BUSINESS PLAN for investment: „Incubator for Creative Businesses at the University of Zielona Góra – Campus B (in the former library building) - the investment carried out within the project “Urban Creative Poles”. Table of Contents I. Abstract .....................................................................................................................................3 I. SUBJECT CHARACTERISTICS ..............................................................................................................4 I.1. Contact details ..................................................................................................4 I.2. Profile and scope of activity .............................................................................................................4 I.3. Management and Staffing ..................................................................................................................5 I.4. Market impact ..................................................................................................................6 II. INVESTMENT CHARACTERISTICS ...........................................................................................................7 II.1. Organizational plan ......................................................................................................................7 II.2. Investment implementation schedule ..............................................................................................7 II.3. Market survey and analysis ............................................................................................................7 II.4. Presentation of the new venture ...........................................................................................9 II.5. Financial analysis ..................................................................................................................... 10 III. APPENDICES .................................................. 14

I. ABSTRACT Business plan objectives The aim of the elaboration is to formulate the main assumptions to the investment realised by Akademicki Inkubator Przedsiębiorczości ( Academic Business Incubator) at the University of Zielona Góra. It will serve as a tool necessary for the management and planning processes connected with the fact that the Incubator is changing its home office. Main assumptions and the objectives of the project The subject of the investment is the adaptation of a selected area of the ground floor of the building at the University of Zielona Góra (UZ) situated in Wojska Polskiego Street Campus B (the former library building) to the Academic Business Incubator (AIP) - an incubator for creative industries, located on plot No. 167/27 precinct 21 in Zielona Gora. The aim of the investment is to supply the above mentioned university building with new features allowing functioning and operation of the AIP. The investment is implemented under the project “Urban Creative Poles”. Capital expenditures

The anticipated financial expenditures of the investment amount to 1,196,750.00 PLN. They will be entirely covered by the University of Zielona Góra. Project schedule The investment will take place during the first and second quarter of 2014. Conclusions of financial analysis Financial flows are negative in each year of the analysis, so it indicates the need for their annual coverage with external sources at the amount of over 200.00 thousand PLN. The analysis does not reveal any evidence of a positive flow delayed in time, which would cover the accumulated balance of the previous negative flows. I. SUBJECT CHARACTERISTICS I.1. Contact details Investor: Address:

telephone, fax: e-mail: www:

Akademicki Inkubator Przedsiębiorczości Academic Business Incubator ul. Ogrodowa 3b, 65-516 Zielona Góra, room 105, building C-10 68 – 328 78 36 [email protected] www.aip.uz.zgora.pl

I.2. Profile and scope of activity Akademicki Inkubator Przedsiębiorczości (Academic Business Incubator) at the University of Zielona Góra is a university-wide organizational unit formed in 2006 as a result of cooperation between The University of Zielona Góra and the Zielona Góra City Hall. The idea behind its creation was to provide conditions promoting the development of individual careers of the academic community, and the evolution of entrepreneurial ideas. The mission of the Academic Business Incubator is to facilitate start-ups for students and graduates on the labour market by assisting in setting up and running their own business. The aid offered by AIP consists in providing a location, which is organizationally and financially attractive for businesses, to young entrepreneurs where they could run their businesses. Currently the Incubator has an area of more than 700m2 in a University building located at Ogrodowa Street. 3b in Zielona Góra. AIP offers several rooms (of the surface areas approximately 16m2 , 32m2 and 48m2) along with access to the incubator address, telephone and fax, the Internet and secretarial services like the expedition and reception of letters, the use of a computer, printer and other basic office facilities. Entrepreneurs have access to specialist press and business elaborations purchased and subscribed by the Incubator. The Incubator also provides two conference halls with areas of 32.0 m2 and 65.0 m2. The rooms are equipped with basic furniture and telecommunication facilities (telephone, computer network). Within its activities AIP provides free advice on how to sett up and run one's own business, as well as legal, accounting and organizational advice during the incubation period. It also facilitates the participation in training courses organized specifically for people running businesses in the Incubator. It also provides support in the organization of business meetings and searching for business partners.

