Australian Startup Incubator Pollenizer Reveals How It's Making $3m Revenue A Year

Photo: Pollenizer

Startup incubator Pollenizer made revenue of $3 million last financial year, pulling in about $750,000 in corporate consulting fees, $750,000 in startup consulting fees and $1.5 million from the 17 surviving startups in its incubation program.

But there was no profit: according to CEO Phil Morle, revenue barely covered operational costs, as Pollenizer provided design, mentoring, accounting and office space to its startups at cost price.

Pollenizer was founded by Morle and Mick Liubinskas in 2008 and has so far turned $5 million of venture capital into $20 million of value – that is, what Pollenizer expects its share of its portfolio of startups to be worth.

It is extremely selective, having only taken on a grand total of 26 startups in its five years, and has been criticised for refusing to take on founders who aren’t able to contribute enough money to cover half the costs of starting up.

But that isn’t always the case. Pollenizer has made some significant changes to its investment model in five years and proposals are assessed on a case-by-case basis.

Half the costs for a quarter the equity

These days, the typical Pollenizer startup has $200,000 in funding in its first nine months: $100,000 from Pollenizer and $100,000 from the startup’s founders. If the founders aren’t able to raise enough cash, Pollenizer may bring in a third-party investor.

Each business has a chief executive and engineer – typically the founders – who each get a base salary of $52,000 and share 50% of “sweat equity” in the business.

The founders (or investors) and Pollenizer then share the remaining 50% of equity. Liubinskas says its 25% may be diluted to about 10% if it needs to bring on more investors.

Either Liubinskas or Morle sits on the board is heavily involved in the first year, and assesses the business every quarter so all involved have the option to cut their losses if necessary.

Pollenizer charges its startups about $50,000 for office space, design and accounting work in that first year.

Besides board responsibilities, all Pollenizer services – design, administration, sales and so on – are provided at market rate, Liubinskas says. He sometimes receives sales commissions if he acts as a salesman.

“We work our arses off,” he told Business Insider. “We’re all in the same boat – we don’t get a reward until they get a reward.

“The misconception with Pollenizer is they pay us … I understand that it may look that way from the outside in. [But] if a person doesn’t put money in a business, then the risk of it failing is higher.”

Mitigating risks with revenue

Pollenizer’s 65% rate is “very, very good”, Liubinskas says, compared to a 10% success rate with most venture capital funds and a 5% rate with many “high-volume, low-touch” incubators.

Nine have failed to survive Pollenizer’s incubator program. Not all have parted on good terms.

Pollenizer now requires startups to participate in its two-day startup workshop before joining the incubator program. Pollenizer’s startup training programs as well as advisory services and its co-working space are available to all startups and bring in about $750,000 in revenue a year.

Pollenizer brings in a further $750,000 a year by consulting about innovation with corporate customers like Telstra, Cisco, and Macquarie Bank.

About $1.5 million of revenue comes from the administration, rent, design and other fees it charges the 26 startups in its incubator program.

Morle says Pollenizer doesn’t aim to make an operating profit: “My goal is to make sure Pollenizer is operationally break-even so that Pollenizer can be here forever to support startups.”

Pollenizer employs two designers and three administration staff in its co-working space in Surry Hills.

Evolving with age

When Pollenizer launched five years ago, the “incubation program” was more of a consulting contract, in which Morle and Liubinskas charged $700 a day for their services and offered a 10% discount in exchange for equity of 1-5%.

In December 2010, it raised a $500,000 seed fund that Liubinskas said would be invested in $10,000 to $100,000 parcels.

Pollenizer raised a further $1.1 million in November 2011. It generated $3.5 million in revenue that year, mostly because it outsourced engineerss to startups in its incubation program.

“Three years ago, people wouldn’t work for a startup,” Morle explains. “We hired them at Pollenizer and Pollenizer would pass them through [to startups] at cost.”

Pollenizer employed 26 people at its peak, including administration staff, 4 project managers, 8 engineers, 4 designers and 3 marketing managers.

It shifted to its current investment model in February this year, after raising a further $1.1 million.

The company now makes about 40% of its revenue from services, 40% from training and consulting and 20% from co-working.

Because Pollenizer no longer provides outsourced engineering services (engineers become direct employees of the startups instead), Liubinskas expects revenue from the incubator program to fall this year.

Corporate consulting revenues will rise, he says.

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