Cities Turn to Nonprofit Incubators to Grow Local Business

Although cities have long offered tax incentives to encourage companies to stay or relocate, an increasing number of them are turning to homegrown nonprofit incubators that nurture new businesses from the ground up as a way to prop up their struggling economies, the New York Times reports.

One of the pioneers of the model is Pennsylvania's Ben Franklin Technology Partners, which was created by Dick Thornburgh, then the state's governor, in 1983. Since then, a number of similar business incubators, including the Chicagoland Entrepreneurial Center and Pittsburgh-based Innovation Works, have sprung up around the country with varying degrees of government and private support. Such groups are often the biggest source of early stage financing for technology companies in their regions and tend to be found where there is a steady supply of innovation coming out of nearby research universities.

One such nonprofit is five-year-old Jumpstart, Inc., which provides seed money to entrepreneurs with promising businesses in the Cleveland area. Like a venture capital firm, Jumpstart identifies companies to invest in and advises them on their next steps. But in a departure from the traditional venture capital model, Jumpstart relies on charitable donations, many of them from the private sector, for its financing and does not return a share of profits to those who provide the investment dollars. Instead, returns come in the form of satisfaction derived from boosting the region's economic standing and future.

Early estimates of the impact of Jumpstart's work are promising. According to a study by researchers at Cleveland State University, Jumpstart's investments have generated ripple effects throughout Northeastern Ohio, including the production of $56.3 million in goods and services and the creation of nearly three hundred and fifty new jobs. While the numbers are relatively small, Jumpstart executives believe that those ripple effects will spread exponentially.

Robert Litan, director of research for the Ewing Marion Kauffman Foundation, is among those who see great value in Jumpstart's approach. "The traditional model for helping relatively depressed areas of the country is smokestack chasing, where a city provides incentives to attract companies or to keep them from leaving," said Litan. "But the problem with that approach is that it is very expensive and it is a zero sum game from the point of the country as a whole, because if I attract a company to my city, then I win, but the city where the company used to be from loses."

Article courtesy the Foundation Center