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Academic Enterpreneurship. Hamid Houshmand. Why do University S pinoffs M atter?. Spinoffs encourage economic development: _ Spinoffs generate significant economic value: $34 billion economic value added in US 1980-2000 _ Spinoffs create jobs: High tech jobs - PowerPoint PPT Presentation

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Academic EnterpreneurshipHamid HoushmandWhy do University Spinoffs Matter?Spinoffs encourage economic development:_ Spinoffs generate significant economic value: $34 billion economic value added in US 1980-2000 _ Spinoffs create jobs: High tech jobs _ Spinoffs induce investment in university technologies: Spinoffs do better job in attracting investment in technology than established companies _ Spinoffs promote local economic development: by hiring and sourcing of supplyWhy do University Spinoffs Matter?_ Spinoffs enhance the commercialization of University Technologies_ Spinoffs are an effective commercialization vehicle for uncertain technologies_ Spinoffs are an effective vehicle for encouraging inventor involvement_ Spinoffs help Universities with their mission_ Spinoffs support additional researchWhy do University Spinoffs Matter?_ Spinoffs attract and retain faculty _ Spinoffs help to train students_ Spinoffs are high performing companies_ Creating Spinoffs is more profitable than licensing to established companies

University Spinoff in Historical PerspectiveModern university was first in German in 19th centuryEarliest spinoffs in 19th century in GermanyE.G. : Production of salt and acetic acid Other countries modelled their university system on that established in Germany Land grant Universities were created

University Spinoff in Historical PerspectiveSpinoff activities slow in 19th century At the turn of 20th century: negative view on faculty members to patent and licensing their inventions As a consequence: from early 20th century to 1970: more indirect rather than direct to support technology commercialization and spinoff activitiesUniversity patenting and technology commercialization activity increased after world War I

University Spinoff in Historical PerspectiveThe volume of the commercialization effort in the first part of 20th century was still lowResearch corporation was initiated to assign patent and licensing university innovations In the pre-World War II period, most American universities were ambivalent to make commercial use of their IPProfessor Steenbok was a kind of pioneer who commercialized its patent on vitamins in food using alumni of the Wisconsin University University Spinoff in Historical PerspectiveDuring the 1920s and 1930s, other universities followed Wisconsin exampleDuring 1930s many Universities set up administration units for patenting and licensing activitiesFrom 1945-1980: WW II transformed the research universities The federal government provided funding to particularly the engineering departments Significant increase of number of Universities with explicit policies to manage the innovations

University Spinoff in Historical PerspectiveFirst modern venture capital organization was built in Boston at the end of WWII with the goal of commercialization of military technologyThe post WWII period was marked by a dramatic rise of research and development activitiesIncrease in federal funding in the 1950s and 1960s resulted in increase of R&D activities s and commercialization activitiesThe heavy funding of universities during the Cold War also had a n effect on creation of spinoff companies University Spinoff in Historical PerspectiveIncrease technology production and commercialization activities during 1990sResult: significant increase in returns earned from licensing Federal support for biomedical research resulted in creation of biomedical innovationsBiomedical inventions increased from 11% by 1970s to 48% by 1997University Spinoff in Historical PerspectiveChange in patent law helped to rise in Spinoff activates in 1980s: Software patent Biological life forms patentable Dramatic rise in the availability of venture capital and business angel financing University equity polices also helped in growth of spinoff activitiesVariation in Spinoff Activities Across InstitutionsUniversity policies: executive licenses, taking equity, use of university resources, leaves of absence, division of royalties, pre-seed stage capital Technology licensing office characteristics: licensing office resources, company formation expertise, linkage to start-up networks, linkage to start-up networksOther University characteristics: _ University goals _ University culture _ Entrepreneurial role models _ University quality _ Industry funded research

Variation in spinoff activity across geographic locations Access to capital Locus of property rights: variations across countriesRigidity of the academic labour market: ability of academics to change institutions or industriesIndustrial composition of the area: Industrial landscape surrounding a University encourage or discourage the formation of spinoffs

