BUS604: Innovation and Sustainability

Understanding the different financial models allows us to see what is needed to launch a CCS and what makes a CCS financially sustainable in the longer term. We analyze the CCS financial models from a twofold perspective: fixed funding and variable revenue. These two different types of funding have implications on the operational models of the spaces. Fixed funding serves as base funding to cover fixed costs, while variable revenue serves to conduct additional activities and other variable costs.

Fixed Funding

The spaces featured in this study use three forms of funding: 

1. private ownership, 
2. private donations, and 
3. subsidies (Exhibit 2.2). 

These forms of funding are not unique, and they can be used together as well as separately in pure or hybrid models. A pure funding model relies on a single form of funding, while a hybrid model uses two or more forms in various proportions. 

There are two pure models used in the spaces featured in this study: 

1. the space is funded solely through subsidies, and 
2. the space is privately owned (each pure model is used by almost a third of the CCSs featured). 

The rest of the featured CCSs use one of two hybrid models: private ownership + subsidies, and private ownership + private donations + subsidies. 

Exhibit 2.2. Forms of Fixed Funding 

1. Private Ownership: The space is owned by managing partners/was funded by its founders without any help from the government or any private companies.
2. Private Donations: A large portion of funding comes from private corporations in the form of donations or advanced partnerships that include material support. Donors are interested in innovation development; they might be interested in the space's consulting services (goes to revenue models).
3. Subsidies: The space receives financial support from any government agency/municipality and/or support in the form of international aid. Usually spaces are supported at the city level, sometimes at the state/national level.

Subsidies are the most common source of funding (in the majority of cases, the funding was provided by city-level government organizations), either alone or in combination with other funding sources, suggesting a direct or indirect policy intervention. Interestingly, some of the CCSs are funded through private ownership only, with the sole purpose of commercialization of space or services. Private donations act as a complement to other sources of funding and never appear as a pure source of funding (Table 2.1).

For those CCSs using subsidies, the source of subsidization varies. Often, direct government subsidies are offered through programs - designed to boost employment and innovation - which can be offered indefinitely or otherwise over a specific duration of time through grants. In other instances, subsidies are extended through university affiliations, often having established the space directly through this affiliation and cross-bridging resources. Of the spaces that receive subsidies, two-thirds receive direct government subsidies (mainly on a municipal level) and one-third get funding through university-affiliated subsidies.

Variable Revenue

From the variable revenue perspective, the featured CCSs use both pure and hybrid revenue models almost equally. The only model applied by the CCSs in its pure form is subscription. This revenue model is most common among thematic spaces, which tend to have a more focused audience. 

Hybrid models, on the other hand, are more common among general spaces, which have a broader audience and an array of services.

The subscription revenue model is the most common among the spaces featured in this study. Consulting, rental/events, and acceleration revenue models are usually used to complement the subscription model. Inte- restingly, consulting and rental/events revenue models are used only by general spaces with a strong entrepreneurial communities building impact, which tend to be spaces that are more mature and have well-established networks. (See Exhibit 2.4 for definitions of the types of variable revenue).

Exhibit 2.4. Types of Variable Revenue 

1. Subscription: A revenue model where a customer must pay a membership fee to have access to the services offered by the space. It might include the following services: mentorship, access to tools.
2. Acceleration: A model where start-ups working with a space agree to give the space an equity stake in their start-up. It might include the following services: mentorship, connections to funding, acceleration.
3. Consulting: A model where other private or public organizations make a one-time payment to a space to create and deliver courses/seminars/workshops on the topic of open innovation or to provide industry-specific services. It might include the following services: training, access to tools.
4. Rental/Events: A model where private or public organizations make a one-time payment to a space to rent its facilities and to get other forms of physical and informational support for an event (hackathons, lectures, knowledge exchanges, and meetings with experts). It might include the following services: event space, access to tools.

The spaces funded solely through subsidies more often use a pure subscription revenue model, while the spaces that are privately owned tend to use a hybrid model that is a mix of subscription, consulting, and rental/ events revenue models. 

Table 2.1. Financial Models