Business incubators need to be financially sustainable to carry out its mandate. The session will focus on how to get multilateral funding agencies/investors to support agribusiness incubators, factors and parameters to be considered for obtaining aid, and how to involve the Government to support such ventures, with the ultimate objective of developing an ecosystem for the growth of small and medium agribusinesses.

1. FUNDING & SUSTAINABILITY
OF BUSINESS INCUBATOR
Agri-Business Incubation (ABI) program of ICRISAT

2. Funding strategies for business incubation
and sustainability
 Initial funding of business incubator program is provided by public
authorities
 EU countries- A funding mix based on the matching of national funding
usually upto a maximum of 50% of the operations and other sources
such as regional/ local public and private funding is the most common
funding structure
 US Incubation programs- Usually start as local initiatives by economic
development agencies. Following the initial preparations federal agencies
are approached
 Federal funding is usually limited to preparation and construction costs
as well as research grants for client companies and then compounded
with other local/ private sources

3. FINANCIAL MANAGEMENT
This is designed to bring together
1
information on the uses and
disbursement periods of funds for
Preparation of
investments needed to establish
Investment incubator
spreadsheet
CRITIICAL ISSUES
2
FOR INCUBATOR 3
Preparation of
Preparation of costs and
revenue expenditures
spreadsheet: spreadsheet:
Revenues brought by the
Provides information on the uses
incubator incl its own income
and disbursement periods,
and third parties income
separated into costs and
expenditures
Results
Effective oversight of the financial flow of the incubator, identifying needs and sources for
bringing in funds

4. Financial Management Process
REVENUE MODELS OF BUSINESS INCUBATORS
CAPITAL GAINS MODEL FRANCHISE / REVENUE GEN. MODEL
 Big impact highly proprietary technologies • Incremental technologies / pure services.
 Types of incubatees • Type of incubatees
– Mature/ large businesses – Numerous small businesses /
entrepreneurs
– Start-ups with solid entrepreneurs • Characteristics:
 Characteristics: – Needs significant ABI mgmt. support
– Needs less ABI mgmt support – Does not need great new tech inputs
– Needs great new tech development – Needs investment in technology
transfer
support from ICRISAT..
– Needs investment in branding /
 Equity payment primarily marketing
• Service / royalties / one time fees

5. Business models to manage
revenue streams
Incubators use a mix of the following revenue models to manage
the revenue streams
Rent Equity Royalty Deferred
model model model debt
model

6. Business models to manage revenue
streams- Rent model
 Rental charges to the clients can be source of funds, through
incubators need to achieve a significant size before this become a
major income source
 In most cases public grants are provided directly to the incubator
but in some cases grants towards rent are given to the incubator
clients, helping them to focus the incubator staff on the need to
attract sufficient clients to fill the space available
 The level to rent subsidy declines over time to near market-
related levels.
 The benefits of this strategy are to gradually introduce commercial
discipline to clients and to make a progressively growing
contribution towards the financial sustainability of the incubator

7. Business models to manage revenue
streams- Equity model
 Incubators can take a minority stake (2-6%) in incubated
businesses, often in return for free and low rent periods
enabling future income for dividend payments
 An additional equity (eg: 1-2%) may be further added for
additional periods spent in the incubators
 The relative smallness of the incubator shareholding means,
there are many opportunities for it to liquidate its position
 To work the liquidity model requires scale and portfolio
quality

8. Business models to manage revenue
streams- Royalty model
 According to this model, the revenues earned by the client will
legitimate a royalty payment for the incubator
 Usually the royalty is around 5% of the revenue and is limited in
time (around 5 years)
 As the royalty can undermine the financial management of clients
that are in start-up phase thus needing sources, it might happen
that incubators agree to postpone payments at when companies
can afford them
 This type of model requires lot of trust, communication and
exchange between the parties

9. Business models to manage revenue
streams- Deferred debt model
 In this model, the services provided to the client are valued,
along with incubators overheads, and then charged in the
incubation fee
 The client has up to 10 years to payback the debt to the
incubator
 Once the client has left the incubator and/ or when it has
reached an agreed financial target, the total debt due to the
incubator is fixed and the repayment can start
 Repayment can be in lump sum or partial payment

10. Other sources of revenue
 Consultancy assignments
 Funds facilitation fee
 Marketing facilitation fee
 Capacity building & trainings
 Handholding and mentoring
 Events ( seminars, conferences, exhibition etc)

11. Revenue stream structure ABI-ICRISAT
DEFERRED
DEBT, 0
REVENUE STREAM % EQUITY,
20
RENT 80 ROYALTY, 0
ROYALTY 0
EQUITY 20
RENT, 80
DEFERRED DEBT 0

12. ABI-ICRISAT Financial sustainability
over a period of six years
FY 2005 2006 2007 2008 2009 2010
•Revenues
in USD • 33 • 89 • 142 • 121 • 206 • 611
000
ABI-ICRISAT Financial sustainability
800
Revenue (US$'000)
600 611
400
200 206
142 121
89
0 33
2005 2006 2007 2008 2009 2010
Year

13. THE OPPORTUNITY IS VERY HUGE
LETS PARTNER FOR PROSPERITY
Mr. Aravazhi Selvaraj
Email id: s.aravazhi@cgiar.org
Mobile no: 0 9618889800