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Glossary of terms on Entrepreneurship and Business Incubation 2013
1. Glossary of Terms on Entrepreneurship and Business Incubation (v.1) GLOSSARY OF TERMS ON ENTREPRENEURSHIP AND BUSINESS INCUBATION PREFACE Topics of innovation, entrepreneurship, business incubation require necessary level oflanguage and terms we use. The need of common vocabulary on topics mentioned above isevident. However, we found that there are no glossaries available online that combines businessincubation and entrepreneurship areas of knowledge. This Glossary intends to fill that gap andhelp others to find their way in an entrepreneurship journey. We do not claim to define allbusiness terms and it’s assumed that reader can understand basics of business and management. SOURCESSources of the above definitions include: Molnar et al. (1997) Meeder (1993) DiGiovanna and Lewis (1998) Allen and McClusky (1990) Wolfe et al. (2000) National Business Incubation Association, NBIA (http://www.nbia.org) Texas Angel Investors (http://www.thecapitalnetwork.com/Txangels/TAICoApp.html) SBA report on ACE-Net: The Process and Analysis Behind ACE-Net (Access to Capital Electronic Network) (http://www.ace-net.sr.unn.edu/pub/wet/rpt-es.htm) Virtual Business Incubation Services (2011) Entrepreneur’s Advisor (http://blog.theentrepreneursadvisor.com/coachs- corner/glossary-for-entrepreneurs-and-micro-enterprises/) The Smart Guide to Innovation-Based Incubators (IBI) (2010) http://entrepreneurs.about.com/cs/generalresources/a/glossaryindex_2.htm The Institute for Social Entrepreneurs (2003) U.S. Department of State publication, Principles of Entrepreneurship (2007) KTH, Entrepreneurhip Course by Gregg Vanourek (2012) Wikipedia (2013)Copyright © 2012 Vasily Ryzhonkov. All rights reserved.Authored by Vasily Ryzhonkov. 1
Glossary of Terms on Entrepreneurship and Business Incubation (v.1) GLOSSARYTerm DefinitionAcademics Credentialed persons who perform research; are versed in scholarly publishing criteria, processes, and standards; and provide advice and guidance based on interpretations of findings in current research.Accelerator / The business incubation industry has inspired the development ofBusiness Accelerator the “business accelerator.” Business accelerators will generally offer all of the services offered by a business incubator. The key difference is the level of hands-on involvement by accelerator management which should increase the chances of success. While no definitive definition of business accelerator exists in the literature, it may be broadly defined either as: (1) a late-stage incubation program, assisting entrepreneurial firms that are more mature and ready for external financing; or (2) a facility that houses a modified business incubation program designed for incubator graduates as they ease into the market. Business accelerators are more likely to be financed by venture capitalist looking for an opportunity to finance growth potential through defined action plans.Accounts Payable An accounting entry that represents an entity’s obligation to pay off a short-term debt to its creditorsAccounts Receivable Money owed by customers to another entity in exchange for goods or services that have been delivered or used but not yet paid forAcquisition Taking ownership of another business. Frequently used in conjunction with the word merger, as in mergers and acquisitions or M&As.Administrative Offices Space in the incubator facility dedicated to offices and other amenities for the incubation program manager or professional staff. This space is not leasable to incubator clients.Advisory/Governing A dedicated group of business leaders, professionals, stakeholders,/Management Board and/or specialists that provides competent advice and guidance for the incubation program management team on a regular basis. This group may also advise clients. If the board is a governing board, it has additional fiduciary responsibilities for the business incubation program. Some incubator programs have both a management board that directs the “business activities” of the incubator program—such as budgeting, personnel matters, etc.— and an advisory board that is responsible for providing value- added business services to client firms and assisting the manager in her/his duties. In most cases these functions are combined in one board, which may have either title. An advisory board usually has representatives from the finance community, legal profession, and host institution as well as economic development professionals, the manager, members of the entrepreneurialCopyright © 2012 Vasily Ryzhonkov. All rights reserved.Authored by Vasily Ryzhonkov. 2
