Hatching Incubation in Mid-Michigan

Editor’s note: This piece comes from Michigan correspondent Ivy Hughes. -KG

Mid-Michigan doesn’t need economic indicators to validate the recent surge of entrepreneurial activity. In less than two years, four incubators have popped up giving business, technology, science and creative startups an opportunity to make money doing what they love.

Incubator is a loose term generally used to describe the capture of new talent, economic programs and business support in a physical structure. The greater Lansing area has four: The TIC, the Hatch, ITEC and the NEO Center. Between the four, approximately 45-60 jobs have been created.

Launched in 2008, East Lansing’s Technology Innovation Center (TIC) was the area’s first large scale incubation project. Leveraging an incentive allowing cities to capture local taxes for economic development projects, the City of East Lansing opened the TIC in the heart of the downtown business district across the street from Michigan State University (MSU).

“There’s not a lot of professional office space in the downtown area and we knew the university turned out a lot of intellection property within the area and we wanted them to have a space where they could test out their ideas,” said Jeff Smith, the City of East Lansing’s project manager of new economic initiatives.

The TIC (pictured above) is a 6,500 square foot loft-like space that can accommodate 16 offices an several smaller workstations. Tenants have access to common areas, conference rooms, a kitchen area and internet and phone services. TIC business owners love the low rent (the TIC charges an annual fee of $19.50 a square foot), and flexible lease schedules, but they also benefit from interacting with other entrepreneurs. It isn’t uncommon for TIC businesses to work together, exchange services or refer each other’s services to potential clients.

Of the 20 original TIC companies, 13 remain. Some of them closed and some moved back into home office space but two of them — Enliven Software and Gravity Works — outgrew the TIC, moving their businesses to larger spaces within the community.

“My guess is that between half and three quarters of the businesses will expand into additional space and the remaining portion will probably pull back on the reigns and work from home or existing office,” Smith said about future tenants.

By the beginning of 2011, the HATCH, a new 2,100 square foot student-based incubator, will open right next to the TIC, providing affordable space to undergraduate and graduate students that need a space to flush out business ideas.

The Hatch has room for 25 students that will $75 to $100 a month to use workstations and TIC conference rooms. They’ll also have Internet, a mailing address and, more importantly, access to professionals who will mentor the students and provide them with valuable services. MSU is using the Hatch as a portal for MSU ENet, an entrepreneurship certificate program designed to connect area entrepreneurs to university talent.

While the TIC tends to attract technology-based businesses, the Lansing-based NEO Center seeks to help creatives, those interested in starting marketing media, media technology and art-based businesses. The NEO Center is in its infancy. It’s located behind Art Alley, an new art gallery that could be a portal for NEO Center artists.

The actual center isn’t quite ready for tenants. When it is, it will include six to 10 studios and several workspaces for 25 to 30 “hobby artists,” individuals that don’t need a studio, but want access to equipment and a creative community. Before that happens, NEO Center founders need to raise $50,000 to $60,000 to build out the studio space, a goal NEO Center President Thomas Stewart hopes to achieve in six-to-nine months.

“The idea, in part, is to build accessibility and space for artists so they can showcase their art,” Stewart said. “The more opportunity artists have in Lansing to showcase their art, the more diverse our culture becomes.”

Funding is always a challenge for start-ups fostering start-ups. Not only do these incubators need funding, they need tenants, which means keeping rents low. Despite the tax capture, the City of East Lansing had to used a bond to help fund the TIC. All in, the TIC cost about $400,000 to launch.

“I would recommend having a virtual tenant program as well,” Smith said. “It’s added revenue for the program without necessarily losing space to standard tenants. Virtual tenants pay a flat monthly fee for a mailing address, access to the conference rooms and other things not traditionally found in an office space.”

From a fiscal standpoint the community warmed to the Hatch more quickly than the TIC, partially because the TIC’s success assuaged some concern among investing and partially because the Hatch is directly linked to MSU. The university offered $90,000 for the build out and an area economic development group, LEAP, contributed $12,000.

“There’s a couple of reasons for added investment,” said Eric Jorgenson, an MSU senior, member of the Hatch team and owner of GoBoo Clothing. “There’s an element of youth to it and there’s a lot of potential in student entrepreneurs. It’s not more innovation, but a different kind of innovation that comes out of people who are 18 to 23-years old.”

The NEO Center approached funding differently, leveraging aspects of the non-profit and for profit world by filing as a low-profit limited liability company (L3C). Designed to encourage socially beneficial enterprises, L3Cs generate moderate revenue but can receive grant funding from non-profits.

Incubators need funding to get off the ground and flexibility to survive. The City of Lansing listened to entrepreneurs and tweaked the proposed 9 to 5 operating hours for the TIC and the Hatch, opting to give tenants 24-hour access to the building. The city also changed its leaves requirements. Initially TIC, tenants were required to sign a year lease with the understanding that after three years, they would move into another space. Now tenants can lease space beyond the initial three-year threshold. Smith said the new agreement is more accommodating to TIC tenants and will hopefully help the businesses stay in the area.

Smith suggests that other cities interested in creating incubators include a provision in the lease to protect against broken commitments. Before the TIC opened, the anchor tenant backed out, sticking the city with a substantial lease agreement. If the lease had required the potential tenant to pay a year’s rent upon signing, the city wouldn’t have had to scramble for a new anchor.

Despite the challenge, the city opened the TIC and soon signed a more fitting anchor tenant — MSU Technologies.

“It turned out well,” Smith said. “The worst absolute fiasco turned out to be the best absolute fiasco for everything.”

Mid-Michigan’s incubator culture is expanding. The City of East Lansing is working on creating a restaurant incubator and several entities are trying to launch wet labs.

The existing incubators are for college students and professionals but the region certainly isn’t ignoring young talent. ITEC is a Lansing-based incubator for middle schoolers. It started as a physical space, but like other Mid-Michigan incubators, ITEC changed to accommodate its demographic.

“We found that even though we were in a neighborhood in an old school, we needed to be in the schools,” said itec Executive Director Kirk Riley. “The transportation cost for the kids was just too great.”

ITEC organizers spend roughly three days a week in Lansing schools where the enhance the students’ STEM (science, technology, engineering, math) skills by engaging them in fun STEM projects that include robots and video games. ITEC recently received $600,000 in program funding, a huge boost for the organization.

“We are a talent incubator for the next generation,” Riley said. “We are creating the next generation of entrepreneurs because a lot of entrepreneurs come out of the science, engineering and technology areas. What itec is really about is academic success and career success.”

-Ivy Hughes

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