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Spinning Off New Ventures From Academic Institutions Outside
Developed High Tech Clusters
Jean-Jacques Degroof
OutlineOutline
• Introduction• Findings
– First finding: policy level– Second level: spin-off process– Third finding: types of ventures
• Discussion
May 1st, 2002 2
• What characterizes the context in which the new interest for spinning off new ventures from academic institutions emerged in the late 1990s?
• How did the process of spinning off new ventures materialize?
• What types of ventures emerged from this process?
Research Questions
• Case study: Belgium
• Interviews with 47 spin-off ventures (out of 106)
• Interviews with 22 representatives of universities, research institutions, and government
• Archival data
• Secondary data
Introduction – Data
Introduction – Literature
• No more than a couple dozen spin-off firms a year
• Size, growth rates, revenues, and product generation: modest
• Failure rate: below national averages
Literature 2
• Come from a small number of top research institutions
• Mostly in the biomedical and IT fields.
• Heterogeneous population
• No clear definition
Finding 1 – Policies
• Interest is policy driven
Finding 1 – Policies
Finding 1 – Policies
Flanders Wallonia
R & D Expenditures
• 10% to 16% yearly increase to reach 2/2% of GRP
• Increase in late 1990s, but in • 1999 still below European average of 1.4% of GRP
Regulatory Changes
1995 – 1998. Transfer of intellectual property of publicly funded research to universities and research institutions
1998. Transfer of intellectual property of publicly funded research to universities and research institutions
1999. Decree enlarging the mission of the public investment company SRIW from restructuring to the creation of new firms.
Finding 1 – Policies
Flanders Wallonia
Innovation Policy 1999. New innovation policy with new focus on spinning off ventures from research institutions. Includes:
New expanded role of IWT as “one stop” shop” of the innovation policy.
Subsidizing technology departments within universities
Subsidizing of business angel networks
1998. First Spin-off program subsidizing researchers with an entrepreneurial project.
1998. Subsidizing of technology departments within universities.
1998. Subsidizing of “valuators” in charge of promoting technology transfer to industry.
Wallonia Space Logistics program to stimulate research in space technology and technology transfer
Funding Growing role of GIMV. Including:1996. Creation of EASDAQCreation of VC fund IT Partners1997 – 1998. Co-invests in first two spin-off ventures of VIB1999. Co-invests in funds of universities of Gent, Antwerp, and Limburg
1999. Creation of investment fund FIRD1999. Creation of investment fund Start-it
Finding 1 – Policies
Interpretation
Policies consist of replicating elements of environments that are supportive of technology transfer and entrepreneurship
Finding 1 – Policies
REPLICATION SUBSTITUTION
Law and regulations Transfer of IP to universities and research institutions
Stock options
University – industry relationship Subsidizing research institutions with a strong mandate of technology transfer
Subsidizing university “Interfaces” Subsidizing cost of patenting Partnerships with industry
Governance Replication of venture capital model of firm by research institutions
Capital markets “Friends and family” Business Angels Venture capital Stock market
Subsidizing BA networks
Creation of stock market
University and government funds State sponsored VC Subsidies for R&D
Social networks Entrepreneurship forum: Leuven Inc.; DSP Valley
Intermediaries: hybrid public institutions
Finding 1 – Policies
ResearchInstitutions
Fund Sizemillion
EUR
PrivateFinancialPartners
PublicFinancialPartners
FLANDERS
VIB Flanders Biotech Fund (1994) (*)
35 GIMV
IMEC IT Partners (1996) (*) 50 (1) GIMV
KUL Gemma Frisius Fund (1997)
6.25 InvestcoVIV (2)
RUG Baekeland Fund(1999)
2.5 VIV GIMV
LUC Wendelen Fund (1999) 2.5 Investco VIV
UIA Antwerp Innovation Centre 3.3 VIV – KBC Invest (2) – Anchis (3)
GIMV
WALLONIA
UCL Sopartec (1999) 12.5 No partners No partners
ULG Spin-Venture (1999) 1 Meusinvest (4)
Financière de Mons Université Poly-technique de Mons (1999)
NA Individual investors
FIRD (5) 12.4
Finding 2 – Processes of spinning off
Finding 2 – Processes of spinning off
FLANDERS WALLONIA
Universities- Katholieke Universiteit Leuven (KUL)- Rijks Universiteit Gent (RUG)- Vrije Universiteit Leuven (VUB)
Universities- Université Catholique de Louvain (UCL)- Université de Liège (ULG)- Université Libre de Bruxelles (ULB).
Specialized inter-university research institutes- Inter-university Institute for Micro-electronics
(IMEC)- Flanders Inter-University Institute for
Biotechnology (VIB).