The procedure for accession to the Incubator consists in sending in the Application form to the Academic Business Incubator by a potential entrepreneur in which the applicant describes the plan of his/her business together with a business plan. The application undergoes an evaluation procedure by the Commission consisting of members of the Supervising Board and the Director of the AIP. The evaluation of proposals is carried out on the basis of the following criteria: - Innovation of the idea; in the case of applications in the field of creative industries, the application will be assessed by additional experts, - The reality of the implementation of the idea, - Technical possibilities of operation within the Incubator. After the application has been positively qualified, and the business details or the range of operation of the firm have been determined, the agreement of the lease of office premises is signed. The incubation period lasts three years and, in justified cases, may be extended on commercial terms for another two years. I.3. Management and staffing. Academic Business Incubator at the University of Zielona Góra is managed by the Director of the Incubator, appointed by the Rector of the University of Zielona Góra, selected from the candidates submitted by the Supervising Board. Currently, the Director of AIP is dr eng. Robert Barski, who is also an assistant professor at the Institute of Construction and Operations of Machines at the University of Zielona Góra. The duties of the Director of the incubator include: - Managing and directing the ongoing activities of the AIP, - Organization of aid to entrepreneurs comprised in AIP, - Organizing and conducting conferences. The director is supported by the team of financial and legal advisers, acting on the principle of cooperation. The organization and administration of incubator is provided by the Incubator Office. The work of the Director of AIP evaluates and supervises the Supervising Board of the AIP. It is a social body selected by the Rector of the University of Zielona Góra, which consists of representatives of the University of Zielona Góra, Zielona Góra City and the Organisation of Employers of the Lubusz Region. Structure of the Academic Business Incubator at the University of Zielona Góra schemat Regulations of Academic Business Incubator at the University of Zielona Góra is attached as Appendix 1 to the Business Plan. I.4. Market impact Currently there are more than 70 pre-incubators and academic incubators promoting entrepreneurship among university graduates. They operate on the basis of separate legal regulations. The first group - 21 centres including 28% of all businesses, operates on the basis of the Act containing provisions of legal possibilities of cooperation between the University and the economic milieu, inter alia by promoting the idea of entrepreneurship in

the academic environment. The second larger group is a network of Foundations of Academic Business Incubators which currently holds 45 pre-incubators (representing 61% of all subjects). The third group of academic incubators operates within technological parks and independent supporting institutions - 7 centres (11% of all subjects). / Source: Report of PARP 2012.; www.pi.gov.pl/. The AIP in Zielona Góra works as a university-wide organizational unit of the University of Zielona Góra. It is the only such entity operating in the city of Zielona Góra, another AIP– neighbouring this one - is in Gorzów Wielkopolski, Lubusz Region. Young people show a lot of interest in the possibilities of incubation their businesses in AIP. Currently, there are 9 firms which operate within the Incubator, and 4 more are waiting for a place in the incubator. Since 2006, 42 companies, 35 of which (83%) still exists on the market, have left the AIP in Zielona Góra. The dominant sector of the incubated companies is the IT industry, electronics and measurement systems. The length of the incubation period for a new business is three years, which is extendable for further two years. A monthly fee rate in the first year of operation amounts 6 zł/m2, in the second year of 9 zł/m2, in the third year, 12 zł/m2. The AIP's offer is very attractive not only because of the low cost of starting a business and organizational and legal assistance from the incubator's side, but also because of the reduced risk of failure of the projects run by young entrepreneurs. The Academic Business Incubator at the University of Zielona Góra presents itself as an outset of the development of entrepreneurship among people with an interesting idea for a business. Thanks to its preferential conditions, entrepreneurs who start their adventure in business have a greater chance for success on the market, without having to focus on the profitability of their companies. The evaluation of the EU programs conducted in the Pomeranian Province in 2013 revealed that programs supporting entrepreneurship implemented by business incubators showed greater efficiency than those that were implemented by other entities. Comparative analyses of training and consulting projects supported under sub-operation 8.2.1 and other relevant forms of support for academic entrepreneurship (available in our country, e.g. venture programs implemented in the past by the Foundation for Polish Science, Operation 3.1 PO IG involving the support of the formation of seed funds to finance an incubation phase of companies and their start-ups). Within this assessment research, a project implemented by Academic Business Incubator and an independent training company was analysed. The efficiency expressed in the relationship between the number of participants and the number of new firms was definitely beneficial for the incubator. The analyses indicate that projects of greater complexity of support, which, apart from general aid, include training and advisory assistance, as well as activities which lead to a direct company set-up (development of a business plan, market analysis, market entry strategy, investment documentation, the company's legal agreement papers), including financial support (grant for assumption and the first equipment of the company, an equity investment in the form of acquisition of shares / stocks) present greater impact effectiveness. Zielona Góra Academic Business Incubator shows high efficiency in this respect. Young people show a lot of enthusiasm for the possibility of incubation of their start-up businesses in AIP. Currently, there are 9 companies, 4 more are waiting for a place in the incubator. Since 2006, 42 companies, 35 of which are still operating on the market, have left the AIP in Zielona Góra. This gives more than 80% of the durability of companies formed with the participation of the incubator. The dominant sector of the incubated

