InformationWeek

The retired basketball superstar will serve as a consultant and do promotional work in return for an option on 1 million shares in Divine InterVentures, a Chicago incubator. Divine InterVentures, led by the flamboyant former CEO of Platinum Technology, Andrew "Flip" Filipowski, has invested more than $300 million in 52 companies as of April, according to its Securities and Exchange Commission application for an initial public stock offering.

If MJ's endorsement of the concept isn't enough, corporate America's biggest superstar, General Electric CEO Jack Welch, has joined the board of Idealab, an incubator founded by Bill and Karen Gross that owns stakes in 35 companies, including such E-commerce high-flyers as Carsdirect.com Inc. and eToys Inc. Idealabs also recently filed for an IPO. Add to this a steady stream of new incubators, such as one formed earlier this month in which 11 national commercial real-estate firms will nurture companies that want to market to their tenants, and the incubator as a force in business--particularly E-business--has arrived.

Why are incubators attracting superstars? As evidenced above, some incubators are achieving spectacular successes in nurturing the latest Internet business models. But what do incubators offer that venture-capital firms--the traditional deep pockets for startups--don't? The simplest explanation is speed. By taking care of business chores such as recruiting, accounting, even marketing, incubators promise to let Internet entrepreneurs focus on fine-tuning their technology and business models and getting them to market faster. "Some of these incubators are like ClubMed vacations--everything's included," says Stephen Auditore, CEO of the IT market-research firm Sho-Research, which is majority-funded by Divine InterVentures and shares downtown Chicago office space with Divine companies.

A more skeptical explanation for the success of the incubator concept is money--too much money. With so much venture capital chasing too few great business ideas, freshman funding firms need a way to offer something different, something more than money and advice. For some people, however, the combination of too much money and too little experience as represented by the incubator is a bad combination. "For every one or two outstanding incubators out there, there are a couple dozen incubator efforts led by people who've never built a business," says Jim Breyer of the traditional venture-capital firm Accel Partners. "There will be a huge backlash against these."

But the most important, long-term reason for the increasing interest in incubators, if you ask entrepreneurs who have bet their livelihoods by signing up with one, is cooperation. Companies within the same incubator are encouraged to cooperate, something made easier by having the same investor and the same location. That often means working together on technical problems, sharing experiences with vendors or clients, and providing leads on sales or acquisitions. "Behind closed doors, we can share what technology and products work and don't work," says Daniel Jaye, chief technology officer of Engage Technologies Inc., a part of CMGI Inc. for the past five years.

CMGI, in Andover, Mass., one of the pioneer Internet incubators, is what the newcomer incubators want to be when they grow up. Publicly traded and worth about $15 billion, the company was started by David Wetherell, a direct-marketing list broker who in 1994 thought the Internet could help his list business. His company built and sold a browser to America Online for stock, and found itself with capital to invest. Lacking the Internet startup energy of today, CMGI started nurturing companies around Internet marketing. "We felt at that time that incubation was terribly important," says Bill White, CMGI's marketing VP.

Jaye's experience history at Engage illustrates how it worked. The director for high-powered computing at Fidelity Investments in nearby Boston, Jaye was asked by Wetherell in 1995 to help start a business that applied the Internet to the direct marketing industry. That became Engage. "The mission statement wasn't more specific than that," Jaye says. "We didn't even have a business plan. It was more a presentation and a budget."

The fabled cooperation among CMGI companies took shape out of need rather than a grand plan. Businesses got started by allocating a group of cubicles with phone and Internet connections, and bumming services such as tech support and recruiters off their more-established neighboring businesses. Since Engage was started earlier, it was often asked for help. "At one time, people from Engage were taking PC support calls from people at Lycos," says Jaye, referring to the Internet search-engine firm started by CMGI.

Keeping the network alive today takes more planning, with summit meetings scheduled for specific disciplines--CEOs, IT people, marketers. "The real value we add is the sharing of intellectual property," White says.

Well, first there's the money. CMGI's stock gives start-ups the currency to make certain moves, such as acquisitions. "As a standalone company, you can't acquire a company nearly your own size and add it on," White says.

But Jaye also points to the informal element. Engage is a Nasdaq-listed Internet marketing company that has grown quickly in part through acquisition, something the network directly contributed to. In 1998 it bought Accipiter Inc., a North Carolina company that provides Internet ad management technology, after other CMGI companies raved about its performance. "That acquisition was due to a number of CMGI companies testing it under fire and saying it was great technology," Jaye says. "For us, it's keeping our finger on the pulse of the market. It may very well be a member of the family is working with a company that has the next great thing."

continued...page 2