Business Incubators, financial recycling and incentives into reward.

Jan Softa CEO of Somerco Research. Date: 2013-06-17.
Contact details: Somerco Research, Suite 177, 372 Old street, EC1V 9LT London, UK
Phone: +44 (0)7733 824 711 Email: info@somerco.com
Enhance EC member states competitiveness in R & D
Part 5: Business Incubators, financial recycling and incentives into reward.
Abstract: It is not lack of good ideas for starting businesses that stops business incubators from helping them to
succeed. It is rather that there are not enough qualified people that can support these companies. In this
suggestion, I have developed and present how a financial recycling model makes it possible for Business
Incubators run by municipalities, boroughs, counties and cities to offer highly qualified professionals that can
help their portfolio companies. A pilot project monitored by the EBN should run for a few years. After its
evaluation and adjustments are made EBN could offer this service and knowhow to the municipalities,
boroughs, counties and cities of Europe.
Background
Helping geniuses! Our slogan sums up who Somerco aims to help. Somerco are a company
that target to help researchers and innovators so that these geniuses can create prosperity and
jobs in society. In order to achieve this aim, I discuss how a financial recycling model makes
it possible for Business Incubators run by municipalities, boroughs, counties and cities can
offer more highly qualified professionals that can help their portfolio companies.
Introduction
Municipalities, boroughs, counties and cities in the EU-zone have an interest in creating new
jobs to people. A measure is to set-up new and increase the support of current business
incubators. Business incubators are financed in different ways. It could be taking a share in
companies or by being subsided by governmental programs and so on. To have a sound
economy at these business incubators creates stability which is beneficial for the development
of the incubated companies. I believe this is a key factor if we would like to see even more
business incubators who have a high success rate for their companies. This could happen if
the right economic conditions are in place at municipalities, boroughs, counties and cities so
that they can run highly competitive business incubators.
How to
It is not lack of good ideas for starting businesses that stops business incubators from helping
them to succeed. It is rather that there are not enough qualified people that have the
dedication to support these companies. An action to increase the number of qualified
professionals at business incubators is to be able to offer a great employment package. To
hire qualified professionals who have the knowledge to offer great business advice you need
to create incentives that make it interesting for them to work at business incubators run by
municipalities, boroughs, counties and cities. This discussion draft focuses on how the public
sector can increase the presence of business incubators by creating incentives for this
professional group. And also how to create a sound economic model that includes how the

incubated companies can pay back to the business incubators run by municipalities,
boroughs, counties and cities. Two key phrases are used in my model: financial recycling and
the re-use tax system.
The re-use tax system
The economical instruments I propose are not too costly for the public sector to adopt since it
return money back into the public sector by “the reuse tax system”. A kind of financial
recycling that make it easier for municipalities, boroughs, counties and cities to hold business
incubators that can maintain or hire new highly qualified staff who are important to get a high
success rate of the incubated companies.
Financial recycling
In the first step, my financial recycling model focus on letting the incubated companies get
help to subside their rent for office or industrial spaces with 80 % the first three years and 50
% year four and five.1 With such instruments in place they have had a possibility to grow and
become steady companies for their five year graduation.
The middle-step of the recycling model is when the companies after graduation needs to pay
back 3-5 % to the municipalities, boroughs, counties and cities on their turnover for two -
three months during two years within a four year period. They can ask to postpone this re-
payment twice. It gives money back into “the reuse tax system” and will be used to hire
skillful business developers and educate more junior business developers that will be
employed by the municipalities, boroughs, counties and cities.
The last step in the recycling model is to have incentives that keep the talented staff. In my
opinion, it is important to attract talents that are willing to go the extra mile for companies
they work with in the incubation programme. In order to attract these people it is important to
create incentives for them to be a part of the programme by offering a competitive
employment package. When the programme has been running for five years and the first pay-
ins on the company’s turnover start to come back to the public sector some of this money
should be allocated to bonuses on how well the business developers companies are
performing. It means their salary will be somewhat performance based.
It is advisable that there are caps for the number of companies the business developers can
advise and also a cap on the bonus they can get on each company. The reason is of course
that they should be able to do an excellent job for all their incubated companies. Too many
companies on their portfolio do not make them efficient and if they get uncapped bonuses per
company it could lead to that they only focus on 1-3 that are growing rapidly at the moment.
Some business sectors naturally grow slower in the beginning such as pharmacy companies
due to that they have to put in much research, clinical testing, and wait for governmental
approval and secure patent rights before they can become profitable. However, often this
means they make a greater ROI after a few years. In principle, all companies that have to rely
on IP rights to protect future income have a longer start-up phase before they become

