Download - Academic Enterpreneurship

Academic Enterpreneurship

Hamid Houshmand

Why 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 supply

Why 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 research

Why 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 Perspective

• Modern university was first in German in 19th century• Earliest spinoffs in 19th century in Germany• E.G. : Production of salt and acetic acid • Other countries modelled their university system on that

established in Germany • Land grant Universities were created


• Spinoff 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 activities

• University patenting and technology commercialization activity increased after world War I


• The volume of the commercialization effort in the first part of 20th century was still low

• Research 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 IP

• Professor Steenbok was a kind of pioneer who commercialized its patent on vitamins in food using alumni of the Wisconsin University


• During the 1920s and 1930s, other universities followed Wisconsin example

• During 1930s many Universities set up administration units for patenting and licensing activities

• From 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


• First modern venture capital organization was built in Boston at the end of WWII with the goal of commercialization of military technology

• The post WWII period was marked by a dramatic rise of research and development activities

• Increase in federal funding in the 1950s and 1960s resulted in increase of R&D activities s and commercialization activities

• The heavy funding of universities during the Cold War also had a n effect on creation of spinoff companies


• Increase technology production and commercialization activities during 1990s

• Result: significant increase in returns earned from licensing • Federal support for biomedical research resulted in creation

of biomedical innovations• Biomedical inventions increased from 11% by 1970s to 48% by

1997


• Change 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 activities

Variation in Spinoff Activities Across Institutions

• University 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 networks

• Other 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 countries• Rigidity of the academic labour market: ability of academics

to change institutions or industries• Industrial composition of the area: Industrial landscape

surrounding a University encourage or discourage the formation of spinoffs

The Types of Technology That Leads to University Spinoffs

Spinoff firms Established firms

Radical Incremental

Tacit Codified

Early stage Late stage

General-purpose Specific -purpose

Significant customer value Moderate customer value

Major technical advances Minor technical advances

Strong IP protection Weak IP protection


• Radical technology: incremental invention is not appropriate for founding a spinoff

• Cannibalizing existing assets: established firms with a dominant market position in an industry rarely adopt radical innovations

• Disbelief: dismiss of radical innovation by established firms is a reason for founding spinoffs

• Tacit 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 documents

• Early stage invention: Spinoff formation because of academic innovations are often not more than proofs of concept


• Uncertain value: difficult to license because established companies find it difficult to see the value of the early stage

• The focus of established companies on existing operations: not ready to devote resources on new technology

• Product 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 products


• Time horizons: established firms don’t like to make investments in technologies that have unknown or long time horizons

• General-purpose technologies (platform technologies): Spinoff exploit technologies with several market applications. A flexibility is generated that is important for survival of spinoffs

• Established firms are unwilling to license general purpose university technologies


• The 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 field

• Strong 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 OccurTechnology Percentage of spinoffs

Biotechnology 31

Software 23

Materials 11

Medical device 10

Mechanical devices 7

Computer hardware 6

Robotics 4

Semiconductor 4

Optics/lasers 3

The industry distribution of MIT spinoffs from 1980 to 2000

Industries Where Spinoffs Occur

Industry Percentage of spinoffs

Biotechnology & medicine 20

Computer 16

Electronics 13

Industrial equipment & machinery

12

• Spinoffs are concentrated in a few industries in Sweden


• Why 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 inventions– Strong patent protection


• Specific industry characteristic that promote spinoffs – Effectiveness of patents in an industry – Complementary assets in marketing, distribution and

manufacturing– Age of the technical field: Spinoffs are more common in

younger technology base– Market 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 Spinoffs

Three primary group of people • inventors• Entrepreneurs• InvestorsSpinoffs can be led by any of them• Inventor-led (entrepreneurial types) • Entrepreneur-led• Investor-led

The Role of People in University Spinoffs

• Motivation 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 return– University status: help to reduce the risks and encourage – Star scientists: seek to capitalize financially on the tacit knowledge– Entrepreneurial 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 sees fit

Evaluation of invention: To meet criteria novel, non-obvious, and valuable technology. Technology-licensing office seeks a patent to protect the invention

Marketing the technology: looking for private sector entities interested in licensing and commercializing the technologies. Finding out the market opportunity through networking with industries and companies

The Process of Spinoff Company Creation

Licensing decision: Exclusive licensing within a particular field of use. The compensation is paid through royalties on sales of successfully commercialized products or services

Decision to spin off: In USA, 86% of inventions are licensed to existing companies and in 14% of cases new ventures are created. Spinoffs are atypical start-ups, based on sophisticated science or engineering, no business plan, no management, no capital. Minus two step venture: 1. Lack of confidence in commercial value: discovery of market opportunity2. Discovery of the entrepreneurial/business opportunity

The Process of Spinoff Development Proof of principle: is the first step, need to establish proof of principle in a specific application to solve a customer problem

Prototype development: Prototypes must be develop for any market application. The prototype needs to work properly and efficiently to meet the customer need

Decision of business model: How to capitalize the return. Major business models are: Licensing, partnership, marketing the final product / service

Product development: Major value added through product development1. Turning the invention into product or service2. The product or service meet the commercial environment Often need to develop / change the technology into something that the customer buys

The Process of Spinoff Development • Changing to make technologies appropriate for the

commercial environment:– Improving performance– Enhanced robustness– Adding supporting technology – Scale up– Increased ease of use

The Process of Spinoff Development • Developing a market for the technology

_ Market uncertainty: no one knows if the spinoff can provide a product/service that customers want_ Gathering market information _ Identifying customers / needs_ Gathering feedback from customers: difficult as customer often can not give accurate feedback in a early stage_ Choosing an application _ Appropriate approach to satisfying customer needs _ Selling the products and services

The Process of Spinoff Development

• How to choose application: _ Sales volume _ Value to the customer _ Ability to serve the market_ Competitive advantage

The Financing of University Spinoffs

• Government grant: major source during the initial stage

• Angel investor: at an early stage of technology development, don’t require as high return as VC.

• Venture capitalist: difficult at early stage because of high degree of uncertainty and information asymmetry

• Big companies’ venture capital


• Uncertainty makes financing spinoff firms difficult in three ways:1. It makes the evaluation of the opportunity by investors difficult2. It create bargaining problems between entrepreneurs and investors3. It leads investors to seek collateral to minimize the magnetute of investor’s lost


• Acquisition of capital involves:_ Demonstrating the value of the venture_ Large markets_ Strong patent protection_ General-purpose technologies_ Founder attributes_ Social ties

The Performance of University of Spinoffs

• The effect of human capital:_ Complementary teams_ Business knowledge _ Management knowledge_ Investor involvement_ Full-time enterpreneur


• Overcoming the technology push problem:– Creating products– Identifying a market application– Assessing and satisfying customer needs

• Obtaining adequate financial capital • The effect of technology:– IP protection– General-purpose technology


• The effect of firm strategy_ Strategic focus_ Adoptability

1. Adaptation of the technology2. Adaptation to market

The Problems with University Spinoffs

• Lack of faculty support• The adverse effect of a commercial orientation– Spinoff hinder open dissemination of knowledge– Spinoffs influence the subject matter of faculty research – Education of students

• Conflict of interest • The cost of difficulty of developing spinoff

companies • Risk of creating new firms

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