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Dynamics of Spin-off firms and policy issues : results from the REBASPINOFF project

The project has been very productive (see bow below about major academic outputs) both in term of the conditions of emergence and dynamics of spin-off firms, of implications for university strategies and in questioning wider policies. The title of the session at Aix (2008) gives a flavour of the questions raised : “Should we abandon public policy to foster the creation of university spin-off firms ?” (see position paper at Pisa conference, 2007 and its transformed version in Science and Public Policy, 2008).
In the following section, we sketch the main results on the dynamics of firms, before concentrating on policy recommendations and questions.

Result 1 : Spin-offs are not a homogeneous group of companies. The authors identify 3 main types. The “venture capital backed type” is the ideal-model of most policies but it is a rare case due to its characteristics : it is based not on one patent but on a balanced portfolio, it requires not an individual researcher but a well established and recognised team backing the technologies, it develops a business model for continuous visibility in media and for convincing numerous stakeholders. These attributes make that there are always very limited in number in one given university. For the latter this is also a high risk, since the dominant trajectory is to be sold out to an incumbent firm that most probably will at best keep laboratory activities on the site. On the contrary, the “prospector type” is far narrower in scope, being organised around one patent and one “beta product”. The key to success is to focus on internal funds or seeding funds associated to public research, to develop ‘modest’ business models rapidly arriving to breakeven, meaning mostly niche intermediary markets with few customers. Finally the most common type is the “life style type” based on contract research and consulting. Their trajectory is associated to success as service providers. Most remain small and very few take hold of success in services to move to another type.

Result 2 : TTOs are important players and their organisation has a direct impact on the kind of spin-offs that will be created. The authors have identified three sustainable models. (a) The low selective model fits with the notion of entrepreneurial university, looking for as many as possible creations, most then following the life style type. (b) The incubator model is focused on venture capital backed type, requiring much effort from TTO in identifying and protecting IP, and in creating a balanced management team. (c) The supportive model has features of both, being not too selective, embodying university technology. It often drives to prospector type firms created very early in the life cycle. An interesting conclusion is that the best developed TTO can host a mix of these models, each being connected with different university departments.

Result 3 : The most important resource in spin-offs are the entrepreneurial teams. This has given rise to numerous studies over the last 15 years. They converge with the conclusions of the authors’ own ones. Teams which are diverse in their functional background but combine this with joint working experience tend to be quite successful. To arrive to this conclusion, the authors use a classification of team members according to their flexible versus control orientation and their internal versus external orientation.

Result 4 : Spin-off development should be looked at as a staged process organised around 4 critical junctures which require different and adapted supportive policies : opportunity recognition, entrepreneurial commitment, credibility, sustainable returns.

Result 5 : on financial aspects. The funding gap has attracted much attention from policymakers. The authors have identified 6 types of financial mechanisms developed : Public fund, Public/private equity fund, SBIC-type of refinance schemes, Guarantee schemes, Fiscal incentives, Incubation schemes. They emphasize a critical lesson from countries’ experiences : money alone (through VC funds) is not enough to develop a dynamic spin-off sector. Their review also highlights the importance of adapting financial incentives to the staged process. In general VC tends to come when the proof of concept. Early seed funds (mostly public) become thus central to arrive at this stage. Their analysis of public policies is dual. There has been multiple schemes in most countries both to foster the creation of spin-off firms and to stimulate VC industry and funding (see below). These schemes have often been innovative based on a systemic failure approach, recognising the importance of creation as a process (see result 4) and recognising that public intervention must be collective and distributed over a set of specialised agents that coordinate themselves. However their evaluation is at best mixed.

This drove the authors to (a) make policy recommendations focused on universities and their regional environment (see box) and (b) to organise special sessions at Aix (2008) and Brussels (2009) conferences to discuss their mixed evaluation.

REBASPINOFF policy recommendations to Universities
Source : position paper presented at the Pisa conference (2007)
- University strategy : locate spin-out creation in a overall knowledge transfer strategy
- Be more professional on IP and patent strategies (notion of ‘clean, well defined patents ; clarify policies in term of exclusive vs non-exclusive licensing and of licensing vs assignment)
- Building professional TTO remains a challenge
- Develop own internal funds (directly or in partnership) for early stage finance
- Incentivizing academics (need to develop true third stream dimensions in career policy, need to remain flexible, taking into account differences between disciplines)
- Be proactive in generating Regional engagements especially in nurturing clusters around large players, in nurturing intermediating structures and individuals that play the role of boundary spanners, and in developing ‘platform policies’ that favour entrepreneurship.


