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A New Breed of Incubators
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Along with much of the U.S. economy, incubators in Silicon Valley have recently experienced a dramatic downturn. The focus of this article is to look at a different breed of incubators -- those who either incubate international startups or are foreign owned. I recently interviewed three of these international incubators in San Jose. Each represents a unique breed of incubator, perhaps signaling a trend in Silicon Valley for other incubation activity on an international level, now that domestic incubation activity seems to have slowed considerably.

The first incubator I interviewed was a Korean incubator --iPark-sponsored by the Ministry of Information and Communication (MIC), a Korean government agency. IPark merged with the Korean Software Incubator (KSI) in January 2001. Located in San Jose, iPark supports Korean information technology software companies who wish to sell their products in the U.S. When I asked Mr. Young Park, the director, how to evaluate the success of iPark, he said that the true measurement of success is total sales revenues generated by each of the iPark tenant companies. By that measurement, iPark is definitely a success. Revenues for 2001 totaled over $26 million for ten Korean companies who are tenants at the iPark incubator and increased in 2002. Thirty companies are "virtual tenants" since their marketing and distribution activities are completely outsourced to iPark.

This international incubator is unique in that it functions as a virtual channel marketing operation, specializing in VARs and distribution or sales agreements. Park's Market Channel Program facilitates the process of sales and marketing between U.S. and Korean companies by providing resources and introductions to key customers. IPark focuses exclusively on software products, particularly information technology products from Korea, and has already established five other iParks in Boston, Beijing, Shanghai, London, and Tokyo. At a workshop each year in Seoul, each regional iPark discusses its current activities, including support services, seminars and conferences, and sales/marketing performance. IPark plans to open even more offices in other countries with investment from Korean venture capital. With the startling growth of revenues that Korean IT companies have earned in the past year, we can almost certainly see further growth of the iPark phenomenon. In addition, one of the unique features of iPark not found in the other incubators that I interviewed, is a program to facilitate American companies' entry into Korean markets by identifying local distributors, advising on channel partners, and supporting the localization of the U.S. product or service to Korean market standards for quality and product specifications. These advisory services are offered to both small and multinational US corporations in Silicon Valley. This month iPark Silicon Valley (, the U.S. gateway for South Korea's emerging technology companies, has facilitated a sales deal to bring Korean technology products into the U.S. through distribution at CompUSA, one of the largest sellers of IT products in the nation.

JETRO's incubator, an essential part of a project formally called Tiger Gate (after Toranomon), is the U.S.-Japan Business Incubator Center (U.S.-Japan BIC), which is supported by JETRO ( This incubator follows a Silicon Valley model in that the center is dedicated exclusively to very young startups (unlike iPark which works with more mature companies) and nurtures Japanese startups with "soft services" including mentoring, presentation skills, seminars, and business development support such as Venture Path. This gateway was established in January 2001 and has now hosted a total of twelve Japanese companies who work in their bright new offices in San Jose. Of the twelve companies, nine have moved out of the incubator and one startup (Elmic Systems) had an IPO (initial public offering) in Japan. The history of the JETRO related incubators may be an inspiration for other countries that wish to support young business ventures. I interviewed the managing director, Blaine Carman, who told me that the main mission of the JETRO incubation center is to provide young Japanese entrepreneurs with a positive environment for doing business in the U.S. MITI saw the U.S. incubator model and wished to encourage entrepreneurial companies in Japan to go international. "Japan has long recognized the importance of a Silicon Valley presence to further the development of Information Technology in their country. Now it is a reality", Mr. Carman has commented. Currently there are two other JETRO related incubators in the U.S. located in the Chicago and Washington D.C. areas. Of the three incubators, only the San Jose office is a "stand-alone" incubator whereas the other two are housed within other municipal incubator offices.

As a hub for the Japanese entrepreneur, JETRO assists with relocation services including a pre-arrival information kit about Silicon Valley, assistance with obtaining a driver's license, opening a bank account, housing and other relocation support. The screening process for being accepted into the JETRO incubator program is extensive and quite thorough. First, the entrepreneur must go to JETRO headquarters or to a regional JETRO office to go through the formal application procedure that occurs four times a year. If the startup's application is selected, then the entrepreneur is invited to give a face-to-face presentation in Tokyo. This is the first filter in the screening process. If he or she passes through this first filter, then an application with the company's business plan is sent to San Jose for a review. There will be a personal interview and presentation in San Jose for the top candidates with a panel of judges (usually about seven) from the JETRO board of advisors and their network. To prepare for the presentation of the business plan, each entrepreneur is given a template to guide the content of the presentation. The final recommendations and list of accepted startups is sent to Japan for processing. This entire application procedure would be a very valuable experience for the Japanese startup, even if the company were not to be on the final list of accepted candidates. Simply knowing how to present a business plan to American experts in the field is a worthwhile lesson for any entrepreneur who wishes to compete in Silicon Valley!