Glossary of Terms on Entrepreneurship and Business Incubation (v.1)Term Definition community, and, in the case of technology incubators, technology commercialization specialists, among others. When constructing the board, it is desirable to ensure that it can assist in providing value-added service to client firms and help to embed the incubator program in the local community. The networks established by the board should benefit client firms and increase the potential of capturing the firms in the local economy after they graduate.Affiliate Client A client that is not an occupant of an incubator facility but receives many or most incubation services for a fee. See also “virtual clients,” as these terms are sometimes used interchangeably.Affiliate Firm A client firm that does not lease space at an incubator facility but does participate broadly in the incubator program’s entrepreneurial training programs and receives business services from the incubator.Anchor Tenant A business or organization that leases space from an incubator but does not receive incubation services. Space is usually provided at market rate. Usually anchor tenants are long-term and lease space at market rates. The cash flow provided by an anchor tenant’s rent helps the incubator meet its financial obligation. Anchor tenants may or may not play another role in the incubation process. For example, an anchor tenant may be a professional service provider and be available for client firms.Angel Investors/ A private investors who invest in earlier stage companies sumsAngel Capital Investor typically ranging from $250,000 to $1.5 million (from $50,000 to $2 million, according to another definition). Angel investors tend to be individuals or small groups of investors that accept high risk and help entrepreneurs bridge the capital gap between the entrepreneurs’ resources and traditional financial markets, including venture capital markets. Angel investors obtain a return on their investments when the companies in which they’ve invested experience a liquidity event; are acquired, merged, or have a successful IPO (see IPO); or are bought out by later-stage investors.Angel Networks Connected groups of high-net-worth individuals who are accredited angel investors. Sometimes these individuals join together to collectively invest in high-potential start-up businesses. Angel investments are generally smaller and earlier- stage than professional venture capital investments.Assets Items of value owned by a company and shown on the balance sheet, including cash, equipment, inventory, etc.Balance sheet Summary statement of a companys financial position at a given point in time, listing assets as well as liabilities.Barriers to Entry Conditions that create disincentives for other firms to enter a market.Board of Directors A panel of individuals elected by a corporation’s shareholders toCopyright © 2012 Vasily Ryzhonkov. All rights reserved.Authored by Vasily Ryzhonkov. 3
Glossary of Terms on Entrepreneurship and Business Incubation (v.1)Term Definition oversee the management of the firmBootstrapping Using creative means to obtain resources other than borrowing money or raising capital from traditional sources.Brand The set of attributes—positive or negative—that people associate with an organization.Breakeven point Dollar value of sales that will cover, but not exceed, all of the companys costs, both fixed and variable.Burn Rate The Burn Rate for a company is the speed per month at which your start-up capital (cash) is being used up before you are able to have positive cash flow. The BURN RATE includes everything that you will outlay money for (wages, marketing, utilities, supplies, licensing, professional fees, computers etc…).Business A business plan is defined for entrepreneurs and micro- enterprises as a method for thinking through your idea. A business plan will answer and identify the Who, What, Why, How, When and Where, enabling you to create a road map for your success. Business plans come in three major forms: Simple – Detailed road map – not normally used to raise capital and should be done by entrepreneur. Complex – may include detailed financials, competitive and market analysis, intellectual property evaluation, identification of the need being addressed, summary and road show components – used to help raise capital – normally requires professional assistance. True – a dynamic and flexible planning tool that includes all of the components listed above but is constantly updated, maintained and used for making action plans and annual or 5 year plans.Business Incubation A dynamic process of business enterprise development that seeks to fill the gaps in entrepreneurial development by providing a supportive environment where new entrepreneurs receive training in business management skills and marketing, buffered from stiff market forces with below-market rent, reduced fees for services, and improved access to necessary seed capital (NBIA 2001).Business Incubation Programs designed to accelerate the successful development ofPrograms entrepreneurial companies through an array of business support resources and services, developed or orchestrated by incubation program management, and offered both in the incubator and through its network of contacts. A business incubation program’s main goal is to produce successful firms that will leave the program financially viable and freestanding. Critical to the definition of an incubation program is the provision of management guidance, technical assistance, and consulting tailored to young growing companies. Incubators usually also provide clients access to appropriate rental space and flexible leases, shared basic business services and equipment, technology support services, and assistance in obtaining the financingCopyright © 2012 Vasily Ryzhonkov. All rights reserved.Authored by Vasily Ryzhonkov. 4
