A wing, a prayer and a crumpled business plan gussied up into a PowerPoint presentation might once have been good enough to secure a place in the cyber firmament, but the tech wreck has made short work of such over-inflated expectations.

Even the most enthusiastic of technologists knows that in today's once-burnt, twice-shy environment, investment capital is harder to come by and industry suspicion of two blokes, a dog and a 95% functioning beta disk is sufficient to dampen any rocket ride to techno fame and fortune.

That's not to say the idea encapsulated in that beta disk isn't a cracker, or the two blokes don't genuinely have what it takes to be the next Hurrah! But instead of floating alone, more are taking refuge in incubators, hothousing technology parks that provide an infrastructure for the development and refinement of ideas. Equally importantly, they provide access to capital investment partners, strategic management and legal advice and marketing assistance.

There's also the unquantifiable value of strolling down a corridor to share war stories with companies two steps ahead, or two behind, on the road to success.

What happens in an incubator is akin to what happens with any hothoused plant, says Australian Distributed Incubator director Lex McArthur. The company that emerges is stronger, more capable and likely to take off faster than if it had gone about trying to prove a concept, obtain legal advice and secure funding to get its own show on the road.

"The incubator process is producing a new generation of, you could call it, turbo-charged company, one that has its business plan more tightly focused and clearly articulated ... It's a stronger company, which probably already has customers, even has revenue, and is onto maybe its third generation of the product."

Incubators, which fill an intellectual nurturing role once the purview of a university environment, represent a typically 21st-century marriage of government funding, corporate interest and university-fostered research and development. Other influences include capital investors, legal advisers and marketing expertise.

The federal government has signified its interest in promoting technology development through better relationships with capital partners and corporate sponsors. The BITS (Building on IT Strengths) program, launched in 1999, funds 10 incubators around the country, ADI, Information City Victoria, Queensland's InQbator and NSW's Bluefire Group among them. Another incubator operates in Tasmania, funded separately under the Intelligent Island part of the program.

The government has allocated $518m over five years, of which an estimated $78m will flow to the incubators. According to the plan, additional funding should come from corporate partners, industry bodies and state governments.

The plan dovetails neatly with corporate recognition of the need to find some way of feeding on innovation as a generic headlight to the future and, more specifically, an infusion of new technologies to existing product strands and development ideas.

IBM runs a 1000-person strong independent business unit called Blue Velocity, with the purpose of opening a window into net-generation business thinking and product strategy. Such businesses include ISPs, ASPs, hosting and telecommunications companies, supporting potentially significant operations such as e-marketplaces, says Peter Hreszczuk of IBM Australia.

He describes the new landscape as a net-generation ecosystem. Relationships between companies such as IBM, venture partners such as Allen & Buckeridge and incubators such as ADI are pivotal in enabling all parties to take full advantage of new technologies, he says.

IBM's position is not to take equity; rather, the value it derives from participating is an abundant opportunity to demonstrate the performance and durability of its hardware and software and, in the process, provide a reliable infrastructure for building, implementing, testing and refining.

Without such support, Hreszczuk says, many good ideas may never come to fruition. "Taking a minority equity investment in new technologies is not IBM's core competence, this is not what our involvement is about. The value we provide is a reliable technology framework on which new ideas can find proof of concept, and we take part in doing due diligence with venture partners such as Allen & Buckeridge – looking at the business case of the proposed technology, and the soundness of investing in it. What we derive in return is an opportunity to present IBM as the technology of choice."

Fundamentally, Hreszczuk says, incubators serve to help new technology companies minimise risk, providing them with a multi-million-dollar infrastructure on which to test and extrapolate their offerings. ASPs, integrated service vendors and other companies that build software systems designed to be deployed over networks to thousands of users simultaneously can't accurately test software expandability and durability on a couple of servers in a garage.

The incubator, or a like-minded facility such as ac3 at Sydney's Australian Technology Park, provides a level of advanced computing infrastructure that 99% of start-ups could never afford.

ATP's ac3 is a joint venture with the NSW government, University of Sydney, University of NSW, University of Technology Sydney, TAFE and industry heavyweights IBM, Silicon Graphics and NEC to build and maintain a supercomputing infrastructure providing process-intensive calculation or high-volume testing services to multiple companies in multiple locations simultaneously.

McArthur says incubators capitalise on a formula known as KPC – knowledge/ people (or partnerships)/capital – in the right proportions and at the right time. But the incubation process is not necessarily about a physical space, says Paul Twomey, former CEO of the National Office for the Information Economy and co-founder of advisory and investment consultancy Argo P@cific.

He argues that since success for an internet company must be measured in global terms because that is the nature of the environment, the walk down the corridor and the sharing of war stories might just as valuably be global and virtual.

"The internet phenomenon has unleashed a new range of entrepreneurship, and these people are all over. They are not necessarily closely tied to the university sector, so becoming exposed to the physical incubator model, or people with the skills or experiences they particularly need to profit from, may not be easy for them."

He describes Argo P@cific as just such a virtual incubator model, giving technology companies access to down-the-corridor experts, but on a global scale. "A key part, but an intangible one, of the incubation process is giving people access to wisdom. But you don't have to give them access to a property to give them access to that. ADI does it virtually, and so do we."

While jobs created and capital growth are two natural metrics of success, Twomey argues that screening a business proposition carefully enough to see an end point almost before a beginning is another. "An incubator is, after all, a private equity market. When you find pure research, you need to find an understanding of the global pursuit, and look forward to companies for whom it's a good fit. In other words, as soon as an idea comes in, you have to be thinking about where you're going to sell it."

Source: BRW