Dan Grigsby started building payMe.com (https://www.payme.com/), an online consumer-to-consumer billing service, without maxing his credit cards, haggling with realtors or scrambling to hire a staff. He knew from his experience building Merchant Planet, an internet company he sold to Microsoft, how much administrative work goes into building a startup. And he doesn't want to waste time interviewing people and balancing the books; he wants to build his site and get funding.

So in November, 1999 he moved into Pasadena, Calif.-based idealab's (http://www.idealab.com/) incubator facility and instantly received an equipped office space, administrative and technical assistance, seed funding, and most importantly, advice. "Idealab's management team has gone through this before," he says, "and I'm benefiting from the lessons they've learned." Grigsby now spends his time getting feedback on customers' needs, web servers, and the costs of bringing his product to market.

Idealab is one of over 740 incubators in North America, and that number is growing quickly, according to Dinah Adkins, the Executive Director of the National Business Incubation Association (http://www.nbia.org/). "Last year, there were about six incubators in Atlanta," she says. "Now there are at least 18."

Business incubators are companies that provide startups with office space, basic business services (like secretarial help), business and technical advice (including legal and marketing service), financing assistance (from help in accessing government R&D funds to venture capital funding), and a network of relationships with similar business owners. To date, incubators have helped launch over 20,000 businesses which employ more than 250,000 people.

Today's incubators, however, are quite different from the first generation that emerged in the 1980s, and were community-focused and often funded by government agencies or educational institutions. This year, according to Adkins, approximately 24% of incubators are for-profit companies, often private investment groups, and frequently focused on internet-related startups. Their main objective is to gain equity in promising incubatees. And at least one is attempting to follow the same path to riches as its clients: Lisle, Il.-based divine interVentures (http://www.divineinterventures.com) filed a registration statement in December for a proposed IPO.

These for-profit incubators are doing everything they can to attract the best and brightest. Cambridge, Mass.-based Cambridge Incubator (http://www.cambridgeincubator.com/) will soon house as many as 20 incubatees in a new facility in the middle of the MIT campus, complete with an auditorium,
fingerprint-access security system, sleeping pods, showers, and a massage table. This is a far cry from the hardships of yesterday's nonprofits, which made do with donated office furniture in subsidized office space.

And unlike the nonprofits' pro bono consulting services, divine interVentures offers its incubatees a suite of eleven consulting companies. Each of its wholly-owned companies focuses on individual services, with separate companies providing PR, facility management, branding, financial, technology management, web design, legal, intellectual capital, sales, internet assessment, and recruiting services.

These enhanced services do not come without costs. For-profit incubators may take up to a 50% equity share in their companies. While some nonprofit incubators, like the Software Business Cluster in San Jose (http://www.sjsbc.org/) and Austin Technology Inncubator (http://www.ic2-ati.org/), have started to take a 1% equity stake in their companies, many consider their only payment to be the community's economic development.

What to consider when shopping for an incubator

The maturity of a company's business plan may determine how long it stays in the arms of an incubator. Cambridge Incubator, for example, tries to launch its companies into the marketplace with a mature concept within one year. Others, like Austin Technology Incubator, let their companies stay as long as three years.

With the proliferation of internet startups, getting accepted at an incubator is becoming a little like getting accepted at a good business school. For-profit and nonprofits are currently accepting approximately 1-5 percent of all applicants. Chuck Erickson, managing director at the nonprofit Software Business Cluster in San Jose, says that for every 50 applications they review, they probably discourage 200 companies from applying. "We're looking for companies with an intense knowledge of the marketplace and a passion for their business," says Erickson.

The Software Business Cluster does not base their acceptance solely on the formal application process, which involves submitting a business plan and financials for review, interviewing with a representative from the incubator, and meeting with incubator's consulting board. To some extent, their decision to accept or reject a company is based on gut instinct.

"We constantly interview engineers with ideas for web stuff who spend the entire interview process looking at their notes, speaking in quiet voice," says Erickson. "When I ask what's their secret sauce, they say they're the only one who can implement Java in this way. No spark."

Erickson believes that he has found this spark in non-obvious entrepreneurial efforts, like a company currently incubating in the Software Business Cluster. The idea, Erickson, admits is not startling. "But when you talk to the woman running it, and look in her eyes, you realize she'll make it a success."

webbusiness.cio.com

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