be developed and brought to market quickly will be the main focus for incubator programme, and there will be no requirement for the businesses supported to remain based in New Zealand, although part of Icehouse's new focus is to create 25,000 New Zealand jobs by 2020.

In recent years, several government-assisted start-ups have been bought out by international companies, meaning intellectual property and control over market potential have headed offshore too.

For example, in 2010 NextWindow, the local touch screen developer which had been the poster child for New Zealand tech innovation, was bought out by a Canada's Smart Technologies for $82 million, only to be mothballed earlier this year.

"We don't see ourselves as an incubator for America," said Hamilton. "Ultimately the question is what is the source of their competitive advantage and can they maintain that? Is there a rationality for them having that source of competitive advantage in New Zealand or does it need to go where the market is?"

Last month, Microsoft bought out GreenButton, a Crown-funded cloud services start-up in which ICE Angels, Icehouse's partnered angel investor network, was a shareholder. The New Zealand Investment Fund, a government start-up investor, had held an 8.4 percent stake in GreenButton before the takeover, and said at the time investors had made a "very healthy return" on the buyout.

"The GreenButton situation is they (NZVIF) were a piece of the pie. They weren't the whole pie and for them to take that technology to scale required somebody large who cared deeply with big reserves to invest in the commercialisation of that technology," Hamilton said.

Icehouse's new start-up investment committee is a veritable who's-who of New Zealand entrepreneurs, to be chaired by Tim Williams, who took two companies public in Japan. Other advisors to join the incubator include: Adam Clark, co-founder of M-Com which was acquired by the world's largest banking technology provider, FiServ; Claudia Batten, whose own start-up was also snapped up by Microsoft; and Pumpkin Patch founder Sally Synott.

An equally high-powered International Advisory Board will help network in overseas markets, involving the likes of Sean Simpson, chief scientific officer and founder at emerging global bio-fuels innovator, Lanzatech, which is moving headquarters from Auckland to Illinois, and Vegas Valley Angels' Bill Payne, and a range of Asian investors.

By 2015, a new Icehouse Seed Fund is also planned to be established.

Icehouse was founded by the University of Auckland Business School and launched in 2001 and attracts both private and public sector funding to support its activity. It says it has created 880 jobs, produced $425 million in revenue and raised $170 million in investment capital, including $50 million of capital from partner ICE Angels.

(BusinessDesk)

More by Suze Metherell

Comments and questions
13

A few years ago they said we needed 3, 000 export competitive business and that was 4times what we had and they were stepping up to deliver 1, 000. Now they are cutting back. As Stephen Joyce wrote the incubators have failed to deliver.

Why then will they continue to be funded. Failed and now doing even less. This emperor has no clothes at least not as an incubator maybe as a business training provider they work.

The 3000 goal remains - also our committment to 1,000 of these - no cutting back. The stats released last week refer to what we do with startups. Since 2006, for every $ of Government investment in the Icehouse startup programmes, our startups have generated $72 of revenue. Also, last year for every $ of Government funding, our startups raised $48 of investment capital. This is clear proof that it is working. We will also be releasing impact data on the owner manager side of the business over the next few weeks.

Hey Andrew,

Possible to link to where this data comes from? Are you using one year of funding (say $900,000) and suggesting total revenue from all previous startups is ~$65 million? Are you multiplying the $900,000 by seven years? Are you using revenue from startups from before 2006? Data that you have plucked from the air is just not useful.

Also are you only using core government funding? Is there other non-core government funding that you receive? Do you charge the companies a 'rental' that is pulled from their grants? Are you including the 6% fee from capital raised from NZVIF? etc etc

Hey Anon

Data is from annual reporting by current and alumni startup clients who we survey on an annual basis to provide an analysis of our own performance and report back to our government funders. My measure is the combined annual income (revenues) generated by our clients each year since 2006. We do not analyse in depth pre 2006 because that is when we started collating the data.

Current government funding contributes towards our incubator operating costs. We charge clients 6% equity plus a fixed fee of around $1500 per month which is a proportion (approx. 25-33%) of the true market value of this assistance. We generate additional income via sector related activities such as sponsorships, capital raise services, market validation services.

The numbers mentioned in the article are revenues generated by our clients. Not fees paid by them to us so this excludes capitial raise fees etc.

So $65m of revenues over say 250 companies that they have worked with averages $260k each, hardly stellar, I assume if you back out maybe the top 10 companies you probably end up with $20m of revenues across the other 240 or an average of $80k.