Finding 2 – The Process of spinning off
1996 – 2000 2001
Organization of research
Specialists research institution that spans several labs in one domain
Strong fundamental research Strong research collaborations with industry.
Same
Research valorization and technology transfer
Strong unit (20professionals) Strong IP capability
Same
1. Origination of spin-off projects
Proactive opportunity technology search Open to individual initiatives
Same
2. Intellectual property assessment and protection
Strong and growing IP capability Same
3. Selection of the spin-off project by the research institutions
Very selective: only choose projects susceptible of meeting criteria of venture capitalists
Broader selection criteria
1) Examples: IMEC
Finding 2 – Processes of spinning off
1996 – 2000 2001
4. Incubation or business plan development
Technical incubation: IMEC Business incubation: outside consultants and / or
experienced managers hired from industry Duration: 12-18 months within IMEC
Similar, but with help of a new seed fund
5. Funding process Apply directly for venture capital Two step process Apply to proprietary seed
fund Apply for venture capital
6. Selection by funding source
Very selective and competitive Seed fund: no data Venture capital: same
7. Support with start-up process
Comes from management team, venture capitalists, and board
No direct IMEC involvement, but venture benefits from its network
Similar, but additional support from seed fund partners
1) Examples: IMEC
Finding 2 – Processes of spinning off
1999-2000(no significant change over the time period studied)
Organization of research 1.Traditional organization for a university2.First partnership with industry in 2000
Research valorization and technology transfer
1.1999. Fund and one person unit in support of spin-off ventures2.2000. Extension to responsibility of technology valorization and transfer, as well as “strategic partnerships” with industry.
1. Origination of spin-off projects
1.Initiatives of researchers
2. Intellectual property assessment and protection
1.Yes, when relevant
3. Selection of the spin-off project by the university
1.Weak selection. Priority on generating ventures.
4. Incubation or business plan development
1.No incubation2.Minimal business plan development
1) Examples: U.C.L.
Finding 2 – Processes of spinning off
1999-2000(no significant change over the time period studied)
4. Incubation or business plan development
1.No incubation2.Minimal business plan development
5. Funding process 1.Various amounts depending on project2.Controlling stake3.Pressure to exclude other investors4.Proprietary fund
6. Selection by funding source
1.Weak
7. Support with start-up process
•Very minimal (monitoring)
2) Examples: U.C.L.
ORIGINATION CONCEPT TESTING
START-UP SUPPORT
• IP protection testing
• Business concept testing
•Selection
Findings – Processes of spinning off2) Proposed framework
• Opportunity identification
• Selection
• Advising capabilities
• Network support
• Research
• Organization of research
BACKGROUND
ORIGINATION CONCEPT TESTING
START-UP SUPPORT
• IP protection testing
• Business concept testing
•Selection
Findings – Processes of spinning off3) Proposed framework
• Opportunity identification• Individual initiatives•Proactive opportunity search
• Selection
• Advising capabilities
• Network support
ORIGINATION CONCEPT TESTING
START-UP SUPPORT
• IP protection testing
• Business concept testing
•Selection
Findings – Processes of spinning off3) Proposed framework
• Opportunity identification
• Opportunity selection• IP assessment• Business assessment• Spinning off vs. licensing
• Advising capabilities
• Network support
ORIGINATION CONCEPT TESTING
START-UP SUPPORT
• IP protection testing
• Business concept testing• market research• product development
• Selection
Findings – Processes of spinning off3) Proposed framework
• Opportunity identification
• Opportunity selection
• Advising capabilities
• Network support
ORIGINATION CONCEPT TESTING START-UP SUPPORT
• IP protection testing Strong IP capability
• Business concept testing market research - product
development with help of consultants + management
• Selection strong selectivity: target VC funding
Findings – Processes of spinning off4) First archetype: comprehensive support and selectivity: IMEC - VIB
• Opportunity identificationproactive opportunity search
• Opportunity selection- Strong IP capability- business: internally
Firm founding
• Internal capabilities
• Support network - management team,
board, advisors, shareholders
- Local entrepreneurial community and external links
12 – 18 months
ORIGINATION CONCEPT TESTING START-UP SUPPORT
• IP protection testing emerging – not always relevant
• Selection minimal
Findings – Processes of spinning off5) Second archetype: minimalist support and selectivity (universities)
• Opportunity identificationindividual initiative + PR of U.
• Opportunity selection- emerging IP capability- limited capability for
business opportunity selection
- Focus on encouraging spin-offs rather than
on selectivity
•Business concept testing
Firm founding
Gestation – transition phase ( up to several years)
ORIGINATION CONCEPT TESTING START-UP SUPPORT
• IP protection testing growing IP capability
• Business concept testing market research - product
development within U. structure• Selection emerging selectivity
Findings – Processes of spinning off5) Third archetype: intermediate support and selectivity (KUL >2000)
• Opportunity identificationattempts at proactive opportunity search
• Opportunity selection- growing IP capability- pressure founders to submit more ambitious business projects
Firm founding
• Internal capabilities limited through financial
partners
• Support network Growing support through
local entrepreneurial community and external links
+ 12 months (?)
