The Role of Co-Working Spaces in Building the Technology Ecosystem
- Jan 10, 2023
- John Pennett
Many successful startups spend their early days ‘co-working’ as members of either an incubator or accelerator, programs designed to help them succeed. While the terms accelerator and incubator are sometimes used interchangeably, they are different. Generally, the goal of an incubator is to help get startup ideas validated, solve technical issues, and analyze product/market fit. Therefore, incubators are programs for startups typically in their early, or ‘incubation’ phase.
On the other hand, accelerators (e.g., MassChallenge, Y Combinator, Techstars) tend to help startups with already-vetted ideas that are ready to scale. We also see accelerators focusing on a specialized market, such as fintech or edtech industry verticals, where a key component of the accelerator program is access to leading potential partners/collaborators in that specialty niche.
Both types of programs, incubators and accelerators, typically have a strict application process, but accepted members (a ‘startup cohort’) are subject to different terms. For example, accelerator programs often take an equity stake in the startups and provide access to niche programs; however, access to their shared working space is limited to a three-to-six-month term. Incubators do not typically take an equity state in the cohort companies but have a longer-term relationship with the startups in the cohort. While accelerators sometimes offer a co-working space, many incubators consider the co-working space an integral part of their value proposition.
First, let’s define what we mean by a co-working space. Co-working spaces are office spaces that are rented to individuals or teams from different companies. These ‘tenants’ share a common space and infrastructure -- services offered by the building owner (e.g., receptionist, supplies, coffee, commonly used equipment, etc.). These spaces are often more affordable and have more flexible terms (e.g., hot seats, month-to-month rent) than traditional office spaces and leases.
The first U.S. co-working space was started by a Silicon Valley entrepreneur, Brad Neuberg, in 2005 at the Spiral Muse space, which was a feminist collective in the Mission District in San Francisco. Although his first few attempts at creating such a space failed, the idea caught on. By 2012, there were over 2,000 co-working spaces globally, and, today, there are more than 35,000. While many people use co-working spaces – remote workers, freelancers, small businesses – over the past decade co-working spaces have emerged as an essential component of many technology and biotechnology startup incubators.
EisnerAmper spoke to the following founders/directors of incubators to get their outlook for co-working spaces:
- David Kiewlich, founder of San Francisco-based BADASS Labs (an acronym for Bay Area Disruptor and Startup Support), which runs a biotech startup incubator with a co-working space;
- Lenzie Harcum, director of the New Jersey Bioscience Center, a 300,000 square foot life science research park that includes the Incubator at North Brunswick (NJBCI), a facility run by the New Jersey Economic Development Authority (NJEDA); and
- Devlin Liles, chief consulting officer at Improving, a technology startup incubator in Houston. Improving does not have its own space for its startups, but they think it is so important to have a space that they have partnered with The Ion to use theirs.
The interviewees shared their perspectives on the importance of incubators having a co-working space. The overriding sentiment was that great ideas need a place to percolate, grow and thrive and incubators provide that place.
“Every startup is like a newborn,” said Kiewlich, who compared it to raising a child in a rich, nurturing environment versus an orphanage. “They grow, make mistakes, learn and mature. Incubators create the environment necessary to encourage the strongest early development, when every decision is most impactful. The more supportive and complete an environment, the stronger the progress and advancement for the startups housed within.”
Infrastructure and Ecosystems Are Key
Groups need to take the responsibility for ensuring there is an infrastructure, or ecosystem, for the startups so founders can collaborate and share with other startups.
Incubators tend to be located in parts of the country which have a natural ecosystem for startups, and this happens for a reason. Ideally, there should be a good mix of access to capital (e.g., financial hubs, high net worth individuals, etc.), academic institutions, government agencies/government support and industry.
“Central New Jersey is a hotbed of scientific pharma talent,” said Harcum. “Many of the entrepreneurial startups graduating from NJBCI are launched by ex-pharma scientists from the local ecosystem.”
Harcum also noted that the NJEDA’s NJ Ignite program offers rent support to startups moving to participating collaborative New Jersey-based workspaces and offers the workspaces an added attraction tool.
Liles talked about the importance of ‘geographic density’ to foster incubation.
