Incubator programme: a development process

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The Carbon Trust partners with a number of clean energy incubators (Angle Technology, Imperial Innovations Ltd, ISIS Innovation Ltd and TTP (The Technology Partnership plc)) whose purpose is to increase the likelihood of successfully commercialising technologies with carbon saving potential. The programme uses its resources to produce companies that are ready for private sector investment.
The incubation process can be split into four stages:

    During each stage of the incubation process a developing company will undertake a range of activities to increasing detail. These activities can be grouped into four areas:
  • technology
  • markets
  • infrastructure & people
  • finances
    Firstly, incubating companies need to address a range of issues and not just the most familiar, for example technology. The incubator staff will not only identify areas for development but also have the skills to help companies to address these gaps. Secondly, the company needs to keep moving forward – successfully tackling and completing activities in a sensible order. Again, the incubator staff can help companies plan their activities and provide the external discipline to ensure that milestones are met.

    Pre-admission & admission

    All good incubators and incubation programmes will have an entry policy to ensure that resources are targeted at the ‘right’ companies. Each programme will of course have a different idea of what are the ‘right’ companies – the Carbon Trust’s selection criteria, are grouped below.


    Technology
    The Carbon Trust Incubator programme is most interested in practical, relatively near to market technologies. These technologies should have the ability to become commercially viable and to significantly reduce CO 2 emissions. These criteria have formed the basis of the Low Carbon Technology Assessment, which outlines the technologies of particular interest to the Carbon Trust.
    The technology will almost certainly need to be patented, if it has not been already, and will therefore need to be novel.

    Markets
    The technology needs to have commercial potential and therefore needs to have a proposition that will be valued by a relatively large potential market relative to competing technologies/products (and there is always competition). There also needs to be a route to this market for the technology, which might involve working with other, existing companies.

    Infrastructure & people
    The successful implementation of an idea requires the commitment of people with the necessary skills and experience, as well as access to specialist facilities and equipment. This does not mean that the initial management team has to have all the skills but rather that they are both willing and able to identify what they lack and how they will address any gaps.

    Finances
    The majority of companies will need some level of financial investment. The important step is to have an idea of the size and timescale for these investments and whether these are likely to be justified in terms of the expected profits. It is also important that the project brings some minimum level of investment required to support the management team until substantial resources can be gained.


    If you believe that the Incubator Programme would help the development of your technology then the first step is to contact one of the Incubators. Each incubator has its own processes and characteristics and applicants will need to decide which incubator would fit best with their development objectives.

    If the Incubator Manager feels that your technology would be appropriate for the programme, then they will complete an application form, which is based on the above criteria. The applicant will need to work with the Manger to ensure that they have all of the required information but it is not necessary to have completed a full business plan before entry.

    If the application is accepted then you will sign up to a contract that details the commitments of both you and the incubator.


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    Company development

    This stage will focus on completing all of the activities required before your company can start operating. The first of these activities will be the production of a detailed development plan, including identifying the resources necessary to complete them. The main output from this stage is the production of a detailed, company specific business plan that can be used to secure additional finance as required.

      Technology
    • The base technology’s feasibility should be proven but it may be necessary to undertake a limited programme of research to generate some additional evidence.
    • The intellectual property position of the technology needs to be secured and therefore any patent applications should be filed, additional patents drafted and other forms of intellectual property protection taken out e.g. trademarks, copyrights and websites.
    • Completing a product development plan may involve detailed discussions with potential partners/suppliers. Working prototypes are often very attractive to potential investors and therefore it may be appropriate to start work on one at this stage.

      Markets
    • The target markets should be thoroughly researched to produce realistic estimates of their total size and trends, as well as key competing technologies and companies.
    • It is essential that a value proposition can be clearly articulated and it is well worth checking this with potential customers.
    • At this stage it may become apparent that the preferred route to market for the technology is not via the formation of a new company but rather by licensing it to an existing company. The results of the market resource will help to make this decision but it may also be necessary to hold exploratory discussions with potential licensees.

      Infrastructure & people
    • A number of key legal issues will need to be dealt with at this stage. A suitable legal structure for the company will probably be required. Standards documents will also be required such as non-disclosure agreements for discussions with third-parties and contracts of employment for staff.
    • At this stage it is important to form the core management team of the company. This may involve some of the original team leaving and new members being sought to address any skills shortages.

      Finances
    • At this stage the company will probably be funded by the management themselves. However, several proof-of-concept funds exist, including BERR (formerly known as DTI) and NESTA.
    • Research, Development and Demonstration grant funding can be applied for through BERR and the Carbon Trust Applied Research Open Call. The Carbon Trust Incubators fund the delivery of specific commercialisation advisory services; funding for actual technical and prototype development is provided by the Carbon Trust Applied Research Open Call programme.
    • Once the business plan has been satisfactorily completed then larger investments can be sought from banks, angel investors and venture capitalists to develop the company and its products.


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    Company growth

    Following the successful completion of the previous stage, the company will have a clear plan for growth and have sufficient resources in place to commence delivery against its milestones.

      Technology
    • The company’s products will be developed through successive prototypes, which will be tested by potential clients as soon as practical.
    • Supporting documentation and services will also be developed, including those related to statutory testing.

      Markets
    • Implementation of the marketing plan may include developing marketing materials, attending conferences and holding meetings with potential customers.
    • Companies should start making sales as quickly as possible in order to validate their product’s value proposition, to identify areas for refinement and deliver early cash flow.

      Infrastructure & people
    • As the company matures it may need to invest in facilities, such as production equipment. However, the company will need to maintain flexibility and therefore should explore equipment leasing options and short-term rental of accommodation (available within some of the incubators).
    • The company’s workforce will tend to move from a small group of generalists to a larger group of specialists, including sales and accounts staff. This growth in size and diversity will require the design and implementation of robust business processes to ensure good co-ordination and the maintenance of quality.

      Finances
    • During this stage the company should be making its first sales. This will bring new challenges to the operation and financial management of the company, such as customer support and invoice control. The incubator staff can help the company’s management meet these challenges.
    • The company should identify financing requirements well in advance of actual needs to ensure negotiations are held from a position of strength. At this stage larger funds can be approached, such as CT Investments and general Venture Capital firms. The Carbon Trust Incubators have an existing network of investors.

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    Graduation

    As the company matures, its staff and established networks of suppliers will increasingly have all of the skills it requires and therefore will be using the incubator less and less. At this stage, the company should look to graduate from the incubator (from the programme and also from any facility). Experience shows however that this can be a critical period for a young company and therefore will be managed carefully by the incubator. Incubators operate alumni networks that are very helpful to both past and present tenant companies.
    Graduating companies will be looking for the next stage of financing from venture capital funds. This may be the time to approach CT Investments and other Venture Capital firms, see: http://www.bvca.co.uk/.

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