Findings – Spin-off process6) Comparison of Process
MinimalistLimited support and
selectivity
IntermediateGrowing support and
selectivity
Comprehensive process
Strong support and selectivity
UniversitiesKUL (<2000), UCL, ULG
KUL(2000-2001)
Specialized research
InstitutionsIMEC and VIB
Origination: opportunity identification
Supported by pubic relations campaign.Relies on individual initiatives.Emerging IP assessment capability.No business assessment capability
Organization of research autonomousSteps taken for proactive opportunity searchGrowing IP capabilities
Organization of research geared towards technology transferProactive opportunity searchStrong IP capability for opportunity assessment
Opportunity testing
Hardly any opportunity testing from within the universityOpportunity testing occurs after founding without university support. Can take several years.
Growing capabilities for testing IP opportunitySmall investment in product development and market researchSeed funding: provided by the research division’s own funds
Strong IP capability for IP testing and establishing IP defenseTesting of business opportunity relies on hiring people with industry backgroundsSeed funding: provided by the institutes own funds and later seed fund (IMEC)
Start up support phase
No support Advising capabilities and support network from local networks created by the research division.Growth funding through the university’s fund in partnership with financial institutions
Supported by the institutes’ local and international networks and on management hired to lead the ventureGrowth funding through privileged relationships with VCs
Findings – Venture Formation
Findings – Venture formation
SMEs Growth-oriented
ventures
• Low capitalization• Closed ownership• Weak management
• No growth orientation• Continuity• Lifestyle
• Raise capital• Open ownership• Professionalization of
management• Growth orientation• Exit• Capital gain
Literature
Findings – Venture formation
Coding
• Capitalization• Ownership• Management structure• Growth orientation
Findings – Venture formation
Literature
SMEs Later growth
oriented firms
Early growth
oriented firms
Outliers – lack of
data
Total
<1996 23 0 0 4 27
1996 9 7 4 20
Findings – Venture formation1) Under conditions of comprehensive spin-off process: high support – high selectivity (specialized research institutions)
• Early high growth oriented firms– Capitalization: > EUR 1 million– Outside investor: venture capital firms– Experienced management team– Business opportunity with high potential
• Number of firms: – Zero out of 27 prior to 1996; – 4 out of 20 between 1996 and 2000
• Ventures are spun off at an early stage.
• They adopt a basic business model: contract based work
Findings – Venture formation2) Under conditions of low support – low selectivity (universities)
• Some settle for the contract-based business model• Contract-based work is an end in itself
Technology SMEs
• Number of firms– Prior to 1996: 23 out of 27– From 1996 to 2000: 9 out of 20
Findings – Venture formation2) Under conditions of low support – low selectivity (universities)
• For others, contract-based work is a transitory mode– Source of revenue– Main source of knowledge building
“Late growth oriented venture”
• Number of firms– Prior to 1996: zero out of 27– From 1996 to 2000: 7 out of 20
Findings – Venture formation2) Under conditions of low support – low selectivity (universities)
Proposition 1
Late growth oriented firms are archetypes of growth-oriented spin-off ventures
In environments with little entrepreneurial capabilities
Findings – Venture formation2) Propositions
Proposition 2
Late growth oriented firms are representative of research-based ventures
Findings – Venture formation2) Propositions
• Key for late growth-oriented firms is to succeed in their transitory phase…
• … more than to grow fast early on
Findings – Venture formation2) Propositions
• Success in transitory phase
– Operate on a dual mode
– Not to fall in a “consultancy trap”
Findings – Venture formation2) Propositions
Discussion
Discussion
SELECTIVITY
HIGH
Policy adapted for under-developed entrepreneurial environments
SUPPORT
LOW
Policy adapted for
developed entrepreneurial
environments
LOW HIGH
Discussion 1 – Support - selectivity
Source: Adapted from Roberts, E. and D. Malone (1996).
SELECTIVITY
HIGH
Specialized
Research
Institutions
Policy adapted for under-developed entrepreneurial environments
SUPPORT
LOW
Universities
Policy adapted for
developed entrepreneurial
environments
LOW HIGH
Discussion 1 – Support - selectivity
SELECTIVITY
HIGH
IMEC
VIB
SUPPORT
LOW
KUL ( until 1999)UCL –ULGRUG - ULB
LOW HIGH
Discussion 1 – Support - selectivity
KUL (>1999)
SELECTIVITY
HIGH
IMEC
VIB
SUPPORT
LOW
KUL ( until 1999)UCL –ULGRUG - ULB
LOW HIGH
Discussion 1 – Support - selectivity
KUL (>1999)
SELECTIVITY
HIGH
IMEC
VIB
SUPPORT
LOW
KUL ( until 1999)UCL –ULGRUG - ULB
LOW HIGH
Discussion 1 – Support - selectivity
KUL (>1999)
?