“Geographic density allows for connection and collisions of people and companies at a far higher rate, but also allows for the learning from lessons to stay in the ecosystem,” he said. “When a company fails without density then most of the organization joins traditional roles at non-startups and the lessons that were learned are lost or at least delayed from being broadly taught in the ecosystem. Imagine that the ecosystem is trying to create energy through nuclear particles. The more densely the atoms are packed, then the more likely they are to collide with other particles and generate energy. When an atom breaks apart (after a failure or an exit) then the density allows for those particles to collide with more atoms.”
The Silicon Valley startup phenomenon was due, in part, to the fact that Silicon Valley provided just such an ecosystem in a compact 60 square mile area where people could (at that time) live and work. This geographic density, with the correct supportive ecosystem, fostered not only great idea generation but also the ability for people in the ecosystem to connect and learn from each other’s successes and failures.
“Sharing failures and learning from them is one of the best ways to accelerate the success of great ideas,” Liles said. He added that, since Houston is very spread out, the shared working space is one way that Improving is trying to mimic a denser population and enable their members to collaborate and benefit from each other’s experience.
Access to Equipment Is of Vital Importance
For the biotech incubators specifically, in addition to providing a place for founders to share ideas, providing affordable space with access to scientific equipment is a critical part of supporting their startups. Biotech startups often need specialized equipment, which is very expensive and used somewhat infrequently.
“Every investor I spoke to said they knew of at least one great biotech idea that failed, or worse, never even got tested, because the founder struggled with access to the lab space, tools and equipment they needed to validate their idea,” said Kiewlich. “We need to work to rectify this situation, as losing any great idea is a loss to society that we must avoid.”
BADASS Labs leverages the purchasing power of the cohort to obtain price reductions on lab and office supplies for the group. In addition, having access to affordable space, supplies and equipment lowers the barrier of entry for under-represented communities. BADASS Labs is currently opening its third site and plans to expand across the country with the goal of providing all communities the access to lab equipment and space they need so great ideas can be supported and flourish.
Lease Options Are Critical
Incubators also provide longer term ‘leases’ so founders can stay until their ideas are ready for scale. Biotech companies, in particular, need a significant amount of time before they can complete their pre-clinical work and clinical trials to bring their ideas to the market.
Accelerators normally have a short term of occupancy, so, in some cases, startups must move on and pay higher rent before they are ready. Also, they may lose access to equipment and, importantly, lose their talented employees if they have to relocate beyond an acceptable commuter distance for their teams.
Even though NJBCI has an exceptionally long startup cohort rental time of one-year renewable leases for up to five years, they have now expanded their space so that their founders can remain on ‘campus,’ albeit paying market prices, once they have outgrown the startup phase. While great for the founders, it also allows the incubators to keep extraordinary talent within their ecosystem (for example, ‘graduates’ make great mentors to the next generation of founders). “There is a spot within New Jersey Bioscience Center for most anyone in the biotech food chain, whether the company is a startup in our subsidized incubator or in need of growth space from 2000 – 10,000 square feet,” Harcum said.
BADASS Labs places no restriction on how long companies can stay, which has led to several companies expanding repeatedly within the incubator.
Additional Benefits of Co-Working Spaces
Startups need as much support as possible. The more an incubator can be helpful to these early-stage startups, the stronger their growth and development should be. When incubators provide a shared working space, it is easier to provide additional support. For example, many incubators offer courses to their startup cohort, varying in subject matter from “Developing Your Go-to Market Strategy” to “Fundamentals of Fundraising.” There are also coffee hours and happy hours to provide startup founders ways to get to know other founders and other ecosystem stakeholders who understand and can help support startups. Incubators often also offer opportunities for the startups to showcase their ideas and have access to investors.
As Kiewlich noted, “Networking opportunities and access to capital can be very helpful as a company gets started as it can be hard to be ‘noticed’ at the beginning.”
In particular, first-time founders, those who are newer to the area and those who might have had less access to capital and opportunities in the past tend to benefit most from networking with other members of the ecosystem. A shared working space makes this sort of gathering of people to collaborate, learn and network much easier.
By providing an environment within which founders can learn from each other, learn from the community, and have access to affordable space and equipment, incubators present lower barriers to entry and can increase the success rate of their cohorts. The mission of incubators is to be sure that innovative ideas can thrive, and a collaborative co-working space helps develop the ecosystem to achieve that goal.
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John Pennett is the Partner-in-Charge of the National Technology and Life Sciences Group and works closely with our IPO clients and their circle of legal and underwriting advisors to take an IPO from concept to close.
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