Glossary of Terms on Entrepreneurship and Business Incubation (v.1)Term Definition necessary for company growth.Business Incubators (1) Facilities designed to nurture young firms, helping them survive and grow during the startup period, when they are most vulnerable. Incubators provide hands-on management assistance, access to financing, and orchestrated exposure to critical business or technical support services. They also offer entrepreneurial firms shared office services, access to equipment, flexible leases, and expandable space—all under one roof. An incubation program’s main goal is to produce successful graduates— businesses that are financially viable and freestanding when they leave the incubator, usually after two to three years (NBIA 2001). (2) The definition of a Business Incubator can be described as a set of programs set up by a government, business alliance or academic group though a variety of services/training. The intent is to help small companies in the incubator have a better chance of survival through the start-up phase. Services may include but not limited to: Office space: Usually at a reduced rate. Office services: Receptionist, conference rooms, computers, office equipment etc. Entrepreneurial advice and mentoring: Entrepreneur advisor services can range from establishing a web presence to identifying IP licensing opportunities to raising capital. Business planning and market adjustment consulting: Business plans are dynamic and constantly need to be adjusted to fit the market. Contacts and Networking: The biggest advantage of a business incubator is its access to experienced entrepreneurs, innovators and professionals who can answer questions, provide guidance and resources.Business Incubator Facility The space or building devoted to housing the business incubation program of services, incubator management, and resident and anchor client companies. “Business incubation program” and “business incubator” often are used synonymously. However, the research team for this project defined a business incubator as a multitenant facility with on-site management that directs a business incubation program, as defined above.Business plan A written document detailing a proposed venture, covering current status, expected needs, and projected results for the enterprise. It contains a thorough analysis of the product or service being offered, the market and competition, the marketing strategy, the operating plan, and the management as well as profit, balance sheet, and cash flow projections.Business Service Providers Professional business assistance consultants who augment theCopyright © 2012 Vasily Ryzhonkov. All rights reserved.Authored by Vasily Ryzhonkov. 5
Glossary of Terms on Entrepreneurship and Business Incubation (v.1)Term Definition skills of incubation program staff. These individuals – with expertise in specific subject areas such as marketing, finance, business planning, procurement, and patent law – often provide their services on a no- or low-cost basis. Along with incubator staff, these individuals provide the value-added service that is the core of effective business incubation. These individuals may also be referred to as “outside service providers,” denoting that they are professionals resourced by the incubation program but they are not paid staff.Capital Cash or goods used to generate income. For entrepreneurs, capital often refers to the funds and other assets invested in the business venture.Cash flow The difference between the companys cash receipts and its cash payments in a given period. It refers to the amount of money actually available to make purchases and pay current bills and obligations.Client Firm (1) Any firm that utilizes the incubator program as tenant, affiliate, or graduate. (2) Participants in incubation programs that receive incubation services from program staff and the program’s network of service providers. There are resident clients and affiliate (non-resident) clients.Client Retention Client retention is defined as practices that businesses engage in to retain their customer base after the sale has been made. “Poor customer service is the number one reason customers do not return to make additional purchases. Implementing client retention programs will not only lower your loss client ratio but also increase your long term revenues.”Complementary Benefits Any benefits that accrue to an incubator sponsor or supporter including reuse of an abandoned facility, creation of student internships, access