profitable. In these cases the re-use tax system can be extended in time. Other sectors such as
financial services and building software apps have a more immediate ROI for the company.
Ideally it should be a long-term relationship between the business developer in the incubation
programme and the companies they manage. The companies who participated in this
programme have to pay “the reuse tax” for two years after graduation. It should mean the
business developer and his/her managed companies have had a business relationship for 7-9
years when they depart from each other.
Ideally, hereafter they continue their relationship and pay a consultant fee as you do when
you use a lawyer or your accountant. 1 (A) It is the municipalities, boroughs, counties and
cities that subside these costs. (B) Unlike, the corporation tax that is collected by the
government, the re-use tax system is paid to the municipalities, boroughs, counties or cities.
(C) These can adopt and develop the financial recycling model I propose by adjusting the
years and percentage after needs.
Depending on the size of your municipality, borough, county and city you decide how large
companies you want to be a part of this financial recycling model for business incubation.
The financial recycling model that subside office and industry space is also a flexible option
because it enables you to not have the companies at the same location as you have at
business, science and technology parks.
Figure out
The business world is not static and much can happen during five years. How will this affect
the financial recycling model? For instance, what happens when there is a buyout from
another company or venture capitalists or a merger with another company? The legal
agreements between the company and business incubator could cover these events in the
contract between them.
I believe, when there is a buyout or merger the companies should have the option to continue
for the remaining time of the incubation period. Those companies who chose not too should
have an option to do so. When these events occur the re-use tax should be paid to the
municipalities, boroughs, counties and cities based on the company’s turnover. It could mean,
if the company leaves the incubation programme they pay 3-5% on their turnover for two-
three months and also payment for the second year will be based on 3-5% on their turnover
for the same months plus 10-20%. If the company already done one re-uses tax payback they
will only pay 3-5% on their turnover for two-three months.
Long-term
As you can see the incubation programmes subsiding of rent is longer than the usual three
years of incubation programmes. It is a long-term commitment by the municipalities that
hopefully will give a long-term effect because most companies have settled-in when the
incubation programme ends. I think long-term incubation programmes is appealing for
municipalities etc because it is more likely the companies remain in the area and create jobs
and the company’s employees pay tax. Since the financial recycle model ease the costs for

the municipalities etc to run competitive business incubation programmes I think there should
be a pilot project that covers different countries. It is a task that could be supervised by EU-
bodies. After the pilot project ends it will be adjusted and set into full scale by the
Commission and perhaps run by the EBN.
Involved
In particular, the EBN – the European Business and Innovation Centre Network are a suitable
partner for a first investigation of the costs it takes to implement these measures. Several EU
bodies could be involved and give feedback, such as the commissions COMP, ENTR, RTD,
the Parliaments ITRE committee. The business incubators supported by the commission can
be further developed into an efficient network for trade and creating jobs. It would a bit like
the WTCA, but for incubating companies supported by the municipalities, boroughs, counties
and cities business incubators.
The pilot project
In such a pilot project, I would think that you choose to contact municipalities, boroughs,
counties and cities from different parts of Europe. It could be the Finnish city Abo, the
Camden borough of London – UK, the Polish city Krakow, the Bulgarian city Burgas, the
French city of Bourdeux and a sparsely populated area as the Swedish municipality of
Kiruna. No matter who would be included in such a pilot project, I believe it is important to
have a variety in size, business pulse, countries of the participants in order to find out how
this type of business incubator programmes work. During the pilot project, best practices are
shared which will also speed up the evaluation of the projects when it ends. Adjustments are
made. Then EBN could offer this service to the municipalities, boroughs, counties and cities
in Europe who are interested in adopting my suggested model for how they can run
competitive business incubators with highly qualified staff.
Adopt co-financing
I believe several co-financers would be interested in financing, participating and developing
such a pilot project. Not just EU, but also on a national and regional governmental level there
should be an interest in participating and co-financing this type of project. Also the private
sector runs business incubators, such as Nokia Mobile Lab. Even if these type of business
incubators cannot adopt the re-use tax system it would be beneficial to get their feedback and
perhaps co-financing.
Make it happen
As with most new types of service models they need to be questioned, tested and developed
before they are adopted. I hope this suggestion will end up on the political agenda at the

Commission and the European Parliament and after being examined also adopted. The
involved parties at the Commission and the Parliament I have already mentioned. However,
since it includes a pilot project that is monitored by EBN financial means needs to be
allocated for them. Therefore, also the Parliament’s Budgets should be involved. I am
convinced that many municipalities, boroughs, counties and cities in Europe would be
interested in such a service and knowhow being provided by the EBN. The network EU has
in Europe makes them the most suitable candidate for testing my proposed suggestion of a
financial recycling model for business incubators. Many new companies and jobs can be
created this way and it should be an appealing action to adopt in order to boost economy in
countries.

Draft proposals
Enhance the competiveness of EC member states Part 1 - Designated tax to science
Enhance the competiveness of EC member states Part 2 – Strategy to support the software
industry
Enhance the competiveness of EC member states Part 3 – Actions to support women in ICT
Enhance the competiveness of EC member states Part 4 – Going abroad – Competitive assets
Enhance the competiveness of EC member states Part 5 – Business incubators, financial
recycling and incentives into reward
Enhance the competiveness of EC member states Part 6 – Standardization as a tool to
increase competiveness
Enhance the competiveness of EC member states Part 7 – Different types of innovations
Enhance the competiveness of EC member states Part 8 - Open source from science to
society
Enhance the competiveness of EC member states Part 9 – Crowd sourcing and crowd funding
(In progress)
Enhance the competiveness of EC member states Part 10 – Green VAT for business
Enhance the competiveness of EC member states Part 11 – Keep talents in Europe (In
progress)
Enhance the competiveness of EC member states Part 12 – Research leftovers (In progress)
Enhance the competiveness of EC member states Part 13 – Science Parks (In progress)
Enhance the competiveness of EC member states Overview – Old and new key areas in order
to increase the competiveness of the industry (In progress)
Input on threats against information society

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