Network brokers or hit makers? Analyzing the influence of incubation on start-up investments

Abstract

Incubators are a prominent way to support technology based start-ups. Yet, it remains unclear to what extent these incubators enhance start-up performance, nor is it known through which mechanisms this would occur. In this paper we test two mechanisms to explain the relationship between incubation and the amount of investments raised by early stage start-ups as performance measure. The 'hit maker' mechanism refers to beneficial effects of the direct transfer of resources and organizational or business knowledge from the incubator to the start-up. The 'network broker' mechanism refers to the benefits that start-ups enjoy from being connected to external funding sources through the incubator's networks. We test which of these mechanisms contribute to the performance of early stage start-ups. Our data comes from a unique survey from 935 entrepreneurs with early-stage technology based start-ups in Western Europe and North America. We find that incubators have a positive effect on (1) the amount of funding that start-ups attract and (2) the ability of start-ups to attract funding from formal investors and banks. Moreover, our results provide evidence for the network broker mechanism, but not for the hit maker mechanism.

Determinants of Graduates' Start-Ups Creation across a Multi-Campus Entrepreneurial University: The Case of Monterrey Institute of Technology and Higher Education

“…Several authors have emphasized the positive and statistically significant relationship between support mechanisms and the level of universities' entrepreneurial activity (Powers and McDougall ). Van Rijnsoever et al () found that incubators do have positive effects with respect attracting the amount of funding start‐up and the capacity to seek funding for banks and other formal investors. However, other studies of incubators have also found no effect or negative of incubators (Schwartz ).…”

Performance Factors for Successful Business Incubators in Indonesian Public Universities

“…It has also been identified that the capability to connect start-ups to specific financial sources improves the factors important for incubators for increase their investments (Van Rijnsoever et al, 2017). It has also been found that participating in network events, engaging in referral services and the sheer fact of being linked to a reputable incubator puts the start-ups in a beneficial position, while supporting actions directly targeted at gaining more funding (such as pitch training) have less influence.…”

“…In spite of that, it does not mean that the supporting actions correlated to hit-making, such as coaching, mentoring or workshops, are all in vain. The performance indicators related to raising funding are primarily applicable to new business players (Eveleens et al, 2017).…”

“…The results of the hypothesis analysis shown in Table 2 demonstrate that information technology (Grapeggia, 2011;Lalkaka, 2003), as part of the abilities of a business incubator, partially supports their performance and that entry criteria (Campbell, 1985;Smilor and Gill, 1986;Campbell, 1989;Costa-David et al, 2002) directly support performance. Mentoring networking (Lalkaka, 2003;Zibarzani and Rozan, 2017) supports the performance of business incubator, with good infrastructure systems as a moderating factor and funding (Xie et al, 2011;Van Looy and Shafagatova, 2016;Van Rijnsoever et al, 2017;Eveleens et al, 2017) also supports performance, with good infrastructure systems also as a moderating factor. Finally, university regulation (Corsi and Di Berardino, 2014) supports the performance of business incubators, with credits and rewards as a moderating factor.…”

Surviving through Incubation Based on Entrepreneurship-Specific Human Capital Development: The Moderating Role of Tenants’ Network Involvement

“…Tenants' extensive involvement in multiple social and commercial networks can be a signal of tenants' growth potential, and diverse service providers are more willing to attach to tenants with such a signal [34]. Furthermore, the amount and attribution of relationships determine a tenant's capability to get tangible resource and intangible knowledge [35], thus the tenant's growth and successful graduation. Therefore, network involvement leads to heterogeneous mechanism of attachment, which impacts the positive relationship between entrepreneurial experience and TG.…”