companies is the IT industry, electronics and measurement systems.

II. INVEATMENT CHARACTERISTICS II.1. Organizational plan The organization of the Academic Business Incubator in the new facility will base on the same organizational, administrative and legal terms. Neither the managerial nor the employment structures of the incubator will change. What will change is the magnitude of the leasing surface which will be offered for the businesses. II.2. Investment implementation schedule The Business Plan assumes that the implementation of the project will take place during the first and second quarter of 2014. The person responsible for the investment implementation is the Director of AIP. The contractor of the construction works will be selected in an open tender. II.3. Market survey and analysis Zielona Góra is a city that creates optimal conditions for the development of entrepreneurship, especially small and medium-sized enterprises from various sectors of the economy. Its advantage and driving force are well-educated young people, both in the fields of science, technology and the humanities, who graduate, inter alia, from the University of Zielona Góra. In 2012, the number of students at the University of Zielona Góra exceeded 14.4 thousand people, including 4 thousand graduates. A characteristic feature of Zielona Góra's economy is its large diversity of industries, with a clear dominance of commercial and service sectors. The prevailing branches are as follows: the production of fresh and frozen foods, alcoholic beverages, also measuring equipment and technical nonwovens. Machines and appliances which are designed and produced in Zielona Góra, as well as components for energy and automotive industries, also products of electronics industry such as software and services for digital TV operators, automation equipment, information systems, electronic and satellite monitoring are all well recognised in the world. Zielona Gora associates its development opportunity with Lubusz Industrial and Technological Park (Lubuski Przemysłowy Park Technologiczny - LPPT), established in New Kisielin. It is an initiative of the University of Zielona Góra, the City of Zielona Góra, the Marshal's Office, Zielona Gora Municipality and Kostrzyńsko-Słubicka Special Economic Activity Zone. The purpose of LPPT is to create an economic activity zone that will not only attract external investors, but also become a place where science meets business and will facilitate the flow of innovation and technology. The LPPT will create a basis for the development of industries with a high level of innovation, related to research and development of new technologies. There are 17,207 entities operating within Zielona Góra borders (as for 31.12.2012.), with private sector dominating (over 97% of all subjects). During a year, the number has increased by more than two thousand new businesses. The largest percentage are the self-employed (68% of all subjects), who operate most willingly in the “wholesale and retail