The starting point of these sessions lied in the apparently limited, “disappointing” success of such policies, in term of the ‘quality’ of firms created and in term of returns (for each instrument set out) and in particular the failure in creating a financial third stream of resources for universities.
The notion of quality is warranted around the permanent debates of these policies as a source of ‘gazelle’ (fast growing) firms and as a source for the generation of new large firms (the new Microsoft). Overall, there are very few gazelles, very few IPO, de facto no new large firms, and mostly very small, even if lasting, firms.


A full evaluation still remains to be done. And the sessions discussed how it could be done. The presentations and further discussions suggested two complementary alleys along which to evaluate such policies :
a) Consider spin-off firms as a link between universities and established firms for circulating knowledge. There they proposed to consider that there are two main types of partnerships (notion of exploration and exploitation partnerships) and that there may be 3 types of effects for established firms (new specific assets, initial learning in niche market, speeding up the RD process).
b) Consider mergers and acquisitions as the dominant trajectory of ‘prospector’ and even more VC backed firms and thus focus evaluations on the effects on the acquiring firms. What is known is that success depends on overcoming post-acquisition issues linked to reasons for acquisition (explorative vs exploitative motives) and to organisational choices made (delegation vs centralisation of decision authority).

Main outputs of the Rebaspinoff project

- Mustar P., Renault M., Colombo MG., Piva E., Fontes M., Lockett A., Wright M., Clarysse B., Moray N., 2006, Conceptualising the heterogeneity of research-based spin-offs : A multidimensional taxonomy, Research Policy, (35), p.289-308.
Research-based spin-offs (RBSOs) have become an important aspect of the technology transfer process. Emanating from what is conventionally a non-commercial environment, RBSOs pose major challenges if they are to realise their potential to meet the objectives of their founders and the parent research organisations (PROs) from which they emerge. An important issue is to understand the heterogeneity of RBSOs. This paper reviews the literature on RBSO typologies to develop a taxonomy of RBSOs. We identify common themes in relation to these typologies in relation to (1) spin-off creation and (2) spin-off development. The dimensions that differentiate between firms are the type of resources, the business model and the institutional link. We identify gaps in current typologies in order to propose avenues for future conceptual and empirical research.

- Mustar P., Wright M., Clarysse B., 2008, University spin-offs firms : lessons from the ten years of experience in Europe, Science and Public Policy, 35, (2), p.67-80.
This paper reviews the investments by governments and universities to support the emergence and creation of spin-off firms. It questions whether there has been in Europe an over-investment and whether this may explain why there are nearly no high growth firms in European spin-offs.

- Clarysse B., Wright M., Lockett A., Mustar P., Knockaert M., 2007, « Academic spin-offs, formal technology transfer and capital raising », Industrial Corporate Change, 16, (4), p.609-640.
This article examines the influence of formal technology transfer from a public research organization (PRO) on the amount of capital a spin-off raises at start-up and the increase in capital post start-up. It examines these relationships using a unique sample of 135 spin-offs from PROs across five European countries. The findings suggest that spin-offs with formal technology transfer start with a larger amount of capital but subsequently do not raise more capital than spin-offs without formal technology transfer.

- Academic Entrepreneurship in Europe (Edward Elgar, 2008) By Mike Wright, Bart Clarysse, Philippe Mustar and Andy Lockett
This book advances our understanding of university spin-off creation and development in environments outside the high-tech clusters of the US. While there has been substantial university spin-off activity internationally in recent years, a number of major aspects are little understood. The authors adopt a multi-level approach in their examination of university spin-offs. European case studies are specifically selected to reflect the diversity of the institutional environment. In particular, units of analysis involving universities, technology transfer offices, spin-off firms, finance providers and individual entrepreneurs and teams are extensively analysed in quantitative and qualitative studies. To conclude, policy implications for the future successful development of spin-offs are identified.

- 2010 Special Issue of The Journal of Technology Transfer (volume 35, issue 1) on Science-Based Entrepreneurial Firms.
Guest Editors : Massimo Colombo, Philippe Mustar, and Mike Wright
- Dynamics of Science-based entrepreneurship, by M. Colombo, P. Mustar and M. Wright
-Adverse selection and financing of innovation : is there a need for R&D subsidies ?, by T. Takalo and T. Tanayama
-Convergence or path dependency in policies to foster the creation of university spin-off firms ? A comparison of France and the United Kingdom, by P. Mustar and M. Wright
-Never mind the quality feel the width : University–industry links and government financial support for innovation in small high-technology businesses in the UK and the USA, by A. Cosh and A. Hughes
-Exploring board formation and evolution of board composition in academic spin-offs, by E. Bjørnåli and M. Gulbrandsen
-The contribution of university research to the growth of academic start-ups : an empirical analysis By M. Colombo, D. D’Adda and E. Piva
-The M&A dynamics of European science-based entrepreneurial firms, by D. Bonardo, S. Paleari and S. Vismara

 

julien

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