Thursday, March 20, 2008

The NY Software Industry Incubator - R.I.P.

The NY Software Industry Association (NYSIA) incubator at 55 Broad Street was an asset to the software community. It was beautiful space in an important building in the heart of the Wall Street area. NYSIA’s President, Bruce Bernstein, put his heart and soul into making it work. It opened on May 1, 2005, when the first “incubated” company moved in. It is now closed.

My Own Experience
The purpose of a business incubator is to nurture companies. Success can be measured qualitatively by the experience of companies in the incubator and it can also be measured quantitatively by what happens to the companies that move in.

I moved to the NYSIA incubator immediately after retiring from the NYC Comptroller’s Office, following 13.3 years as Chief Economist and Senior Policy Adviser. In February 2006 I created CityEconomist.com as a website initiatives to support my teaching, writing and consulting.

My experience at the NYSIA incubator was good. I had an instant office in the heart of the Wall Street area, fully wired and at a low cost. I jointly organized some meetings on job trends in NYC. Other meetings occurred frequently in the NYSIA common space, allowing me to meet many interesting entrepreneurs with whom I have continuing relationships I was able to place some students from my classes at NYU Stern School and Pace University with incubated companies. One student I placed was described by his employer as the best worker he ever had. I reluctantly gave up my space in the incubator partly to pay more attention to my mother and uncle, who were both sick and died within a week of each other in November. It took more than a year to sell the two houses and I expect to be working on their papers for the rest of my life.

Objective Evidence: 81 Jobs Created
The NYSIA incubator in 2007 housed 11 companies, seven of them startups. One was the New York headquarters of an overseas high-tech firm. Two were companies developing new products or services. The remaining company has 40-50 people in another country where it was formerly headquartered and moved to the incubator to spin out a new company.

Seven companies and organizations were at one time incubator residents. Besides the successful graduating companies cited above, four companies were small consulting firms and an overseas university had a local in the incubator. All together, the companies in residence in September 2007 created 63 jobs.

These were the 11 incubatees in September 2007:
1. Startup: Healthcare IT, joined incubator 3/07, created 3 jobs.
2. US hq of overseas startup: Wi-fi networking hardware, 9/05, 7 jobs.
3. Startup: Government IT, 5/06, 4 job.
4. Startup: Online video sharing and editing, 10/05, 28 jobs.
5. New product development: Healthcare IT, 10/05, 5 jobs.
6. Startup: Data mining, 2/06, 2 jobs.
7. Startup: Software development tools, 7/05, 2 jobs.
8. Startup: Management consulting, 5/05 , 1 job.
9. New product development: Software for data center management, 5/05, 6 jobs.
10. Spinoff from overseas co., specialized community sites and social software, 5/07, 2 jobs.
11. Spinoff from state university, educational software, 8/05, 3 jobs.
Total: 63 jobs.

Two companies graduated from the incubator and continue to function and grow elsewhere in NYC. They created 18 jobs.
1. Startup: Healthcare IT, 6/05 – 2/07, 3 jobs.
2. Startup: Financial Services IT, 5/05 –10/06, 15 jobs.
Total: 18 jobs.

Five companies in the incubator raised $21 million.
1. Angel funds (pre-VC), $0.5 mil., working on 2nd round.
2. Angel funds, $1.5 million.
3. Venture capital, $13 million, 3 rounds.
4. Federal ATP R&D, $2 million, closed.
5. Venture, $3-$5 million, funded in residence.
Total: $21 million

Assessment, Lessons
NYSIA’s incubator provided a real service. It was unusual in being connected with a trade association. NYSIA provided marketing services to its members and informal links with NYSIA members were important.

Its demise is therefore sad, in a category with the demise of NYU’s old engineering school. NYU’s merger with Brooklyn Poly gives hope that history can be remedied if not rerun.

What lessons can we learn?
1. An incubator requires a commitment for several years. Multi-year funding is crucial.
2. State and city funding that must be appropriated every year is unreliable. The demands on political leaders are multiple and resources are limited.
3. NYSIA suffered from the lack of a university connection, which would have provided student and professorial help without special budget lines and would have ensured more staying power.

It’s a pity that NYSIA and Pace University could not have found a way to work together since Pace was committed to the incubator concept and might have found the software industry trade association connection helpful. NYSIA would certainly have benefited from a closer connection with a university. In the end, perhaps the benefit of being in the Wall Street area wasn't worth the loss of a supportive university environment.

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