Incubators offer plenty of space for startups

Charleston Regional Business Journal
Ashley Fletcher Frampton
May 14, 2010

A year ago, many entrepreneurs in Charleston who wanted to transform ideas into new business ventures had two choices for startup space: home or a coffee shop.

Both have their drawbacks, including distractions and the inability to conduct a professional meeting with potential clients or investors.

But 12 months later, the landscape has changed substantially.

Two publicly funded business incubators are open in downtown Charleston, and local governments are considering additional incubators in West Ashley and Mount Pleasant.

Several private business incubators have opened, as well.

The result is a widening availability of professional office space that doesn’t require long-term and costly leases — commitments that usually are impossible at a stage when revenue is unpredictable.

“Facilities like this allow entrepreneurs to bring a level of focus to their respective missions,” said Ernest Andrade, director of business development for Charleston and a key force behind its incubator.

For the region, the result could be more high-paying jobs. Many business incubators locally are focused on knowledge-based companies that pay higher-than-average wages.

The people behind the new incubators say the value of those jobs and the recognition that they will dominate successful economies in the future are driving the trend toward setting up space for them.

The recession has also played a role. Lower commercial real estate values have made it easier to offer affordable space.

Public-sector incubators
Charleston’s Flagship opened in June at the corner of East Bay and Calhoun streets. Andrade calls it the cornerstone of the city’s efforts to attract high-wage technology jobs.

The building’s 10 small, glassed-in offices are meant as temporary landing pads for businesses moving to Charleston as well as for homegrown technology ventures. Leases run month to month and cost between $400 and $750.

Within six weeks of its opening, the Flagship was filled to capacity, Andrade said, and interest continues. Four companies have already “graduated” into larger, more permanent spaces.

Flagship-based companies have so far created 60 new jobs and raised $14.1 million in capital, statistics that Andrade said are indicators of the facility’s success.

The Flagship also houses the city’s Department of Business Development, as well as the Charleston Digital Corridor, a public-private group that the city formed in 2001 to attract and nurture knowledge-based companies. Andrade serves as director of both.

Because city employees are located on site, businesses get special attention and are introduced to people who can help them on their path to growth.

“Incubators are more than just four walls and a little bit of connectivity,” Andrade said. “People need to be able to ask questions and receive answers fairly rapidly.”
He said that attention sets the city’s facility apart from some private models.

“The level of services that we provide to these companies is not a role that has typically been undertaken by the private sector,” Andrade said.

The other publicly funded incubator is the SCRA MUSC Innovation Center at Charleston, located on Meeting Street. It features wet lab space and is geared toward Medical University of South Carolina researchers who are looking to commercialize their work.

A private-sector incubator
In March of 2009, developer Alan St. Clair opened a private co-working space at the former Navy base in North Charleston. St. Clair’s 40,000-square-foot Lowcountry Innovation Center is also geared toward knowledge-based industries.

“That’s where the job market is going,” St. Clair said.

A variety of office sizes, from 100 square feet to 8,800, are available for lease at rates about 20% below market average for the North Charleston area, he said.

St. Clair said he manages the building and offers resources to help his tenants succeed.

A key feature of the Lowcountry Innovation Center is a coffee bar with cafe-style seating that allows tenants to connect, collaborate and help one another along.

“The value isn’t just in having a better price per square foot,” he said. “The value is putting knowledge-based businesses together.”

His facility isn’t necessarily short-term and it isn’t meant exclusively for startups. Leases can go up to 10 years, though small, executive-style spaces are available for terms as short as six months.

The Flagship, by contrast, doesn’t allow companies to linger indefinitely. Most are expected to move on in about a year.

A year after the Lowcountry Innovation Center’s opening, St. Clair says the second floor, which totals 20,000 square feet, is 90% leased, by 11 companies. The first floor is not yet built out and ready for tenants.

“We broke even at eight months. We are profitable now,” St. Clair said.

More private space
A private incubator called Spark Charleston is gearing up to open in June on East Bay Street downtown. That operation is spearheaded by a group of professionals that includes John Rivers of Rivers Enterprises, the building’s owner.

Spark Charleston is giving away its space to 14 entrepreneurs for free, at least at first, said Chris Clark, project manager.

By day, Clark works at Blackbaud, and on the side he runs his own startup sock company called Oberon.

Startups can spend six months at the facility. Clark said the space will not be free perpetually, but the group hasn’t figured out how it will earn money. One path might be investing in the companies.

Clark describes Spark Charleston as an “experiment” that was the Rivers’ brainchild. It’s an effort to do something good for the city and to infuse it with an air of entrepreneurialism that is more common in places like San Francisco.

The group isn’t looking only for technology companies, but Clark said those are the types that usually work well in incubator space because their equipment needs are largely limited to a computer. And, he said, “because software is essentially free to make.”

“This is very focused on the people who would be working out of Starbucks or the people who would be working out of their garage,” he said.

Clark said he does not view Spark Charleston as a competitor of the Flagship, located just a few steps down East Bay Street. His group is seeking entrepreneurs in the earliest phases of startups, when ideas are still coming together and there’s no revenue to pay rent.

“We anticipate some companies here would graduate into the Flagship,” Clark said.

Spark Charleston isn’t as focused on providing on-site support as some full-service incubators, he said. But, like others in the area, it is promoting as one of its benefits the ability to bounce ideas off of like-minded people.

The group began taking applications April 25 and plans to open June 1.

KFR Services, a Summerville-based firm that provides data for national telecommunications companies, announced last summer that it would offer private incubator space for two or three startups.

But so far that space has no tenants, said Stephanie Fetchen, co-president.

A few entrepreneurs expressed interest, but they were either not far enough along to be a good fit or they didn’t want to go through the application process.

The space is still available, she said, but the company is not actively marketing it.

Driving the growth
Andrade credits the economic recession, in part, for the trend toward entrepreneurialism in Charleston — as well as the growth of office space to accommodate it. The downturn has been a “disruptive moment” that has many people re-evaluating what they’re doing, whom they’re serving and why, he said.

The genesis of the Flagship, however, happened before the recession hit, Andrade said. The Charleston Digital Corridor, in its former offices on Meeting Street, had a small amount of cubicle space for companies. Interest in that space laid the foundation for the Flagship.

“It’s not like we built this place on speculation,” he said.

Andrade said the recent growth in incubator facilities in Charleston is appropriate as the area transitions from one focused on service-oriented industries to one that’s more driven by wealth-creating technology industries.

Another reason is the depressed commercial real estate market, he said.

Because none of the incubators are identical, they complement one another instead of competing for the same tenants, he said.

“Not only are they complementary, but there are situations where entrepreneurs can leave here and go elsewhere,” Andrade said.

Based on demand for space at the Flagship, the city of Charleston is considering opening a second incubator facility in West Ashley. And Mount Pleasant recently applied for seed money to start it own incubator for creative industries.

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