to SBA guaranteed loan programs, joint research opportunities, etc.Copyright A business form that is an entity legally separate from its owners. Its important features include limited liability, easy transfer of ownership, and unlimited life.Customer Segmentation A method for grouping customers based upon similarities they share (e.g., needs, interest in features, etc.)Creativity The ability to bring something new into existenceDevelopment A group of community members that are interested in establishingTeam/Community Advisory an incubator program. There should be broad representation thatTeam increases as the development progresses. Often there is an informal leader(s) who champions the cause. The goal of the board is to gauge the level of community interest and support, identify potential partners, and determine if a feasibility study should be conducted. It is also common that members of this team becomeCopyright © 2012 Vasily Ryzhonkov. All rights reserved.Authored by Vasily Ryzhonkov. 6
Glossary of Terms on Entrepreneurship and Business Incubation (v.1)Term Definition advisory board members.Due Diligence The inquiry process of obtaining sufficient and accurate disclosure of all material documents and other information which may influence the outcome of the transaction.Elevator Pitch A pitch that companies use to tell about their products or business quickly and succinctly. It gets its name from the idea that the pitch should be able to be made in the span of an elevator ride (30 seconds to two minutes).Empowerment Incubator An incubator focused on fostering the growth of business located in areas that face economic challenges, such as high unemployment or distressed neighborhoods. They may focus on welfare-to-work clients, women-owned businesses, or minority- owned enterprises.Entrance Criteria Depending in part on the sponsor of the incubator, entrance criteria for a client’s admission into an incubator range from the ability to pay the rent to other benchmarks such as local ownership, potential for job creation, type of industry, and having a written business plan. Other criteria may include an evaluation of entrepreneurs’ commitment to the new enterprise as well as an evaluation of their entrepreneurial skills.Entrepreneur (1) An entrepreneur is a person who recognizes opportunity, sets forth a plan of action and then acts upon the plan taking responsibility for its outcome. Being an entrepreneur is a mindset or a personality as it describes a person who is willing to create value or take a new direction. Although being an entrepreneur is most commonly associated with people who start a new venture, the term also refers to anyone who recognizes and pursues an opportunity within an ongoing business either on a small or corporate scale. (2) Someone who recognizes a social problem and uses entrepreneurial principles to organize, create, and manage a business venture, and assumes risk.Entrepreneur Advisor A person or organization with the experience base and educational knowledge necessary to guide an entrepreneur from concept through business fruition. The more technical the venture, the more important education becomes especially with regards to intellectual property.Exit Policies See Graduation PoliciesExperienced Entrepreneur An individual who has experience growing his or her own company or others’ companies, including a person who may be a serial entrepreneur.Equity The value of an incubator’s client company that may be shared by owners and investors.Feasibility Analysis A detailed process to determine the viability of a business idea.Copyright © 2012 Vasily Ryzhonkov. All rights reserved.Authored by Vasily Ryzhonkov. 7
Glossary of Terms on Entrepreneurship and Business Incubation (v.1)Term DefinitionFeasibility Study An objective, systematic analysis to determine whether an incubator program should be established in the host community.Financial Ratios Ratios used to determine whether a firm is meeting its financial objectives and how it compares against peersFinancially Sustainable Having a diversity of dependable income sources, such that if one source of funding fails, the incubation program still will be fully functional.First-Mover Advantage (Potential) advantage gained by the initial occupant of a market segment.Founder The entrepreneur(s) who started a venture.Graduate Firm (1) A client (tenant or affiliate) firm that has exited an incubator program having completed a set of benchmarked goals. Though exit criteria may also apply to affiliate forms, most often these goals are part of the lease agreement for tenant firms in an incubator.Graduation/Exit Policies Graduation policies have a rational hierarchy of both real estate and business-development criteria. Firms may exit the incubator as a result of not meeting the realestate criteria (such as noncompliance with the lease agreement or having reached the predesigned maximum length of tenancy), although in these cases the former client probably did not meet the other benchmarked business-development criteria and would not be considered a graduate. One business-development criterion is escalating rent over time to cushion the firm’s early-stage cash flow while preparing it to pay market-rate rent over time and inducing relocation as rent approaches or surpasses the market rate. Having a flexible and explicit time limit on the length of tenancy is another best practice. One of the most important goals is firm growth. In the case of technology incubation benchmarked criteria may include prototyping, scale production, and full-scale production. The explicit length of tenancy is usually longer for technology incubators as a result of the length of time it takes to develop and commercialize new technology products and services.