?
Need to view spin-off process as a value chain
Discussion 2 - framework as a diagnostic and management tool
Idea Generation
Development• Design• Prototyping• Testing
Manufacturing• Process development• Production• Testing
Marketing• Pricing•Positioning•Promotion• Product
Service
Traditional company value chain
ORIGINATION CONCEPT TESTING
START-UP SUPPORT
• IP protection testing
• Business concept testing
• Selection
Discussion 2– framework as a diagnostic and management tool
• Opportunity identification
• Selection
• Advising capabilities
• Network support
Need to view spin-off process as a value chain
ORIGINATION CONCEPT TESTING
START-UP SUPPORT
• IP protection testing
• Business concept testing
• Selection
Discussion 2– Spin-off framework as a diagnostic and management tool
• Opportunity identification
• Selection
• Advising capabilities
• Network support
Resources
Technical Research capabilities; management of research; IP capabilities
R&D capabilities; IP capabilities; Business due diligence and planning skills
R&D capabilities; Business development and management skills
Financial R&D financing; Investment in TT Innovation grants; Seed financing; Investment in TT
Early stage VC; Growth stage VC
Human Scientists; Technology transfer specialists
Technology transfer specialists; business coaches
Scientists; management; board members; advisors
Social Scientific network Scientific network; network in industry and in the entrepreneurial community
Scientific network; local and international network in industry and in the entrepreneurial community
Discussion 2 – Spin-off framework as a diagnostic and management tool
As a diagnostic tool:• What exists?
As a management tool:
• What can we do with the existing resources?
• What resources do we need to increase our capabilities?
Discussion 2 – Spin-off framework as a diagnostic and management tool
If key resources are limited
• Strategy focusing on quantity rather than potential
•Objective: vibrant SME population
•Where to find best practice? Twente
•What resources do we need to increase our capabilities?
Discussion 2 – Spin-off framework as a diagnostic and management tool
If key resources are “intermediate”
• Objective: spin-off projects with more potential
• Balancing incubation and coaching?
• Where to find best practice? KUL
Discussion 2 – Spin-off framework as a diagnostic and management tool
If key resources are strong
• Objective: high potential spin-off projects
• Where to find best practice? IMEC
Discussion 2 – Spin-off framework as a management tool
SMEs
Late growthOrientated firms
Early growthoriented firms
Resources
Time
Staging the spin-off strategy?
Discussion 2 – Spin-off framework as a management tool
• SMEs
• Late growth oriented firms
• Early growth oriented firms
Multiple strategies?
TitleDirect indicators for the commercialization of research
Discussion 3 - Further research
Discussion 3 - Further research
Participants
• University of Ghent (Belgium) (*)• Association pour la recherche et le developpement des methodes et processus industriels
(ARMINES) / Ecole Nationale Supérieure des Mines de Paris (ENSMP) covers (France)• The University of Nottingham (UK)• Centre for European Economic Research / Zentrum für Europäische Wirtschaftsforschung
GmbH covers (Germany)• Scuola Superiore Sant’Anna (Italy)• GKI Economic Research Co. (Hungary)• Halmstad University (Sweden)
(*) Also covers the Netherlands
Discussion 3 - Further research
Objectives
1. Collect information and construct indicators, which (a) reflect the direct commercialisation efforts undertaken by universities and public research labs (spin-offs);(b) collect indicators regarding the resources and performance of research based spin-offs.
2. Perform detailed country specific analysis, which adds qualitative context specific elements to the quantitative indicators.
3. Make a cross-country comparative analysis
Discussion 3 - Further research
ObjectivesActions Year 1
1 2 3 4 5 6
Year 2 1 2 3 4 5 6
Year 3 1 2 3 4 5 6
Period 1: Elaboration of the methodology Participation in brainstorming meeting Preparation and translation of the
questionnaire
Determination of the sample frames of TTO’s
Pilot-testing of the questionnaire Feedback and revising of the questionnaire Period 2: Collection of the indicators Data Collection Interface Services (TTO) Sample Frame Construction Spin-offs Sample Spin-offs Period 3: Writing of the country specific reports
Data Collection Spin-offs Preparation of country-specific reports Write the country-specific report Presentation of the country-specific
reports
Discussion about the cross country comparisons
Period 4: Writing of the cross-country comparative analysis
Write the cross-country comparative analysis
Period 5: Dissemination of the results Press-conference of the cross-country
comparative analysis to a larger public