Assessment of Incubator Program - City of San Jose

• To support operating expenditures and the SJSURF management fee, the incubators mustgenerate additional revenue through sponsorships, grants, events, equipment/lab rental, andaffiliate services.Key Findings: Incubator FinancialsEnvironmental & Software Business Cluster (EBC & SBC): the Agency investment in 2008 was$432,540 for lease of 24,300 square feet of office space.• The EBC and SBC financial reporting is combined. The fee established for incubator companiesis $2.75/sq. ft except for the CCTO winners who receive a $500/month for one year discount. TheSBC has an anchor tenant that has been in the incubator since 1998 occupying the entire fourthfloor of the incubator and some space on the third floor. Rent from this one tenant is 39% of thetotal revenue for both incubators.• Year End FY 2007-08 Financial Report ending June 30, 2008 29 The EBC and the SBC operated with a net operating balance for the year of $62,146, butthere is still a negative balance from inception of . This does not account forthe Agency’s investment, only operations. EBC and SBC received $252,046 in outside grant revenue and $20,000 in sponsorshipsand gifts, but there is no information in the financial report that explains the source ofthese revenues. SJSURF charged an administrative fee of which percent on expenses. It is unclear whichexpenses are used as a basis for the fee. For FY 2007-08 a fee of $41,832 was charged. In addition, SJSURF charges a grant fiscal and administration fee (26 percent) which was$34,232. During the Q4 Fiscal Year 2007-08, there was a significant increase in expenses,specifically a $30,000 increase in Salary & Fringe. Revenue increases in rent and leasestotaled only $10,000, resulting in expenses exceeding revenue.• FY 2008-09 Quarter 1 & Quarter 2 Financial Reports (as of December 31, 2009): some of theitems in the reports are potential Red Flags (note: financial paperwork that was provided did notcontain corresponding explanatory notes.) Grant revenue is significantly behind FY 2007-08 levels. Note: What is the projectionfor remainder of year and next year? Without the grant revenue the incubators cannotoperate in the black. To date, the client fees revenue line item (fees charged affiliates) has reached the totalyear “client fee” revenue for FY 2007-08, indicating a major increase in this revenuesource. Note: This may mean more time is spent with affiliates who may or may not belocated in San Jose (this is a source of revenue for the incubator but may not help29Financial report prepared by SJSU Research Foundation. Reports do not show details or explanations of significant changesin revenue or expenses.San Jose Incubator Impact Assessment – June 2009 Page 24 of 62