Entrepreneur Dennis Cagan has coddled and nurtured companies for decades, including Software.com and Wavefront Technologies in Santa Barbara.
Now, Cagan and about 35 other investors will help more start-up companies by "incubating" them during the challenging and often complicated process of maturation.
The new Santa Barbara Technology Incubator (SBTI) will give a wide range of assistance, from free office space to help with hiring employees, and educate entrepreneurs about the evolution from a "garage" idea into a money-making venture.
"We want to help the entrepreneur with the great idea," said Cagan, chairman and chief executive officer of SBTI. The downtown company will develop about a dozen firms every year, hoping to link them to venture capital companies. "When they pop out the other end (of the incubator), we want a young and successful company."
Business incubators are a concept gaining ground nationwide the past several years. Deep-pocketed companies -- such as CMGI and idealab!! -- offer capital and expertise to firms with high-tech ideas in exchange for ownership of perhaps one-third or even 50 percent of the start-up.
"It's like being a high school coach" helping firms through the growing pains, said Cagan, who will provide about 12,000 square feet of downtown office space -- an often-overlooked obstacle for South Coast start-ups. "Funding and mentoring are the real keys (to success). You have to be great at so many things."
Unfortunately, many entrepreneurs forget that, or are greatly overwhelmed.
Many incubators allow tenants to stay for two or three years, but technology incubators, particularly those dedicated primarily to Internet companies, work on a shorter timeline because speed is a key factor in those endeavors.
SBTI could "be the one-stop shop for entrepreneurs," said Jeff Carmody, a principal with Sand Hill Capital in Santa Barbara. "Many entrepreneurs don't realize how much time and money it takes to build a company."
Santa Barbara attorney Joe Nida agrees, adding that the amounts of money and effort needed are often overlooked.
"As you work with start-ups, you understand it is not as easy as people think or anticipate," said Nida, secretary of SBTI and partner of local law firm Nida & Maloney. "We take the entrepreneur and help them flourish."
Incubating businesses is comparable to raising children -- hands-on nurturing mixed with occasional tough love. And in both cases, the emotional and financial investment can produce widely varying results -- perhaps an educated and grateful adult with endless potential or a never-going-to-leave-home, slouch-on-the-couch twentysomething-year-old.
But someone with an aggressive business plan and clever idea can make SBTI stockholders proud. After the companies develop, Cagan said, they will move from the SBTI office space to make room for other start-ups.
"These young people who have great ideas need to spend their time developing them," said Robert Skinner, a board member and general counsel for Montecito Bancorp. "If you can encourage their ideas, it will likely result in a successful model. We want to nurture these companies."
Indeed, a company could develop into the next Software.com or Somera Communications -- and produce a nifty payday for SBTI stockholders. Thirty-five companies or individuals -- including computer-maker Compaq, Montecito Bancorp, Santa Barbara Bank & Trust and Silicon Valley Bank -- have invested a total of $8 million to $10 million in SBTI, one of the largest-ever amounts of first-round funding on the South Coast.
"It's (SBTI) something that is going to be helpful to our community and create jobs," said Nida, an investor in SBTI. "There's a real need for this kind of facility in our area."
SBTI will concentrate on companies with earnings potential -- and likely pass on business models that are focused on advertising revenue, Cagan said.
"The moment we invest in them, we'll think about venture capital" companies as investors, said Cagan, who admits that some companies will flounder, finding few if any investors, while others will flourish. Regardless, SBTI will forever have a stake in the venture.
And if only one of every four companies succeeds, SBTI will thrive, Cagan said.
In addition, the community -- one of the fastest-growing high-tech regions nationwide -- will benefit from SBTI, business leaders say.
"It could truly be the clearinghouse for entrepreneurs, a real (high-tech) hub for the Central Coast," Carmody said.