Helping hatch world beaters

Lifelong asthmatic Garth Sutherland wanted to use his electrical engineering skills to help fellow sufferers better manage their symptoms.

He devised a way to equip inhalers with mini computers so they could monitor their medication intake more effectively.

After two years of developing the "Smartinhaler" at the Icehouse business incubator, his small company Nexus6 is drawing two-thirds of its sales from overseas.

Some of the world's top asthma researchers sit on its science board. Last week the company closed its first round of funding of $500,000 from business angels and venture capitalists, which will see it scale up global marketing of the Smartinhaler and commercialise new products.

Nexus6 is one of many high-tech companies hatching at the Icehouse.

The cool name is a bit of a misnomer for the Parnell-based incubator where fledgling entrepreneurs, working feverishly during a two-year stay, bring their business ideas to fruition.

They arrive with little more than a concept and it is intended that they leave with a business that stands on its own two feet and can succeed internationally.

They are given a desk, phone and internet connections, tea, coffee and meeting rooms.

The cleaning is done and they don't have to sign a lease.

Surrounded by like-minded companies and with deep business networks and expertise on tap, residents have the best possible assistance to make their ventures successful.

Icehouse chief executive Andrew Hamilton says his position is like being on the edge of a frontier where he is seeing the next generation of high-growth companies launched into international markets.

And as chairman of Incubators New Zealand, an association set up in 2003 to support and guide the industry, he is helping to establish the foundations of the incubation industry.

Barely out of start-up mode itself, the industry has grown from two incubators in 2001 to 14 around the country today.

Together, they are rearing 130 young companies which represent 40 per cent of the start-up market.

Business incubators have been something of a global trend in the past decade, and have met mixed success worldwide.

But in New Zealand, with a combination of right timing and a focus on high-tech companies, incubators are flourishing and producing some outstanding success stories.

Icehouse alumni include Func Nutrition - producers of the Sun Latte milk - and Climate Coatings which developed a revolutionary colour-coating process for the medium-density fibreboard used to make kitchen cabinets.

Incubators aim to turn out high- growth companies - those that double their employee numbers and earn $500,000 during incubation or raise the amount in investment, or earn $5 million within three years.

But not all companies hatch successfully.

Among the 17 Icehouse graduates, seven reached high growth status. Four were considered successful and six have failed.

Nationally, incubators have produced 59 graduates.

Thirty-nine have been deemed successful - 23 were high growth - and 20 were unsuccessful.

The failures don't deter Hamilton.

"Because they'll learn, and they'll come back better and stronger," he said.

"If we can create the environment for them to be successful or to get to failure pretty quickly, then we are performing our role. We don't want them to get to failure over a lifetime.

"If we can help the entrepreneur to realise they should not be going down that track, then that's a great outcome."

The Icehouse (the Ice stands for International Centre for Entrepreneurship) was established in 2001 by the University of Auckland business school and a group of leading corporates who put up $2 million in cash between them.

To be accepted, entrepreneurs are typically in their mid 30s and early 40s, and must have a sound business idea, an emerging market opportunity and a strong export focus.

The high-tech sector is the Icehouse's niche, with a particular focus on information technology, biometrics, digital media, biomaterials and agri-tech.

"We want entrepreneurs who are aggressive and have huge expectations," said Hamilton.

"It comes down to 99 per cent perspiration and 1 per cent aspiration."

Naturally, he looks for entrepreneurs with the greatest potential, but it is hard to pick winners.

"We take a chance with a lot of them.

"You have to believe in people, and it's a numbers game."

Residents pay about $30,000 in fees over their two-year stay, and the Icehouse takes a 5 per cent equity stake and a commission on any capital raised during incubation.

Hamilton estimates they are returned $100,000 in value.

Each start-up is teamed with a senior business executive as an advisory board chairman who spends about 15 hours assisting them each month.

Pumpkin Patch chief executive Greg Muir and the former chief executives of Microsoft New Zealand and Fletcher Challenge Forests Greg Cross and Terry McFadgen are among those advisers.

The founding partners also have strong links to the incubator and offer their input and expertise at little or no charge.

Hamilton's own team of directors help the companies raise capital and provide mentoring and strategic advice.

"What we bring as a team is helping the businesses focus on doing the right things at the right time - because it's hard, and they don't have a lot of time."

Two years in the incubator is "absolutely enough", he said.

"If you can't do it in two years you should be doing something else."

Nexus6 has already achieved high growth status, and is preparing for its second round of capital raising.

Hamilton said the company had taken a lot of knocks and a lot of advice since arriving at the incubator, but had shown perseverance and tenacity, and kept hold of its vision of helping asthmatics.

The Icehouse surveys its alumni regularly to follow their progress in profit and growth.

"Their success is our success. When they are successful I'll be shouting from the rooftops because we're a part of that," said Hamilton.

Although it can house only 20 start-ups at the same time, the Icehouse touches about 500 small to medium-sized companies each year through its business training programmes for small to medium-sized enterprises (SMEs).

These target businesses earning more than $2 million in revenue, and include the "321 Go Global" course for exporters and owner-manager programmes for more established companies.

The courses were developed by former Heinz-Watties boss and Icehouse founder David Irving in conjunction with the University of Auckland business school.

On average, businesses increase their annual net profit by 30 per cent after completing the courses, said Hamilton.

This year the Melbourne Business School bought the Australian licence for the Icehouse courses.

Hamilton will be looking to export them further in the future. The Icehouse also took a leading role in establishing the private-investor network the Ice Angels last year.

By providing anything from $50,000 to $1 million for technology and creative companies in their start-up phase, Ice Angels help to bridge the gap until they are ready for venture capital.

The "angels" are typically ex-entrepreneurs and successful business people looking to add young companies with potential to their portfolios.

Nexus6 is the second Icehouse resident they have invested in, and their biggest deal so far.

This month the Ice Angels have held seminars around the country to formalise nationwide angel networks, with the idea that investment opportunities will be shared between incubators.

Hamilton saw a need for this type of network, and moved quickly to set it up.

He believes that incubators have emerged at the right time in New Zealand's economy.

"In 15 years we might not need incubators because the infrastructure will be in place to help entrepreneurs start businesses. In other parts of the world incubators play a minor role because the eco system is there.

"In New Zealand it wasn't there [when the Icehouse started] and still isn't.

"SMEs are the lifeblood of the economy and that's why I think the university was pretty smart in getting us up and running because they recognised it was a major market opportunity.

"It has created an industry. Now there's a career to be an incubator manager and New Zealand is highly respected around the world for the progress we're making with incubators."

The focus on the high-tech sector has been the key to the industry's success so far. This has been supported by the Government as part of its Growth and Innovation Framework.