Every Monday there is a meeting of the young startups to announce events and conferences in Silicon Valley and to discuss high-level information technology news that happened that week. Sometimes, JETRO invites speakers to come to their office to talk about their own success from young startup phase to a more mature company. In addition, each client presents an action plan for the week that is open to recommendations and feedback from the JETRO staff and other young business tenants. In this way, these young Japanese entrepreneurs can network with American companies in Silicon Valley, brainstorm with the in-house professional management team, and become more comfortable in their newly internationalized environment.

The International Business Incubator of Silicon Valley (IBI, now: US Market Access Center)( is a project of the San José Redevelopment Agency and of San José State University. Established in January 1996, the mission of IBI is to expand business opportunities by integrating global technology companies, government, and universities through a world-class business incubation center offering 1) Resident, Virtual, and Graduate incubation services; 2) Incubation training and development; 3) Delegation hosting; and 4) Internship programs. The downturn in the American economy, perhaps concomitant with the political effects of September 11, 2001, may have dissuaded companies from coming to Silicon Valley until now. There has been an upturn in the number of companies approaching IBI in recent months.

In an interview with the executive director, Ms. Barbara Harley, I asked what types of services besides the standard introductions and relocation support were outsourced by IBI. Ms. Harley mentioned that all specialty and technical advisory services such as legal, accounting, and technical strategic planning services were available through their network. In addition, the director said: "A dozen or so Expert Associates are available, on a regular basis, to provide their expertise and advice to client companies for free. If the company wishes to use those individuals on a professional basis, then they may contract with them." In the near future, IBI anticipates bringing several technology strategists in-house to make them available on a daily basis for their startup clients. Moreover, the IBI's entire package of incubation services, space, advice and introductions are bundled into one fee.

When asked about the screening process for a company to be accepted into IBI, I was told that the startup must first complete a formal application. After a review by the IBI managers and one or two members of their advisory board, the appropriateness of the client's business plan is evaluated. IBI accepts companies from any country and from any industry. In addition, although the startups must have sufficient investment money to support their arrival and entry into the US market, they do not need to be planning an IPO or acquisition in the US.

In some sense, IBI may be considered the cornerstone for the comprehensive business incubator environment of foreign startups in Silicon Valley. By the end of 2002, IBI had assisted more than seventy-five clients from eighteen countries as well as thirty virtual clients from seven countries. Since the IBI was the first incubator in the US to work exclusively with international companies, this center-- with its excellent track record--serves as a destination for international delegations, student interns, and as a hub of services for incubators-abroad (such as iPark, Venture Path, and JETRO). Other countries are currently considering establishing incubators and IBI regularly provides guidance and expertise to these countries in developing their planning and programming for an incubator project. The IBI is home to a regional incubation association called Pacific Incubation Network (PIN) for incubators from Alaska through British Columbia, Washington, Oregon, California, and Mexico. As co-chair of that organization, Barbara Harley in in charge of local networking and orientation events throughout the region. IBI is also a member of the National Business Incubation Association (the world leader in incubator associations) and a member of the Science Parks and Innovation Center Expert Group (SPICE) in Central and Eastern Europe. IBI can truly be designated the "incubator of internationally focused incubators".

With these international incubators, we see a future trend for Japan to study. Prefectural and municipal governments, angel investment clubs, as well as medium-sized closely held technology firms could benefit from the wide variety of incubator models they can use to develop incubators in Japan or in Silicon Valley. For regional government agencies, nurturing US startups in an incubator environment or supporting Japanese entrepreneurs in their own Silicon Valley incubator, perhaps in cooperation with Japanese venture capital and angel investment clubs, will build good will, cooperation, and increased know-how in international business development and strategic planning between the US and Japan. For successful medium-sized Japanese firms, the iPark model may be a good one to emulate with Market Channel Programs to assist in selling their products and services in the increasingly competitive and internationalized US market. Later this year I will be presenting an update on these international incubators with a progress report on their success or failure in this continuing recessionary climate as well as on any changes in these business incubator models.

Diana Yoshikawa is president of InterfaceJAPAN LLC, an international business development company with two affiliates in Japan. InterfaceJAPAN supports US companies in finding Japanese customers and business alliances.

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