trade” businesses as well as in the “vehicles repairs” services. Among the dominating industries which operate on the Zielona Góra market the following prevail: the aforementioned trade (4403 subjects), construction (1,798 companies), manufacturing (1,247 subjects), and what is important for the city, professional, scientific and technical activities (1,806 companies). In terms of employment size, the largest number of operating businesses are small businesses, employing not more than 9 employees, which reveals the considerable economic activity of the town's residents. The rate growth of newly registered businesses can be regarded as a barometer of the state of the economy. The larger increase in the number of newly registered businesses, the better situation on the market and the growing demand for goods and services. More than 96% of newly registered businesses are entities entirely new. For two thirds of units, the sources for costs coverage, associated with setting up new businesses, were their own funds. Due to the easier access to other sources of finance, like loans, foreign aids and public subsidies, there has been noticed an increased interest in starting a business by people who have never run their own businesses before. The age structure of the new entrepreneurs demonstrates a considerable variation. Persons under the age of 39 were the owners of two thirds of newly established companies, half of whom belonged to the youngest entrepreneurs under 30 years of age. The new entrepreneurs are mostly people with higher education degrees or undergraduates (38.9%) and high school graduates (36.5%). Those of the first group dominated among entrepreneurs starting businesses in the field of health care (78.6%), education (74.3%), services for real estate and business activities (68.8%) and financial consultancy (63.1%). People whose own company was the first place of work or who have previously been unemployed demonstrated the greatest activity in the creation of businesses (over 46%). They undertook business activities either in the absence of other perspectives or just to advantage new opportunities emerging the market. Most critical time for start-ups is the first year of operation. According to the data presented by CSO (Chief Statistic Office) for 2007, only 62-67% of the businesses survived this period, and the remaining ones were just liquidated. In 2007-2011, the situation was more favourable for start-ups, the survival rate was already 71-77 percent. Five years of operation survived less than one-third of businesses. This is much less than the average in the EU, where half of the businesses celebrate their fifth anniversary . The survival rate of start-ups in the first year of business operation is higher for those belonging to legal persons (79.0%) than to individuals (70.1%). The size of a business, in terms of the number of employees, had no significance in this regard. However, in the case of companies employing hired workers, 72.2% still existed on the market after one year of operation, and the percentage of subjects in which the owners and family members worked amounted to 70.3% for a similar period. From the point of view of the type of undertaken activities, the most favourable conditions for the development prevailed for the subjects operating in health care (81.8%), services for real estate and business activities (78.5%), education (75.4%), industry (75.4%) and transport (74.0%), for which the survival rate was higher than average. The lowest percentage of subjects who were still active a year after registration was recorded for financial consultancy (56.9%).

About 4/5 of newly-established businesses declared that they ended the first year of operation with positive financial result. 19.3% of subjects registered a loss. Self-employed individuals much more frequently registered a profit (83.1%) than the businesses run by legal persons (45.4%), as well as businesses which did not employed any workers (82.2%) than the ones which employed people (76.0%). More than 32% of entrepreneurs decided to start investment activities in the first year of operation, and it referred mainly to physical persons. Enterprises engaged in investment founded mainly by their own funds (71.5% of the subjects), irrespectively to the legal form of operation, employment level, or the primary type of carried out activities. The study indicated that more than half of new businesses encountered barriers and obstacles while starting and running their businesses. Demand barriers were reported by physical subjects more frequently (30.5%) than legal subjects (24.0%). Irrespectively to the type of business, the most frequently reported kind of demand difficulty was too much competition in the first place, followed by the price reductions made by competitors, then the fact that the new company was not known on the market. Also insufficient financial resources of their customers (43.8% of individuals indicating demand difficulties) were reported as a significant barrier to business. Of the entire group of newly established micro-enterprises, only 29.8% of the initial group still operated after 5-year period of operation on the market. The survival rate showed a close relationship with the legal form of the created entities. Definitely better chances of survival demonstrated legal subjects, which were stronger at the start-up moment . Businesses which hired workers from their set-ups were also in a better position; 52.6% of them were still active after 5 years of operation, while only 21.3% of subjects in which owners or family members worked remained. The research confirms that the first year of operation is for businesses definitely the most difficult period to survive. The survival rate for subjects from the surveyed population is steadily increasing - from 64.4% at the beginning of business activities up to 85.9% after 5 years. This proves that subjects operating on the market for a longer time reveal greater stabilization. After five years, only half of the businesses set up by people of the age group 30-39 remain on the market, and those with university degrees or secondary education. Regardless of whether these subjects have registered profit or loss in the first year of operation, their survival rates are steadily growing in the coming years. Survival rates for non-investing physical persons were much lower from those for subjects which invested and amounted to 39.1% and 59.9% respectively. Durability of the businesses set up with the help of EU funds was investigated in 2012 in a survey carried out among participants of EU programs (SPO RZL, ZPORR) who received grants to start a business. It was shown that only half of these subjects continued economic activity. Revenues obtained by the newly set up businesses amounted, on average, 30 thousand PLN. Approx. 30% of businesses generated additional jobs held by persons other than the participants and their family members, but the number of permanent employees in the company did not exceed two. The most common reasons for cessation of business activities was their unprofitability and the lack of sufficient income, increased costs or taxes and the lack of demand for their products II.4. Presentation of the new venture The subject of the investment is the transformation and adaptation of selected area of the