“Hand-holders” Incubators offering mainly business development services (VBIS 2011).Hybrid Incubator Hybrid In terms of sponsorship, a hybrid incubator is one that has multiple sponsors that share financial and/or governance commitments, with no single controlling entity.Incubation Program The executive who directs an incubation program’s operations.Manager Most managers report to either the chief executive officer of the program’s sponsoring organization, a university president or dean, or a board of directors that governs the program. Some incubation program managers have alternative titles, such as president, CEO, or executive director.Copyright © 2012 Vasily Ryzhonkov. All rights reserved.Authored by Vasily Ryzhonkov. 8
Glossary of Terms on Entrepreneurship and Business Incubation (v.1)Term DefinitionIncubator with Walls An incubator with walls is a business incubation program with a multitenant business incubator facility and on-site management. Although an incubator with walls offers entrepreneurs space in which to operate their businesses, the focus of the program remains on the business assistance services provided to the start- ups, not on the building itself.Incubator without Walls An incubator program that provides some or all of the complementary business services and entrepreneurial training programs but has no physical facility to house tenant firms. Often these services are delivered via the Internet.Initial Public Offering (IPO) When a company issues shares to the public for the first timeInnovation (1) Successful introduction of something new and useful to the market; applied creativity. (2)Innovation is a change that creates and/or adds value, and prov ides a competitive advantage HERE and NOW.Intellectual Capital Sum of all knowledge in an enterprise. Intellectual Capital is the sum of Intellectual Assets and Intellectual Property.Intellectual Assets The knowledge, experience and skills that have been obtained, preserved, catalogued and made available for sharing.Intellectual Property Intellectual assets that have been legally protected. Intellectual Property is often referred to as IP. Types of Intellectual Property include: Patents Trade Secrets Know-how Trademarks CopyrightsInternational Incubator Recently, a new form of business incubation program has emerged, which focuses on helping foreign firms enter the U.S. market. These international business incubators provide the same set of entrepreneurial services as a typical incubator, but they concentrate on providing a “soft landing” for international firms that want to access U.S. markets, partner with U.S. firms, or access other resources. Some specialized services offered by international incubators that are above and beyond typical business incubation services include translation services, language training, help obtaining business and driver’s licenses, cultural training, immigration and visa assistance, and housing assistance. Immigration services are often extended to trailing spouses and children, making it easier for foreign entrepreneurs to settle into their new location.Internet/E-Commerce An incubator that fosters the development of new enterprisesIncubator engaged in establishing e-commerce businessesIntrapreneur An intra-organizational (inside) entrepreneur; “a person within a large corporation who takes direct responsibility for turning anCopyright © 2012 Vasily Ryzhonkov. All rights reserved.Authored by Vasily Ryzhonkov. 9
Glossary of Terms on Entrepreneurship and Business Incubation (v.1)Term Definition idea into a profitable finished product through assertive risk- taking and innovation” (Gifford and Pinchot).Invention The creation of new forms, compositions of matter, or processes; an idea made manifest.Leasable Space The total amount of space in the incubator facility that is dedicated for rental by both anchor tenants and resident clients (excludes administrative offices and shared common space, for example). This term is used interchangeably with “net leasable space.”Key Performance Indicators Key Performance Indicators are quantifiable measurements, agree d beforehand, that reflect the critical success factors of an organiza tion. They must be quantifiable and reflect the goals of the organization.Management Board See Advisory Board.Manager