Business Incubation As Entrepreneurship Policy: An Italian Story

Abstract
Entrepreneurs find it difficult to raise the funds they need and are often forced to resort to debt
capital, not suitable in the early stages of the company development. Besides inadequate
financing, poor business planning and inability to compete in a difficult market lead new
business ventures to failure within the first years of opening. Hence there is the need for a
category of investors, able to match the new trends on the market and that would help
companies to achieve higher performance. This thesis studies business incubation as
entrepreneurship policy, with a specific focus on an Italian successful incubator, H-Farm,
which has helped young entrepreneurs in launching new initiatives based on digital
technology and has supported the transformation and innovation of traditional Italian
companies.
The first part of the thesis defines the actors involved in the process of business ideas
development and examines the characteristics of business incubators, their evolution over
time and the context in which they operate, as well as their incentive to the emergence and
growth of new business ventures. In particular, attention will focus on the importance of
allocating tangible and intangible resources to incubators' tenants, the significance of
networking, the idea of complementarity and the business model concept. By means of non-
monetary adding services, one among many the mentor-ship programs offered, through giving
advice and being involved in the creation and innovation process behind the business ideas,
incubators enhance the value of the new start-up companies without the traditional contractual
investment provisions. Most of business incubators tend to be physical places where one can
start a business under a collective roof, giving the ability of participants to network, but also
actively support entrepreneurs in their search for finance and introduce funders to the
participants.
The second part of the thesis discusses the case of H-Farm, whose business model is
interesting because it reflects a dual soul, either of a venture capitalist and a business
accelerator. As a venture capitalist H-Farm invests seed capital, granting the finance necessary
for the early stage activities. As a business accelerator it provides a series of services to speed
up the business process, including an inspiring workplace, centralized general administration,
press office, human resources, legal and financial consultancy. 
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Introduction
The present study attempts to provide a useful perspective of business incubators and their
innovative value-adding services. Among the reasons that led to this thesis, there is the
geographical proximity of the incubator H-Farm, the increasing attention to innovative start-
ups in Italy and the growth of many initiatives promoting and supporting the emergence of
entrepreneurial projects in our country. 
Entrepreneurs find it difficult to raise the funds they need and are often forced to resort to debt
capital, not suitable in the early stages of development of the company. Besides inadequate
financing, poor business plan and inability to compete in a difficult market lead new business
ventures to failure within the first years of opening. Hence there is the need for a category of
investors, able to match the new trends on the market and that would help companies to
achieve higher performance. It would be much efficient for the venture capitalists to become
more entrepreneurs friendly when negotiating the terms of an investment. That is, as a matter
of fact, what incubators and accelerators are doing, acting more like co-founders than
investors.
The thesis is organized in three chapters. The first chapter will define the actors involved in
the process of business ideas development and introduces some considerations about the
initial capital necessary in the early-stage of a new business. 
The second chapter will highlight the characteristics of business incubators, their development
over time and the context in which they operate, as well as their incentive to the emergence
and development of new business ventures. In particular, attention will focus on the
importance of allocating tangible and intangible resources to incubators' tenants, the
significance of networking, the idea of complementarity and the business model concept. By
means of non-monetary adding services, one among many the mentor-ship programs offered,
through giving advice and being involved in the creation and innovation process behind the
business ideas, incubators enhance the value of the new start-up companies without the
traditional contractual investment provisions. Most of business incubators tend to be physical
places where one can start a business under a collective roof, giving the ability of participants
to network, but also actively support entrepreneurs in their search for finance and introduce
funders to the participants.
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The third chapter will focus on a specific Italian incubator, H-Farm, a business incubator
which operates either as a venture capitalist and a business accelerator. As a venture capitalist
H-Farm invests seed capital, granting the finance necessary for the early stage activities. As a
business accelerator it provides a series of services to speed up the business process, including
an inspiring workplace, centralized general administration, press office, human resources,
legal and financial consultancy. 
Bearing in mind the basics set out in the previous chapter, I will analyse some of the
innovative companies developed in H-Farm facility, with an overall assessment of the results.
H-Farm has been able to concentrate onto projects where the Italian entrepreneurs would be
competent and capable to give their very best, given great contribution to support its portfolio
companies through innovative value-adding services and new investment scheme, assisting
them defining business plans, partnerships and exit strategies. As it is stated on H-Farm
website
1
 the biggest opportunities lie on innovative small business ideas that can handle the
transformation of Italian companies in a digital perspective. 
It is by now a given that innovation plays a crucial role for economic opportunities and job
creation: new and innovative enterprises can only be developed within a strong and mature
ecosystem made of incubators that, to prosper, need specialization on those characteristics that
are typical of our own territory and cooperative interaction among the institutional,
entrepreneurial and credit universes. 
Finally, some final comments and discussion conclude the thesis.
1 "H-Camp" from website h-farmventures.com <http://www.h-farmventures.com/en/h-camp/> (consulted 20 May, 2014)
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Chapter 1 
Start-Up
1.1  Definition and feature
The phenomenon of start-up, now as never before, is gaining ground all over the
world. Searching in google approximately 16 millions of results come out and hardly a day
goes by without newspapers writing articles about it. Originally the term start-up referred to a
specific business model, that was to set up a company which could serve as a test bed for the
commercialization of an innovation and see whether a specific business idea was viable and
scalable. 
According to  Paul Graham, co-founder of the American seed accelerator “Y Combinator” a
start-up “is a company designed to grow fast. Being newly founded does not in itself make a
company a start-up. Nor is it necessary for a start-up to work on technology, or take venture
funding, or have some sort of exit. The only essential thing is growth. Everything else we
associate with start-ups follows from growth”
2
. 
Start-ups began to come into the popular awareness during the dot-com bubble of the late
1990s and the term was used more generally to mean the early stage of a company's life cycle.
Foundation and starting of a business venture is an extremely delicate moment for decisions
and strategies, whose repercussions are intended to influence the subsequent stages of the
company (Aerts et al. 2007). 
“In the late 1990s, the most common type of start-up company was a dotcom. Venture capital
was extremely easy to obtain during that time due to a frenzy among investors to speculate on
the emergence of these new types of businesses. Unfortunately, most of these internet start-ups
eventually went bust due to major oversights in their underlying business plans, such as a
lack of sustainable revenue. However, there were a handful of internet start-ups that did
survive when the dotcom bubble burst. Internet bookseller Amazon.com and internet auction
portal eBay are examples of such companies”
3
. 
2 "Startup=growth" from website paulgraham.com  <http://www.paulgraham.com/growth.html> (consulted April 26, 2014)
3 "Startup" from website investopedia.com <http://www.investopedia.com/terms/s/startup.asp> (consulted April 26, 2014)
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