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July212022

Graduation Spaces for Life Sciences Start-Ups

Jeffrey Kovacs, CPA, CGMA

7.21.22 | Industry Insights

Many start-up life sciences companies may find themselves in an incubator space at some point in their life cycle, but many incubators only allow for tenants to stay for a few years, and others may be too small to house growing life sciences companies. So, what’s next? Start-ups looking to grow and scale will eventually need more space to function effectively—often referred to as graduation spaces within the industry. Graduation spaces are bigger spaces needed by start-ups to continue their company’s endeavors once they outgrow their incubator space. This leads to the question, “what does a start-up need to know when looking for their graduation space?”

Finding an Appropriate Graduation Space

Leasing a graduation space, which can range between 1,000 and 20,000 square feet depending on the company, is one of the biggest challenges for growing start-ups. It can be a slow and grinding process as finding lab-ready space is hard to come by. Some best practices for companies to prioritize would be:

  • Identifying the right time to move on from incubator space as incubators are designed for the earliest stages of companies and may not be able to accommodate companies as they continue to scale.
  • Understanding that at this stage, start-ups may not have real estate consultants and other advisors. Companies should secure help from professionals familiar with the graduation space requirements for growing companies to assist them with finding the required external talent and resources to support this type of growth.
  • Hiring additional personnel and forming administration departments that every company needs to support graduation space, such as Human Resources, Information Technology, and Finance and Accounting.
  • Securing capital for the additional expenses of building out the space to meet the needs of the company.
  • Understanding the time required to identify real estate partners, choose the right location, build out the proper space (which can take 9-12 months), select necessary equipment, and hire additional key personnel.

The Advisors Role in Finding the Graduation Space You Need

The first step is to find an advisor that can assist throughout the process. The advisor’s role is to work with Company management to clearly define the steps needed to meet the company’s strategic objectives. Some of these steps include:

  • Space requirements and growth projections to accurately assess the suitable graduation space needed for the company now and in the future.
    • Does the company need a lab bench?
    • Is lab filtration equipment required?
    • Is biochemistry equipment necessary?
  • Location of new talent and their commute patterns to ensure the graduation space location is convenient to attract and retain talent.
  • A complete understanding of the team members’ interests outside of work is also needed as the industry is becoming accustomed to providing certain levels of amenities and perks.

Companies must also forecast the costs associated with this move and ensure that adequate capital is available to design and build the necessary space appropriately. Projecting accurate expenses for space, talent, and equipment requirements can help determine the appropriate budget. All this information becomes necessary when selecting service providers, such as brokers, landlords and architects, so that they have a clear understanding of the company’s needs and can assist with finding or building the space for the start-up. Lab spaces are difficult to build, no matter the size, and companies need providers with certain expertise and knowledge of the industry to successfully build a space that will help the company grow and scale.

Tax Incentives

Since budgeting and funding are very important aspects of success, life sciences companies need to be aware that there might also be available tax incentives at their disposal. Tax incentives can be highly advantageous to life sciences companies as they can maximize a company’s available cash. New York State and New York City offer many tax incentives to entice life sciences companies to stay in the area, including the NYC BioTech Tax Credit, Life Sciences Research and Development Tax Credit, and R&D Tax Credits. There are also a number of programs these companies can take advantage of, such as the IDA Life Sciences Program, New York State Life Sciences Research and Development Tax Credit Program, Excelsior Jobs Program, LifeSci NYC Program, etc. These programs are designed to support and encourage start-ups with innovating, researching, manufacturing, and generating revenue. Start-ups need to get these incentives in place before signing their lease, or they will lose essential funds that could be leveraged elsewhere. Finally, start-ups may encounter numerous variables when trying to access these incentives, so they must be aware of the potential turnaround time.

There is much that goes into choosing the right graduation space, but preemptive planning with the right advisors and forward-thinking can result in selecting the perfect space for the company and becoming part of New York’s life sciences ecosystem. Successfully navigating the path from incubator to graduation space is an important step for a life science start-up to continue to scale and grow.

Questions: Contact Jeff Kovacs at 646-954-9910 | jkovacs@berdonllp.com or reach out to your Berdon Advisor.

Berdon LLP New York Accountants

 

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