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Managing entrepreneurs
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April 12, 2000: 1:44 p.m. ET
Business incubators provide small business owners with helpful solutions
By Jane Applegate
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NEW YORK (CNNfn) - Steve Massarsky, founder of the Business Incubation Group in downtown Manhattan, used to manage demanding and ambitious rock stars. Now, he tries to manage demanding and ambitious entrepreneurs in his privately run incubator.
"Managing small-business owners is just like managing rock stars," said Massarsky. "Except my business owners don't call me at 4 a.m. complaining about the size of their rooms."
Massarsky's current clients occupy far simpler digs than his former clients. They ride in a creaky elevator to the 12th floor of an old office building filled with cubicles. Cardboard boxes are stacked high against the walls. The few people in the office on a recent day were busy on the phones or at their computers.
Massarsky, who occupies the corner office, said he's invested about $2 million in buying the office space and funding the incubator, which opened in February 1999.
"I want to have fun with these businesses," said Massarsky. "We take an entrepreneur's idea, spin it around, and throw it back at them. We reinvent their revenue models -- that's the fun part for me."
In addition to providing office space, free equipment and moral support, Massarsky hopes to find private investors called angels for his clients. His advisory board is comprised of 15 angel investors he says has contacts with 100 other angels interested in investing in new companies.
"I came to Steve with my idea just because he was a friend of the family," said Dr. Michele Wasson, a veterinarian who markets herbs and holistic treatments for pets. "The neatest thing about working here is that I can express my ideas creatively without any constraints."
Wasson spends two days a week at the incubator working on her business plan, and three days working as a vet in Woodstock, N.Y.
Business incubators have been around since 1957, when the first one opened in Batavia, N.Y. They offer entrepreneurs office space, desks, supplies, phones, fax machines, computers and expert advice. Some, like Massarsky's, provide seed funding and investor contacts. "There has been a tremendous number of new Internet incubators," said Dinah Adkins, executive director of the National Business Incubation Association in Athens, Ohio. "More than 100 have been announced just in the last six to nine months."
Adkins said the majority of e-business incubators are based in California, but "I'm convinced that every law office is incubating new companies."
She said in recent years, incubators have become an "investment vehicle."
"It's such a fad," she said. "People are jumping into forming them so quickly, but they're not all well constituted."
Adkins estimated that are over 800 incubators in the United States, most housing an average of 18 small and growing businesses.
Universities operate some incubators; non-profit or private associations manage others. Before opening his Manhattan incubator, Massarsky said he co-founded a comic book publishing company, and operated an entertainment law practice and an artist management firm.
He still takes a percentage of his client's ventures; up to 30 percent of a pure start-up, or as little as 5 percent of a company about to launch with real products or services. So far, he's signed deals with three business owners: the holistic veterinarian; a 22-year-old Brown University student starting a fresh-baked goods company called Jessica's Wonders; and two individuals launching a broadband streaming service, called the Cha Cha Network.
Massarsky admitted that he doesn't expect to see any return on his investment for at least two years.
"You fall in love with these companies, and you know that not all of them are going to make it," said Massarsky, who believes 70 percent of the businesses he supports with free office space, equipment and advice will fail.
Although he hopes his contacts will come through with cash for his protégés, he's a bit frustrated with one investor who has promised to back the new bread company.
"I've called this guy seven times, but he hasn't sent the check," he said.
Massarsky said he seeks out entrepreneurs with a business concept that is a "potential home run." The people he invites into the incubator also have to be smart, dedicated and willing to accept his advice.
Many incubators specialize in a certain type of business, or look to serve a particular type of client.
Ground Floor Ventures for instance, is an incubator designed for software and e-businesses owned or operated by women. It's based in Hoboken, N.J., at the Monroe Street Center for the Arts.
The new incubator, set to open in June, is looking to raise $50 million for its tenants, according to Shannah Whithaus, founding partner of GFV. So far, she said, they have one client, a Web company serving East Indians living in the United States who want to keep their culture alive.
 GFV plans to ask companies for no more than a 20-percent equity stake. Most businesses will be offered a home in the sprawling arts center for six to eight months.
"We have a unique situation with this building, because when they outgrow our office, they can move into another space in the building," said Whithaus. "This way, we can keep an eye on their growth in the future."
-- reported by Julie Neal
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