The executive who directs the operation of an incubator program. A manager develops and coordinates business assistance programs and usually provides one-on-one counseling and referral services to incubator clients. Other tasks include marketing the incubatorprogram, fund raising, client screening, collection of rents and fees for service, and managing other incubator personnel.Manufacturing Incubator A manufacturing incubation program is designed to assist new enterprises primarily engaged in the manufacturing sector. Because clients typically require manufacturing space in addition to office space, manufacturing incubators tend to occupy more square footage than do other types of incubators. Generally, to be considered a manufacturing incubator, at least 50% of the client firms should be manufacturing-oriented.Market A group of people who want or need a particular product and have the ability and willingness to pay for itMentors (1) Industry experts and business service providers who offer ongoing counseling to incubator clients. A mentor provides a voice of experience on a long-term basis, perhaps through one or more stages of a company’s development. Groups of mentors having different areas of expertise may be assigned to individual companies. (2) Is defined as a person who is; willing to be a sounding board for your ideas and issues, provide guidance, teach or direct you to the needed resources and is willing to tell you what you need to hear and not what you want to hear. Mentors are often found or placed on a Board of Advisors or Board of Directors.Microentrepreneurs Entrepreneurs who run businesses that have five or fewer employees, require $35,000 or less in start-up capital, and do not have access to traditional (bank) financing.Micro-enterprise Is a term used to describe very small businesses that have lessCopyright © 2012 Vasily Ryzhonkov. All rights reserved.Authored by Vasily Ryzhonkov. 10
Glossary of Terms on Entrepreneurship and Business Incubation (v.1)Term Definition than 5 employees and annual revenues under $250,000. This term is frequently used to describe home and farm based businesses or businesses with no employees other than the owner. In some Countries, States and Provinces micro-enterprises make up the vast majority of the workforce. The term can also be used to describe a new venture in its early formation such as a new technology company that is just forming or only in a research and development stage.MIS Management information systems are technologies, processes, and protocols used to manage people, payments, receivables, documents, business or manufacturing processes, and other financial information and resources.Mixed-Use Incubator A mixed-use incubator (also called general purpose incubator) is a business incubation program that fosters the growth of all kinds of companies; the businesses in a mixed-use incubator are not required to fit into any specialized niche. Companies in mixed-use incubators may include service, manufacturing, technology, and other types of firms.“Network boosters” Networking focused business incubators (according to the VBIS classification)Outsourcing Outsourcing is the assigning of non-core functions of your business to an outside party in order for you to have more time to concentrate on your main (core) business functions. Typical outsourced functions for a small business include, payroll, legal, sales, marketing, computer services and human resources.Participating Clients Incubation program clients who rent and/or use the incubator facilities, programs, or services on a regular basis and have not graduated from the program.Patents Conveys the right to the owner (not necessarily the inventor) the right to prevent others from making, selling, using, offering for sale or importing the patented invention. There there are four types of patents, 1)Utility, 2)Design, 3)Plant, 4)Animal.Pivot Chris Schultz called this the startup term du jour; it is used to mean changing directions in your business strategy.Post-Incubation Services offered to companies that have graduated from the incubation program (i.e., access to specialized facilities as needed, consulting services, CEO roundtables, and networking functions).Pre-Incubation Services offered to companies or individuals who have not been formally admitted to the incubation program (i.e., FastTrac or NxLevel training and business plan reviews).Primary Stakeholders The organizations or entities that have or should have an interest in the incubation program’s success. In addition to sponsors, these could include local government agencies, economic development organizations, industry sector networks, Small Business Development Centers, and others whose missions are such that they should have an interest or “stake” in the incubationCopyright © 2012 Vasily Ryzhonkov. All rights reserved.Authored by Vasily Ryzhonkov. 11
