- The Washington Times - Monday, June 12, 2000

Fledgling technology companies are much like baby chicks: They could easily die without the help of an incubator.

"If we can take away the hassle … it allows start-ups to move on with their business and really focus on succeeding," said Stasia MacLane, founder and managing director of DreamLabs, a for-profit incubator serving the high-tech sector.

Many good business plans never evolve because entrepreneurs quit before they start, she said. The best plans often get overrun by worries about office space, computer services, legal work, venture capital and marketing.

That is where incubators such as DreamLabs come in, Ms. MacLane said. Incubators provide all of the above to newborn companies, helping them develop into full-grown enterprises.

Although incubators are not new, for-profit ones such as DreamLabs are recent.

In the early 1980s, incubators usually served to help revitalize neighborhoods and empower minorities. They were nonprofits and tended to be associated with universities.

These days incubators are centered almost entirely around high-tech companies, and they do look to make money. DreamLabs is one of 10 for-profit incubator in the region.

The company, started in December, plans to take five Internet and telecommunications start-ups under its protective wing by fall, according to Ms. MacLane.

DreamLabs is run from a 3,000-square-foot office in McLean, but Ms. MacLane is finalizing paperwork on a lease for a much larger space. The three-story incubator is a short drive from DreamLabs' offices, which Ms. MacLane and her nine-member staff took over in March.

Ms. MacLane said interest in DreamLabs has been great. The company has not advertised but already has received several hundred business plans, she said.

Also, an out-of-town law firm, a local venture capital firm, a phone company and a hardware company have already spoken for part of the first-floor offices. These service providers, much like the potential client candidates, compete to be part of the incubator.

The second floor will be home to "graduated" companies, start-ups that are in their second round of venture financing and already have some clients and employees.

The top floor is the incubator, where executives from start-ups will work closely with DreamLabs employees and other support service providers. The idea is that once a company has graduated, it can move out of the incubator and be independent.

But members of traditional nonprofit incubators are skeptical that for-profits can give budding companies the same service.

"Simply providing low-cost office space, shared equipment like copiers and faxes, helps a company save some money in the early years, but it is not enough," said Charles O. Heller, who sat on the board of directors of the Technology Advancement Program.

TAP is Washington's oldest incubator, founded in 1984. Located in the University of Maryland at College Park, the incubator provides consulting, managing, marketing, legal and technical support for the companies under its wing.

Mr. Heller trained incubator managers from around the world at TAP until a few months ago, when he stepped down to become a senior partner at Gabriel Venture Partners.

"If the incubator does not have a mentoring aspect to it, its value is greatly diminished," said Mr. Heller. "If I were an entrepreneur, I wouldn't give up any of my equity to incubators such as these."

Still, a "company growing up in [incubator] environment has a much better chance of surviving and thriving than one outside the incubator," he said.

But Mr. Heller also pointed out that incubators in a not-for-profit environment get the mentoring of many community business leaders and educators.

DreamLabs will be successful, Ms. MacLane insists, because it offers all the services of a not-for-profit incubator. And because the better a company does, the more money the incubator makes, it adds an additional pressure to see its clients prosper, she said.

Incubators' profitability plans differ, but most often they take 25 percent to 55 percent of a client's equity and certain additional up-front fees.

At DreamLabs there is no set equity percentage it varies by companies. In its early days, the incubator will operate out of investment cash, and up-front fees for consulting services to its clients.

Ms. MacLane, a native to the Washington region, said she has always wanted to run an incubator. So she went to college, worked as a consultant and research analyst. Eventually she ended up at Eagle Management, a subsidiary of McLean's West Group, which is one of the original developers of Tysons Corner.

For the past few years West Group has been leasing office space to newborn tech companies in the Dulles Corridor, offering the services of its subsidiaries. Ms. MacLane's job was to help some of those start-ups recruit managers.

Then last fall she decided the market was ripe for an incubator. She flipped through her Rolodex, and now, six months later, she works with many of the partners she knew from her Eagle Management days.

While DreamLabs is finalizing the lease of the incubator and networking with local business leaders, it has attracted its first client. London-based Equire.com, an electronic commerce company, has an office across the hall from Ms. MacLane. Although it has already graduated, Equire.com still needed some help getting on its feet.

Ms. MacLane wouldn't estimate DreamLabs' revenues this year, but she pointed to the history of IdealLab, a 4-year-old incubator in California, as an example of how DreamLabs' financials could unfold.

IdealLab recently raised $1 billion in private investment, and today it is worth about $500 million. At one time, the incubator's value was as high as $2 billion, but it fell after investors turned their back on tech stocks, causing prices to drop by as much as 50 percent.

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