Regional and national competitiveness and economic growth are increasingly dependent on the conditions supporting innovative ideas. Therefore, innovation is becoming a priority for firms, organisations and governments in most countries throughout the world.

Moreover, as new entrepreneurial firms and small and medium sized enterprises (SMEs) are being increasingly recognized as generators for innovation and economic wealth, the study of - and policy focus on - entrepreneurship is rapidly gaining importance, and initiatives supporting the development of entrepreneurial activity have become a priority issue.

Business incubation and venture capital are considered by experts in the field and policy makers crucial elements for enterprise development: business incubators are an important tool for strengthening the development of start-ups, providing a more "friendly" environment in which young firms can move their first steps; venture capital funds can provide a vital help, that can be seen as complementary to that of entrepreneurial business incubators. Therefore, a good and fruitful relation between business incubators and venture capital should foster a vital and fertile economic environment.

However, little research has been devoted to investigating the interactions between business incubators and venture capital investors and to decide whether they are successful in their attempts to cooperate. As a result, crucial questions such as how do business incubators and venture capitalists collaborate, and to what extent are firms from business incubators prepared to meet external investor's criteria, are left unanswered.

An international survey carried out by the Italian Institute far Industrial Promotion (lPI) and the International Organisation far Knowledge Economy and Enterprise Development (IKED) in 2004 set out to examine to what extent the described situation is accurate. The survey's objective was to improve the understanding of the factors influencing the relation between business incubators and venture capitalists. In addition, by considering a sample of incubator managers and venture capitalists from 16 countries worldwide, the survey results contribute to the discussions related to innovation, entrepreneurship and financing in different parts of the world.

According to the survey findings, venture capital is one of the major challenges for business incubators across the world, and, despite the difficulties, some incubators have been more successful in collaborating with venture capitalists than others. Challenges vary between the two groups of business incubators in the survey (the "Yes Incubators", i.e. incubators that have collaborated with venture capitalists, and the "No incubators", that are incubators that have not collaborated with venture capitalists).
For those incubators that have never cooperated with venture capitalists, the issues to be addressed are the creation of preliminary contacts, the development of a sufficient deal flow of tenant companies, the widening of the geographical focus, and the strengthening of their own financial engagement in the firms.

On the other hand, the incubators which already are in some dialogue or collaboration with venture capitalists face different challenges such as developing sufficient follow-up activities and meeting with venture capital, strengthening their position in the venture capital investment processes and ensuring mutual awareness about venture capitalists and companies.

Several significant results stemmed from the analysis of the survey questionnaire. Among them, a few can be highlighted.

First, it emerged that certain sectors are more interesting for venture capitalists than others: incubators fostering technology and research-based firms tend to be more attractive for venture investors.

Second, a longer incubation retention time of tenants can be associated to a better relation with venture capitalists, in line with the fact that companies reaching later stages gradually become more interesting for institutional investors.

Third, the provision of services also after leaving the incubators, seems to improve the relationship with venture capitalists, as it shows trust between the incubator management and the company.

Fourth, selectivity (i.e. tight and/ or multiple criteria defining the profiles of the company entering the business incubator) is helping as well to be more interesting to institutional investors (the more selective the incubators are, the more positive experiences they have when trying to access venture capital funds).

Fifth, among other positive factors that influence the correlation between the existences of relationships with venture capitalists is the profit vocation of the incubator (profit oriented incubators tend to have more contacts with venture capital funds), as well as the tendency to directly invest in the tenants companies  (the business incubators that have financed some of their companies with either loans or equity tend to have better collaboration with venture capitalists. As a  matter of fact, firms which have been invested in by business incubators appear more attractive far investors).

Finally, the openness to external sources, both in services or in networking, facilitates the collaboration with venture capitalists, indicating that providing services mainly with internal resources may not be the best choice.

These findings lead to the elaboration of some recommendations, which could be directed to incubator managers, to public authorities, and to other stakeholders involved in the process of setting up and running business incubators.

Among them, it is possible to highlight the fact that incubators should ensure that they are providing sufficient training to the companies, preparing them to meet venture capital investors, and they should engage in follow-up activities allowing them to join and influence the investment decisions among venture capitalists.
Similarly, communication and links between venture capitalists and business incubators should be improved, both by providing incubators management with higher visibility of procedures, practises and names of venture capitalists, as well as by creating more opportunities to foster relationship between them.

To conclude, the multiplicity of elements resulting from this study partly confirms the thesis of the relevance of the chosen subject, and hopefully will start paving the way for a broader and deeper research activity, which could in turn help investigating, developing and strengthening the best instruments to ensure a profitable and successful relation between business incubators and venture capitalists, thus improving the efficacy of economic development strategies worldwide.

The study has been conducted by:

Enrico Callegati, graduated in International Studies and currently working as project assistant in Ipi (Italian Institute for Industrial Promotion), specialised in SMEs and private sector development policies, and innovation support policies in developing countries;

Silvia Grandi, completed her PhD at the University of Bologna (Italy), specialised in several European universities; now she is currently head of  the Department dedicated to "Centres and Network /or Partner Countries" in IPI;

Glenda Napier, completed her master 's degree in social science at the Roskilde University centre (Denmark); she is currently working with the United Nations conference on trade and development (Unctad).