Glossary of Terms on Entrepreneurship and Business Incubation (v.1)Term Definition program’s success.Primary Sponsor Entity that provides regular financial and other support for a business incubation program. A sponsor may or may not have developed the incubation program initially, but a current sponsor maintains ongoing responsibility for managing or governing the incubator and may provide subsidies to fund program operations. In some cases, a sponsor may initiate the program, but if it ceases its financial, governance, or management role, the incubator likely would then operate independently with no sponsor. If two or more sponsors provide financial or management support and there is no single controlling or primary controlling entity, the incubation program likely operates with hybrid sponsorship. (See “hybrid.”)Professional Staff Staff Incubator staff who might include a chief operating officer, information technology professionals, client business advisors, professional facility managers, and/or other management professionals who are normally paid staff of the incubator.Resident Client A participant in the incubation program that rents physical space in a facility-based incubator and receives incubation program services that may be provided for additional fees.Sales Metrics Sales metrics are the variables used to define how you will achieve your sales projections. This includes; knowing how many sales people or web site visits it will take to generate a qualified lead, how many leads it takes to generate a sale or client, cost per sale and the length of the sales cycle. Sales metrics are the cornerstone of the sales and marketing functions for new ventures.Seed capital providers Finance-focused business incubators (according to the VBIS classification)Seed financing / A relatively small amount of money provided to prove a concept; itSeed Funding may involve product development and market research. Seed in business terms refers to a company in its early stages; seed funding is funding granted a company in its early stages, to get it off the ground.Series A, B, C Financing The first (A) / second (B) / third (C) round in a series of equity financing in a new venture.Service Incubator An incubation program that fosters the development of entrepreneurial firms in the service industry. Firms may range from landscapers, graphic designers, and consulting firms of many types to Internet-based companies and Web development firms. An incubation program may target a segment of this sector for its services.Social Entrepreneurs (1) Entrepreneurs who run companies whose business model includes achieving a social good in addition to being successful in business and generating profits. Such a company might devote a percentage of its profits to a philanthropic cause, or it might devote its services or products to ameliorating a social problem such as hunger or to lack of access to clean water orCopyright © 2012 Vasily Ryzhonkov. All rights reserved.Authored by Vasily Ryzhonkov. 12
Glossary of Terms on Entrepreneurship and Business Incubation (v.1)Term Definition pharmaceuticals, etc. (2) Someone who recognizes a social problem and uses entrepreneurial principles to organize, create, and manage a venture to make social change. Social entrepreneurs often work through non-profit organization and citizen groups, but they may also work in the private or governmental sector. Many successful entrepreneurs, such as Bill Gates of Microsoft, have become social entrepreneurs.Social entrepreneurship The art of simultaneously pursuing both a financial and a social return on investment (the “double bottom line”).Start Up A Start Up is defined as a new business that has yet to achieve a sustainable positive cash flow or has been in operation for a limited period of time.Still in Business Businesses that have participated in the incubation program in the past that are still successfully operating as businesses, generating revenues, developing products, and/or hiring employees.Stock Options A special form of incentive compensation providing employees the option or right to buy a certain number of shares of their firm’s stock at a stated price over a certain period of timeTargeted Incubator Incubators that focus on assisting startup companies from a specific industry.Technology Generator An institution—such as a university, national laboratory, or private research and development laboratory—that ensures a sufficient concentration of human capital and engages in an adequate amount of R&D to produce numerous opportunities for new commercialization ventures.Technology Incubator An incubator that fosters the growth of new technology ventures by helping to close the gaps in the innovation process and correct for market failures. Generally, if 50% of the client base are “technology firms” then an incubator is considered a technology incubator. Technologies could be software, biotechnology, robotics, nanotechnology, or instrumentation. Technology incubators may focus on commercializing early-stage technology, developing new applications for existing technology, or both.Tenant Firm A client firm that is housed at an incubator facility, receives the menu of business services, and participates in the entrepreneurial training provided by the incubator program.Total Annual Revenue The sum of all incomes generated for an entire fiscal year including: 1) sales; 2) Small Business Innovation Research (SBIR)/Small Business Technology Transfer (STTR) or other grants; 3) Venture Capitalist investments; 4) Angel investments; and 5) technology licensing arrangements.Total Cash Equity The sum of all the cash revenues received by a company for whichInvestments it has offered stock, warrants, or other ownership instruments. Cash equity does not include ownership that is dependent onCopyright © 2012 Vasily Ryzhonkov. All rights reserved.Authored by Vasily Ryzhonkov. 13
