Soda Inc buzzing in Waikato

KASHKA TUNSTALL
Last updated 05:00 01/09/2012
Petr Adamek and Cheryl Reynolds
MARK TAYLOR/ Fairfax NZ

BUBBLING: Business mentor Petr Adamek and Soda Inc chief executive Cheryl Reynolds are energising entrepreneurs.

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Waikato's Soda Inc has been up and running for almost three years, but still has trouble explaining what it does.

Not because it's struggling to keep busy. Quite the opposite.

When it comes to entrepreneurship and innovation in the Waikato, Soda has its finger on the pulse and is looking to grow its reputation and become the authoritative voice on the matter.

But Soda is a type of business few are familiar with; it brands itself as an entrepreneurship centre and is the home of Hamilton's first (and the country's eighth) business incubator.

Business incubators facilitate programmes for startups to grow and maintain successful entrepreneurship through mentoring and support.

In addition to the incubator, Soda has established a cluster group of 53 companies and 375 members connecting entrepreneurs, business leaders, investors and students, and hosts networking events for entrepreneurs and members.

For extra income it also consults and rents out facilities at its 1 Victoria St location.

In 2005, a research project conducted by Wintec and led by Soda chief executive Cheryl Reynolds discovered that "creatives", particularly tertiary graduates, were leaving the city in droves for the brighter lights of bigger cities and overseas hubs of activity.

Further research showed that while graduates wanted to set up locally, there was a lack of support for start-ups in Hamilton and the outlying region.

Out of that research the idea emerged for an incubator.

New Zealand, one of the top three countries in the world for incubation, had seven incubators at the time Soda set up.

“There was a gap, a real need for a focus on entrepreneurship in the city and our role is to facilitate that and connect and energise,” Reynolds says.

Capital was raised for the venture from the Waikato Institute of Technology and Hamilton City Council.

Each chipped in $250,000 for renovation and start-up costs.

Soda's home, the second level of the former Innes Tartan soda bottling factory which had been empty for 50 years, was offered by the council.

The Innes Tartan factory, established by Hamilton businesswoman and entrepreneur Mary Jane Innes at the turn of the 20th century, and its parent company CL Innes and Co, ranked among Hamilton's most successful enterprises, eventually being taken over by Lion Breweries.

Soda derives its name from that heritage, a nod to one of the city's first and finest business operations and the spirit of entrepreneurship.

Now 17 companies are linked to Soda and last year the incubator became NZ Trade and Enterprise-accredited, bringing the national total to eight.

Accreditation makes Soda eligible to receive funding from the national economic development agency and that money covers nearly a third of the overall operational costs of the incubators.

Hamilton City Council and Wintec continue to support the centre financially and other private companies also contribute to Soda's working funds.

The company is audited every year and assessed by an international panel to make sure it is performing.

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“We set out to be world class for a start,” Reynolds says.

“We're [incubators] all very different in our approach and we all have to hit a minimum high quality benchmark," she said. She says Soda gauges success not only by the number and quality of the businesses put through incubation but also the social responsibility and sustainability of associated businesses.

“We don't want things (start-ups) that are ugly, make the world ugly or make other people suffer,” Soda business growth manager Petr Adamek says.

The businesses Soda take on often link back to the idea of the weightless economy.

This is businesses involved with intellectual property-rich industries that provide intangible services and products.

Every company wanting to join the incubator goes through a due diligence process assessing the idea, the team and the impact a business will have in terms of enriching New Zealand's economy.

“We're looking for companies that have the potential for exponential growth that will really contribute to growing and diversifying the New Zealand economy - creating jobs and lifting New Zealand out of the OECD position that we're in,” Reynolds says.

Soda runs a pre-incubation programme.

It lasts three months and assesses business models, sustainability and global potential.

It hears six to 10 pitches every quarter for pre-incubation and accepts about three businesses into the programme.

At the end of the three-month period, the business must pitch to make it into full incubation.

Only half of the businesses make it through, says Reynolds.

Full incubation lasts up to three years and focuses on exponentially growing business. Every six months one key measure, such as profits, sales or exports, needs to be doubled; otherwise the fledgling is out.

It's a radical requirement but Soda uses the process as a fast fail test to make sure the business can perform in the market, she says.

Effectively, the pre-incubation process sees $15,000 of public and private money invested into the start-up while full incubation costs $100,000.

Companies currently in the incubation process include Ora Skincare, online customer services company PagePulse, Video Kiosk and web designer VO2.

Business mentors from ASB, Norris Ward McKinnon, Bold Horizon and Deloitte help the Soda team assess businesses wanting to get into the programmes.

They are gatekeepers, evaluating what start-ups are worth the investment.

“It's a high value, very intense process and anyone who gets into that is going to get a rich and reward experience no matter what the outcome,” Reynolds says.

The pre-incubation process costs companies $100 a week while the full incubation programme costs $100 for the first month and climbs by $50 every six months.

The company implements a “success sharing” model that requires businesses in the incubator to allow Soda to take either a 5 per cent equity stake in the incubated venture or a 5 per cent share of royalty fees in the fifth year.

Additionally, if the venture raises funds during incubation, Soda charges 5 per cent of those funds.

Last year, Soda had 87 inquiries from would-be entrepreneurs.

Six were taken into pre-incubation and three made it into full incubation.

Today eight companies are in full incubation while three are in pre-incubation.

In a few weeks the first business to sign up to Soda's intensive mentoring programme will graduate.

VO2, a web design start-up, has been in full incubation for nearly three years and has seen profits grow 216 per cent in that period. The company's exit from the programme marks Hamilton's first contribution to the more than 250 incubator-graduated businesses nationwide and speaks for the success of Soda's programme, Reynolds says.

And Soda are feeling pretty confident that the programme is working.

“There's an international panel and a government agency able to say that we're working and they audit us rigorously,” Reynolds says.

“And we can start to demonstrate that with stories like VO2.”

Soda has ideas for a maximum capacity incubator and a rolling roster, but it's not too focused on numbers.

“We'd rather set up good companies instead of many companies,” Adamek says.

- Waikato Times

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