The Types of Technology That Leads to University SpinoffsSpinoff firmsEstablished firmsRadical Incremental TacitCodifiedEarly stage Late stageGeneral-purposeSpecific -purposeSignificant customer value Moderate customer value Major technical advances Minor technical advances Strong IP protectionWeak IP protection The Types of Technology That Leads to University SpinoffsRadical technology: incremental invention is not appropriate for founding a spinoffCannibalizing existing assets: established firms with a dominant market position in an industry rarely adopt radical innovationsDisbelief: dismiss of radical innovation by established firms is a reason for founding spinoffsTacit knowledge: either is tacit or is held in the minds of inventors. Licensing an invention works best when technology can be codified and made understandable from patent documentsEarly stage invention: Spinoff formation because of academic innovations are often not more than proofs of conceptThe Types of Technology That Leads to University SpinoffsUncertain value: difficult to license because established companies find it difficult to see the value of the early stageThe focus of established companies on existing operations: not ready to devote resources on new technologyProduct development expertise: Complexity of the new technology often requires new competencies. Established companies are to bureaucratic to develop new product form the idea stage. Communicating information about the technology: With a spinoff it would be difficult for inventors to communicate the new technology Ability to capture value: Most of the value is captured through transferring the new technology into new productsThe Types of Technology That Leads to University SpinoffsTime horizons: established firms dont like to make investments in technologies that have unknown or long time horizonsGeneral-purpose technologies (platform technologies): Spinoff exploit technologies with several market applications. A flexibility is generated that is important for survival of spinoffsEstablished firms are unwilling to license general purpose university technologies

The Types of Technology That Leads to University SpinoffsThe problem of different stages of the value chain: general-purpose technology would sometimes be used at different stages of the value chain in a industry that make it difficult for established firms to license it.High customer value: A new spinoff firm should exploit a technology with significant value to customers, motivating external entrepreneurs, and investors Significant technology advances: A technology to be appropriate to the founding of a spinoff, it also needs to be a significant advance in a scientific fieldStrong intellectual property the main source of competitive advantage of the spinoff firms: portfolio of patents, interlocking patents are important, a broad scope patents allow a spinoff to block competitors

Industries Where Spinoffs OccurTechnologyPercentage of spinoffsBiotechnology 31Software23Materials 11Medical device 10Mechanical devices 7Computer hardware6Robotics 4Semiconductor 4Optics/lasers3The industry distribution of MIT spinoffs from 1980 to 2000Industries Where Spinoffs OccurIndustry Percentage of spinoffs Biotechnology & medicine 20Computer 16Electronics 13Industrial equipment & machinery 12Spinoffs are concentrated in a few industries in Sweden Industries Where Spinoffs OccurWhy spinoffs are so common in biomedical industries Collapsed discovery process Long product development process horizons Locus of expertise in technology creation in Universities Focus of customers on product efficacy rather than on cost Discrete nature of biomedical inventionsStrong patent protection

Industries Where Spinoffs OccurSpecific industry characteristic that promote spinoffs Effectiveness of patents in an industry Complementary assets in marketing, distribution and manufacturingAge of the technical field: Spinoffs are more common in younger technology baseMarket segmentation: Spinoffs more common in markets that are segmented Average firm size: Spinoffs are less common in industry with large companies

The Role of People in University SpinoffsThree primary group of people inventorsEntrepreneursInvestorsSpinoffs can be led by any of themInventor-led (entrepreneurial types) Entrepreneur-ledInvestor-ledThe Role of People in University SpinoffsMotivation to spin off Psychological explanation A desire to bring technology into practice A desire for wealth A desire for independence Career-oriented explanation: Career cycles: first achieving tenure then obtaining financial returnUniversity status: help to reduce the risks and encourage Star scientists: seek to capitalize financially on the tacit knowledgeEntrepreneurial experience: exist at the required level The Process of Spinoff Company Creation University research: Researchers in science and engineering seek to create new knowledge. Sometimes they produce new technology that is novel Invention disclosures: Universities in USA require disclosure of invention that used University resources. Otherwise the inventor is free to make use of the invention as he or she