Glossary of Terms on Entrepreneurship and Business Incubation (v.1)Term Definition sweat equity (working in or for the company in return for an ownership interest).Types of Incubators Overall industry specialization of an incubation program indicating the program’s primary focus area. Typology of incubators depends on the perspective.Value-Added In the incubator industry, the concept of value-added refers to the manner in which incubator programs enhance the ability of their tenants to survive and grow in the market place. The value-added components of an incubation program generally include business management and marketing training, affordable rent, shared office services, networking opportunities, financial assistance, and, in the case of technology incubators, access to host institutions’ facilities and experts. For example, a university-hosted technology incubator will generally provide access to its library, laboratories, and faculty at no or reduced cost.Valuation The appraised or estimated worth of a firmValue Proposition The quantifiable benefits that a business promises to deliver to customersVenture Capital (1) Source of funds for earlier stage enterprises that are on the verge of product/service introduction and need an infusion of capital to ramp up to full production. These funds may also be used for research and development, testing, or prototyping. In technology ventures, generally the firm has a developed proto type. Typical funding ranges from $5 million to $15 million, the average investment growing steadily from $2.3 million in 1987 to $5.6 million in 1995 (ACE-Net). These institutional funds often include union pensions as well as individual investors’ capital. (2) A form of financing for a company in which the business gives up partial ownership and control of the business in exchange for capital over a limited time frame, usually 3-5 years. Investments typically range from $500,000 to $5 million., although there are occasionally VC investments for as low as $50,000 or as high as $20 million.Venture Capital Investors Persons or groups that give cash sums to high-potential start-up businesses in exchange for shares in the company. Venture capitalists always seek an exit strategy in which the company is merged or acquired, or its stock is sold on the public stock markets, permitting the investors to recoup many times their initial investments. Professional venture capitalists generally manage and invest large sums of other peoples’ money through a professionally managed entity such as a limited liability partnership.Virtual incubation (1) Incubators without walls and virtual business incubators are synonymous terms. Essentially, they are business incubators thatCopyright © 2012 Vasily Ryzhonkov. All rights reserved.Authored by Vasily Ryzhonkov. 14
Glossary of Terms on Entrepreneurship and Business Incubation (v.1)Term Definition do not offer on-site space for clients, although they may have a central office to coordinate services, house the management staff, meet with clients, and perhaps even provide conference rooms for clients. Virtual incubators may or may not be located in the same geographic area as their client companies, since a virtual presence is what defines an incubator without walls. (2) location-independent business incubation.Virtual service Virtual service concept refers to a service that is offered to non- resident incubatees.Virtual tool Virtual tool is a way of delivering a service to a dispersed group of users (using ICT-based or other means), where the service provider and service recipient are not in the same physical location.Service Incubator A service incubation program fosters the development of entrepreneurial firms in the service sector. Firms may range from landscapers, graphic designers, and accountants to Internet-based companies and Web development firms. An incubation program may target a segment of the service industry or a range of service- oriented firms. Again, at least 50% of the client companies should be service firms to be categorized as a service incubator.Window of Opportunity The time period in which one can realistically enter a new marketCopyright © 2012 Vasily Ryzhonkov. All rights reserved.Authored by Vasily Ryzhonkov. 15
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