Article originally published on MLive.com. Written by Ben Freed.
Like the baby birds that emerged from the first egg-hatching incubators, startups coming out of business incubators often face the most perilous time of their “life-span” right as they leave their comfortable and controlled confines.
Ann Arbor SPARK operates the SPARK Central incubator on East Liberty Street, but in order to continue helping companies along, the public-private economic development organization opened a new 2,500-square-foot “stage two” incubator for businesses that have outgrown the original space.
“What we were running into is if a company starts growing, from a physical space standpoint it starts to get difficult,” SPARK business accelerator director Bill Mayer said. “We have to have the conversation around ‘you’re doing a great job but you have to have a plan of how you’re going to graduate from SPARK and find your own space.’”
SPARK Central isn’t the only incubator that is spinning out companies that have outgrown its confines. Tech Brewery companies Deepfield and Duo Security both secured office space in downtown Ann Arbor.
Duo Security leased out the entire former Bay Design building in Kerrytown and has been offering temporary homes to other startups as it continues to grow and fill the space itself.
“It’s very difficult for companies to find the right space with the right lease terms because they might be 6 people right now, but you know you’re going to be 20 people in 10 months,” Mayer said.
Internet startup Seelio was part of a space-sharing arrangement with Menlo Innovations on Liberty Street in downtown Ann Arbor but is moving into the new stage-two SPARK incubator.
Emily Keller-Logan, director of university engagement at Seelio, said that sharing space in Menlo’s open office was always meant to be temporary. She said the stage-two incubator was attractive because it acknowledge that a company has hit enough milestones to no longer be considered just a ‘startup.’
“We have more clients coming to us and we’re growing out of startup mode, so we’re trying to look like more of an established company now,” Keller-Logan said. “This is still not quite our own space, but it’s another stepping stone.”
For Mayer, the goal is for the incubator to not only provide a stepping stone, but a hand up as well.
“There’s an asterisk to this. On top of the space itself, we’re very focused on providing service and value on top,” Mayer said.
“For starters, simply being in proximity to other companies is a huge value add proposition. You’d be amazed at how many startup companies barter back and forth ‘I’ll write this piece of code for you if you help me with this project over here.’”
That collaborative atmosphere is part of what attracted Seelio to join the later-stage incubator, along with other services like included Internet, phone lines and copy machines.
“We heard about the renovation in the SPARK space that wasn’t just for startups, but for companies becoming more established,” Keller-Logan said. “So there was an opportunity to continue growing our team but not have to worry about a lot of the things that you might have to if we were to do it yourself.”
Mayer said many early stage companies struggle to deal with new responsibilities that come with quick growth. Often founders are figuring out the hiring process, human resources and team management for the first time.
“All those things you didn’t have to deal with when it was just two guys in a garage,” he said. “So what we’re doing is we’re coupling this stage-two space with mentors, speakers coming in, and things that are topical for people in the incubator.”
Companies will pay between $1,000 and $2,000 per month to be a part of the new incubator, depending on the number of full-time equivalent employees. The original SPARK Central incubator charges $250 per month for the first desk a company rents and $200 per month for each additional desk.
Mayer said that although there are 14 desks for rent in SPARK Central, it’s difficult to determine how many people actually work there.
“The reality is people sort of expand, and you take interns, or you might have people helping you with the marketing,” Mayer said.
“So we also have space on the periphery. People tend to be creative finding places to work. We might have 25 people working out of Spark Central on a given day, but we have 14 desks.”
Part of the impetus for purchasing the new space was that the SPARK Central incubator was completely full. In solving the one problem, they may have simply moved it upstairs.
“The [new] place will be full within the first 30 days of operation,” Mayer said. “But that means that we’re full again. What we have to do is really help our companies grow quickly and try to help them find creative ways to find new space.”
Funding for the new location comes from the Local Development Finance Authority, which also provides funding for other SPARK activities. Mayer said he applauds the LDFA’s foresight in providing the upfront money for the space, which he said is expected to pay for itself through rent once it is at capacity.
“It’s easy to say ‘boy Ann Arbor would be great if only we had this asset,” but who’s going to do it?” Mayer said. “Who has $125,000 in the bank and has the vision that they’re going to help to create something that three, four or five years from now could be a huge element — or at least a contributing element — to why Ann Arbor has had so much employment growth in its downtown core.”
The new space is part of a trend in Ann Arbor of repurposing space to fit growing companies. Offices have sprung up in Kerrytown, in the basements of parking garages and in the former Borders flagship store.
“One of the problems is we’re slightly landlocked with our downtown space,” Mayer said. “It is still really challenging to build, so we have to get more scrappy about how we fit more people into the same footprint and that’s exactly what we’re trying to do.”