By guest authors Irina Patterson and Candice Arnold
Mark: Actually, Gold Star started by thinking that [they were] going to be an employee benefits company, but they rapidly realized that they can only grow so far in doing that, and opened up to the public and that just took off. So, they did, in a sense, an industry pivot.
The concept was the same, to sell discounted tickets to live events, but their target market was [at first] as a benefit to large companies. [They were planning to sell] through the HR departments; it is an added benefit for employees.
Then, they just opened up to the public, and it was off to the races. I’m sure it wasn’t that easy, but that’s the easy way to say it.
Irina: What is the businesses model of your incubator?
Mark: I mentioned before, as a government institution, our model is economic development. We own the building, so when the building was done 13 years ago, it was done through federal grants and some local matching money.
Our main revenues come from the rents that we charge to our clients. It is discounted. The clients receive discounts because of the purchasing power of Los Angeles County, so everything we provide for them is at a subsidized rate. We don’t have a mortgage to cover. All we have is overhead on our large building.
We do take warrants on the companies coming in. We ask for 1% warrant for each year they are in the incubator. And that is 1% of their shares, so we don’t have to get into a valuation issue. It is based on the number of shares rather than the valuation.
That’s as a give back to the incubator for supporting them in the early years. So, if there is a liquidity event, the incubator will benefit and be able to carry out its mission.
Irina: Does anything else support you financially?
Mark: We are always looking for grants. We do get donations and we do raise some money, particularly around our technology week program. We do look for sponsorships. But that is not a larger part of our business.
There is a lot of technology organizations in Lost Angeles and a lot of competition for dollars now that government and other sources of funding and sponsorships have cut back. It’s very difficult. There were years when we needed to raise over $100,000, and some years it is much less than that.
Irina: You talked about your affiliate program, which is not a full-service incubator. Do you have some entrepreneurs who participated in your affiliate program come join your incubator full time?
Mark: Actually, we just have one that did, but not as much as I would like. I guess, that’s one of my biggest disappointments is that I thought that that would be a very neat program that would work.
It turns out that a lot people who join the affiliate program just either launch or go back to work. But again, our risk was nominal in doing that. We haven’t spent a whole lot of time, and we haven’t spent money.
They paid a little bit. It hasn’t cost them much, but I don’t know what a good batting average for that is. I haven’t compared that against other affiliate programs. It’s probably one out of every five affiliates will come in to be incubated.
Irina: What are your challenges?
Mark: Our issues, I think, relate to the same problems that the entrepreneurs have. It is the same crossing the chasm issue that we hear over and over again. It’s about going from a technology company to a marketing company. They have to make that switch.
The other challenge, of course, is since we’re dealing primarily with scientists and researchers, they have to learn the business aspects. You can’t just read that from a book. You have to experience it.
If they are going to be a high-growth company, they have to know that CEO is not a title that they are most likely going to be retaining. After one round of funding or perhaps two rounds of funding, they are going to be replaced, and they need to choose a role that they want to play in the company … even before then.