Spinning Off New Ventures From Academic Institutions Outside Developed High Tech Clusters Jean-Jacques Degroof.

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



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.


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


Interpretation

Policies consist of replicating elements of environments that are supportive of technology transfer and entrepreneurship


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


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


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


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


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.


1.No incubation2.Minimal business plan development

1) Examples: U.C.L.


1999-2000(no significant change over the time period studied)


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


START-UP SUPPORT



•Selection


• Opportunity identification• Individual initiatives•Proactive opportunity search

• Selection


• Network support


START-UP SUPPORT



•Selection



• Opportunity selection• IP assessment• Business assessment• Spinning off vs. licensing


• Network support


START-UP SUPPORT


• Business concept testing• market research• product development

• Selection



• Opportunity selection


• 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


• 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)


• 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


Coding

• Capitalization• Ownership• Management structure• Growth orientation


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


• 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


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


• Key for late growth-oriented firms is to succeed in their transitory phase…

• … more than to grow fast early on


• Success in transitory phase

– Operate on a dual mode

– Not to fall in a “consultancy trap”


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


SELECTIVITY

HIGH

IMEC

VIB

SUPPORT

LOW

KUL ( until 1999)UCL –ULGRUG - ULB

LOW HIGH


KUL (>1999)

SELECTIVITY

HIGH

IMEC

VIB

SUPPORT

LOW


LOW HIGH


KUL (>1999)

SELECTIVITY

HIGH

IMEC

VIB

SUPPORT

LOW


LOW HIGH


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


START-UP SUPPORT



• Selection

Discussion 2– framework as a diagnostic and management tool


• Selection


• Network support

Need to view spin-off process as a value chain


START-UP SUPPORT



• Selection

Discussion 2– Spin-off framework as a diagnostic and management tool


• Selection


• 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?


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?


If key resources are “intermediate”

• Objective: spin-off projects with more potential

• Balancing incubation and coaching?

• Where to find best practice? KUL


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


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


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


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

Spinning Off New Ventures From Academic Institutions Outside Developed High Tech Clusters Jean-Jacques Degroof.

Documents

funded research

research valorization

research questions

entrepreneurship slide

new ventures

academic institutions

clear definition slide

new innovation policy