Stephen Joyce in a cabinet paper said the current incubators had failed to deliver. They want a new model and the existing incubators were not to apply unless they gave up the current model. He said funding for the old model was only for 3 more years.

I would suggest he disagrees with your comments that you are delivering. I would suggest he is a little less biased. Also he is the customer so his views should count.

Why he did not just pull the plug who knows. Maybe too big a political risk.

Our interpretation was that the Government wanted to see more commercialisation of Government Funded IP from Uni's and CRIs and that the new model was an effort to focus on that. He never said the current model had failed, just there was an opportunity to add too what existed while improving the current.

All customers and stakeholders count - agreed, and if we can't hold up evidence of impact then it should not justify any support at all.

From our perspective when you see the impact on a daily basis, it is pretty easy to conclude that it is a model worth supporting - job creation, export growth and aspirations lifted - look at companies like Powerbyproxi, M-Com, Nexus6, eBus, Biomatters, Parrot Analytics and then the bunch that are emerging like Hydroxsys, Pitch-Metrics, Opia, OnSport, Pairtree and many more.

As you say however, if a customer does not want what we offer, we don't win - and if one of our core funders the Government which funds just under 50% of our revenues in the 'startup side' says 'no' then we have to change.

i suppose my reading of the following statement in the cabinet paper is different to yours.

"The policy intent of the existing Incubator Support Programme is to address New Zealand’s lack of high-growth potential firms by improving the chances of survival and growth of these firms through the provision of capability building services via incubators. While the Ministry of Business, Innovation and Employment evaluations have found improved business outcomes for some firms incubated under the existing Incubator Support Programme, comparatively low numbers of high-growth potential incubator graduates and low rates of technology transfer between universities and Crown research institutes (CRIs) and the incubators persist."

I think it basically reflects the fact that there has been under delivery. Even your own numbers of only one $50m + exit in 12+ years and out of 250 companies is evidence of that.

To meet the target of 1000 then the ICEHOUSE needs to _deliver_ 110.714285714 companies per year from now until 2020. Given the failure rate and the fact that the headline stats of sales and staff mentioned in the article are very loaded to 10-15 companies then I would imagine the ICEHOUSE needs to support more like 1000 companies per year to meet the target.

So yes the ICEHOUSE has repositioned (no issues with that) but there is no way the ICEHOUSE can deliver on the 1000 companies by 2020.

When we talk about 1,000 by 2020 - we are talking about all of the activities of the Icehouse - we will work with around 1,250 this year - accross startups and owner managers, clearly the larger portion is the owner manager firms which are established. We have 7 years and the ramp up is our BHAG - that is why over the last couple of years we have moved from 400-500 per annum up. What this latest move in the startup area says we think we can achieve better impact with a small number of startups. We need to work through how that will impact on the 1,000 goal - but it is the right thing to do. Our first responsibility is to help companies - startups and owner managers grow - one by one. The 1,000 goal is not theirs, it is ours. That is why we have added goals like job creation, revenue and export growth to the 2020 goals.

Andy, what happened before 2006?

What was the capital stats other than for the last year?

always easy to cherry pick the good years, one of the biggest issues with VC's they tend to report the good funds, good years and ignore the bad ones.

Why is there no transperancy of the overall performance?

Hi Anon

We simply didn’t start collecting data before 2006. With reference to capital raise for our Incubator graduates for each year since 2006 are:

2006 $7,697,504.00
2007 $13,296,664.77
2008 $15,360,609.79
2009 $23,384,682.48
2010 $19,896,039.40
2011 $13,562,551.14
2012 $34,583,770.23
2013 $44,397,400.40

We have no issue in taking the good with the bad the data is the data…we have had a great couple of years and expect that to continue. We operate with transparency to our government funders and also to our owners – a charitable trust focused on improving the performance and capability of New Zealand SME’s, which includes startups which we aim to grow into significant international successes such as M-Com, Power by Proxi, Nexus6, and eBus to name but a few.

Each year we publish and communicate the aggregate startup graduate performance and will next month do the same for our SME owner manager customers.

We are like our customers learning to communicate around the impact, beyond just tracking customer satisfaction and word of mouth marketing - we can do better and we will. We just don't want to end up having a whole team tracking performance rather than focusing on helping companies grow.

Thanks for the in depth replies andy