ground floor of the building of the Zielona Góra University in Wojska Polskiego Street Campus B (the former library building) into Academic Business Incubator ( AIP) - an incubator for creative industries, located on plot No. 167/27 precinct 21 in Zielona Góra. The aim of the investment is to provide the building with new features related to the commencement of AIP's operations. The investment is implemented within the framework of the project "Urban Creative Poles". The scope of work of the project includes the development of the full project documentation and the execution of construction work. The project consists in the adaptation of a selected part of the ground floor of building A-20 of the Philological College at the University of Zielona Góra (UZ) for Academic Business Incubator, as a support offered by UZ to local businesses in the first phase of their operation. The implementation of the plan will be based on the rental of office space on preferential terms. Any changes to the object are related to the adaptation of the ground floor, in the southwest part of the building, which housed a library and a reading room and a partially the area of the currently existing communication passage. The project plans to offer office areas (of various sizes) for min. 10 businesses, designed to provide space for 2 to 5 persons to work. The remaining space will be arranged as a common space for all the tenants and will include a conference room (which would seat 30 people) with a facility room, a room with generally available office appliances e.g. photocopier, a staff room, an archive room, and a sanitary facilities which will be available to all the tenants. It is also planned to isolate a technical room intended for a mini server room. Within the existing communication passage, the Incubator will also take some area for its operation, i.e. an incubator office, which would allow three people to work in, and the director's office with a conference table for 6 people. The incubator area will be equipped with, among others, air conditioning, active devices, UPS. The particular rooms will be equipped with meters. It is planned to mount a fire alarm system and an robbery alarm system. The planned investment will not change the characteristic parameters of the Philological College building, i.e. the volume, area, height, length, width and number of floors. There are no plans to introduce any alterations in the development of the area All movable equipment for the new facility will be delivered from the existing Incubator facilities. In its new location, the AIP will occupy surface of 765.1 m2, of which 275,40 m2 will be a space for businesses to rent. The tenants will also be able to use a conference room with an area of 71.8 m2 and a part of a common area of 176.9 m2. II.5. Financial Analysis The financial analysis has been carried out in dynamic terms with the use of standards determined in, inter alia:  guidelines of the Ministry of Regional Development, the document MRR/H/14 (4)

05/2013;  general guidelines for the elaboration of the Feasibility Study for investment projects in the Lubisz Regional Operational Programme 2007-2013 (LRPO guidelines).

The prediction is based on data for the years 2014-2017 contained in the document "Updated versions of Polish economic development referred to in Subchapter 7.4 Assumptions for financial analysis - Guidelines on selected issues related to the preparation of investment projects, including revenue-generating projects" - version of December 31, 2012. In the years 2018-2028, the indicators from the last year of the forecast, i.e. 2017, were applied. The profitability of the investment was estimated on the basis of NPV and IRR indicators. In addition, the financial sustainability of the project was verified on the bases of the annual cash balance.

ASSUMPTIONS Financial data and elaborations as well as other materials relating to the analysed project constituted the basis for the financial analysis. The analysis was performed on the basis of the following assumptions:  the DCF (discounted cash flow) method was applied  prices presented in the calculation are expressed in real values,  prices of goods and services are net prices,  the assumed prices are expressed in PLN.  The base for prices and costs in subsequent years of the reference period are the prices and costs from 2013  financial projections have been prepared on the basis of macroeconomic assumptions posted on the website of the Ministry of Regional Development according to the baseline scenario,  the discount rate adopted for the calculation was 5%,  a 15-year time horizon was adopted, i.e. the year 2014 and the 14 consecutive years,  each year of the reference period, to the year 2028 inclusive, was analysed,  depreciation rates were adopted in accordance with the planned classification,  residual value - the net value of all assets related to the project. Financial flows of the project are based on estimations and calculations concerning:  capital expenditures for investment,  revenues from the lease of space,  operating costs. Capital expenditures for investment, The total net sum of planned investment amounts to 1,196,750.00 PLN. CAPITAL EXPENDITURES No. Category of expenditure 1. Construction costs 2. Sanitary installations

PLN PLN

2013 0,00 0,00

2014 345 000,00 173 000,00

Razem 345 000,00 173 000,00

3. 4. 5. 6.

Electrical installations Project documentation and the author's supervision Investment supervision Total net investment

PLN

0,00

585 000,00

585 000,00

PLN PLN PLN

0,00 65 000,00 0,00 28 750,00 0,00 1 196 750,00

65 000,00 28 750,00 1 196 750,00

Project supervision costs were estimated at approximately 2.6% of the cost of the points 13. Revenues The basis for the revenue estimation was a list of future surface facilities subject to leases. The total area is 275.40 m2. Net price for the leased space is 6 PLN, 9PLN and 12 PLN, net/m2 - rates depend on the length of period of the operation of the business within the incubator. On the basis of the structure of the rented premises and payments of charges it was assumed that the average net price was 9 PLN/m2. The total annual income is therefore 29,743.20 PLN. Revenue forecast is presented in Appendix 2

Operating Expenses Operating expenses are planned by the categories. A generic system of costs was adopted (excluding depreciation). Operating expenses No. 1.0 1.1 1.2 1.3 1.4 1.5

Specification Total costs Materials and energy consumption External services Taxes and fees Remuneration Overcharges on salaries

Other expenses 1.6 Source : Own elaboration

Value in 2015 242 229,00 136 647,48 11 220,00 0,00 78 871,20 15 490,32 0,00

Materials and energy consumption This category includes the cost of utilities such as electricity, heating, water and office supplies. Calculations of individual values were drawn up on the basis of the current prices and the projected volume of demand for a given cost ingredient. External services This group includes the telecommunication costs and other costs associated with beneficiaries' operation.

Taxes and fees Not applicable. Salaries This position includes the estimated amount of annual wages. The calculation of costs was prepared in accordance with applicable AIP regulations concerning the remuneration. Also statutory charges on salaries were taken into account. In subsequent years, the values of salaries were indexed by a half of the projected real wage growth. Other expenses Not applicable. The total amount of annual operating costs for 2015 years amounts to 242 229.00 PLN. The forecast for operating costs is shown in Appendix 2 Depreciation Depreciation is an expense by the Accounting Act, but it is not a cash expenditure, and therefore will not be taken into account in the financial analysis of the project. Depreciation is calculated with the use of the linear method at the rate of 2.5%. The residual value is estimated on the basis of the annual depreciation predictions. Residual value Residual value is the net present value of assets in the last year of the reference period adopted for analysis. The residual value of the project is defined as the net asset value at the end of 2028r. (i.e. gross book value reduced by the depreciation of the entire reference period). No expenditures for reserve replacement are planned to be incurred in the adopted time horizon. Thus calculated residual value amounts to 777.887,50 PLN. Due to the nature of the investment and the type of capital expenditure, it has been acknowledged that the sale of the object of the investment will not be possible, so the residual value is not reflected in the calculation of indicators of NPV and IRR. Financial sustainability of the project The key issue concerning the financial sustainability of the project is to maintain the AIP's financial liquidity in each year of the financial forecasts. On the basis of the identified current income and expenses it should be noted that the project in the analysed shape is not financially sustainable, since it requires annual positive cash flows from external sources in order to balance the costs not covered by revenues. Indicators of the financial efficacy of the project Indicators of the financial efficacy of the project have been determined on the bases of

cash flows of the project. The results of the financial analysis for the assumed 5%-discount rate are shown in the table below. Indicators of the financial efficacy of the project N o. 1.

Specification NPV

2.

IRR

Value -3 327 652,38 Calculation impossible

The calculated value FNPV / C (called Net Present Value) for the project is negative. Within the adopted reference period it is not possible to obtain a return on investment. It is confirmed by the negative value of IRR. The analysis of indicators of financial efficacy of the project has shown that the sum of the discounted net cash flows of the project is negative (i.e. NPV