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

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Presentation on theme: "Spinning Off New Ventures From Academic Institutions Outside Developed High Tech Clusters Jean-Jacques Degroof."— Presentation transcript:

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

2 Outline Introduction Findings –First finding: policy level –Second level: spin-off process –Third finding: types of ventures Discussion May 1 st, 20022

3 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

4 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

5 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

6 Literature 2 Come from a small number of top research institutions Mostly in the biomedical and IT fields. Heterogeneous population No clear definition

7 Finding 1 – Policies

8 Interest is policy driven Finding 1 – Policies

9 FlandersWallonia 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 – Transfer of intellectual property of publicly funded research to universities and research institutions Transfer of intellectual property of publicly funded research to universities and research institutions Decree enlarging the mission of the public investment company SRIW from restructuring to the creation of new firms.

10 Finding 1 – Policies FlandersWallonia Innovation Policy 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 First Spin-off program subsidizing researchers with an entrepreneurial project Subsidizing of technology departments within universities 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: Creation of EASDAQ Creation of VC fund IT Partners 1997 – Co-invests in first two spin-off ventures of VIB Co-invests in funds of universities of Gent, Antwerp, and Limburg Creation of investment fund FIRD Creation of investment fund Start- it

11 Finding 1 – Policies Interpretation Policies consist of replicating elements of environments that are supportive of technology transfer and entrepreneurship

12 Finding 1 – Policies REPLICATIONSUBSTITUTION 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

13 Finding 1 – Policies Research Institutions FundSize million EUR Private Financial Partners Public Financial Partners FLANDERS VIBFlanders Biotech Fund (1994) (*) 35GIMV IMECIT Partners (1996) (*)50(1)GIMV KULGemma Frisius Fund (1997) 6.25Investco VIV (2) RUGBaekeland Fund (1999) 2.5VIVGIMV LUCWendelen Fund (1999)2.5Investco VIV UIAAntwerp Innovation Centre3.3VIV – KBC Invest (2) – Anchis (3) GIMV WALLONIA UCLSopartec (1999)12.5No partners ULGSpin-Venture (1999)1Meusinvest (4) Financière de MonsUniversité Poly-technique de Mons (1999) NAIndividual investors FIRD (5)12.4

14 Finding 2 – Processes of spinning off

15 FLANDERSWALLONIA 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).

16 Finding 2 – The Process of spinning off 1996 – 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

17 Finding 2 – Processes of spinning off 1996 – Incubation or business plan development Technical incubation: IMEC Business incubation: outside consultants and / or experienced managers hired from industry Duration: 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

18 Finding 2 – Processes of spinning off (no significant change over the time period studied) Organization of research1.Traditional organization for a university 2.First partnership with industry in 2000 Research valorization and technology transfer Fund and one person unit in support of spin-off ventures 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 incubation 2.Minimal business plan development 1) Examples: U.C.L.

19 Finding 2 – Processes of spinning off (no significant change over the time period studied) 4. Incubation or business plan development 1.No incubation 2.Minimal business plan development 5. Funding process1.Various amounts depending on project 2.Controlling stake 3.Pressure to exclude other investors 4.Proprietary fund 6. Selection by funding source 1.Weak 7. Support with start-up process Very minimal (monitoring) 2) Examples: U.C.L.

20 ORIGINATION CONCEPT TESTING START-UP SUPPORT IP protection testing Business concept testing Selection Findings – Processes of spinning off 2) Proposed framework Opportunity identification Selection Advising capabilities Network support Research Organization of research BACKGROUND

21 ORIGINATION CONCEPT TESTING START-UP SUPPORT IP protection testing Business concept testing Selection Findings – Processes of spinning off 3) Proposed framework Opportunity identification Individual initiatives Proactive opportunity search Selection Advising capabilities Network support

22 ORIGINATION CONCEPT TESTING START-UP SUPPORT IP protection testing Business concept testing Selection Findings – Processes of spinning off 3) Proposed framework Opportunity identification Opportunity selection IP assessment Business assessment Spinning off vs. licensing Advising capabilities Network support

23 ORIGINATION CONCEPT TESTING START-UP SUPPORT IP protection testing Business concept testing market research product development Selection Findings – Processes of spinning off 3) Proposed framework Opportunity identification Opportunity selection Advising capabilities Network support

24 ORIGINATIONCONCEPT TESTINGSTART-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 off 4) First archetype: comprehensive support and selectivity: IMEC - VIB Opportunity identification proactive 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

25 ORIGINATIONCONCEPT TESTINGSTART-UP SUPPORT IP protection testing emerging – not always relevant Selection minimal Findings – Processes of spinning off 5) Second archetype: minimalist support and selectivity (universities) Opportunity identification individual 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)

26 ORIGINATIONCONCEPT TESTINGSTART-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 off 5) Third archetype: intermediate support and selectivity (KUL >2000) Opportunity identification attempts 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 (?)

27 Findings – Spin-off process 6) Comparison of Process Minimalist Limited support and selectivity Intermediate Growing support and selectivity Comprehensive process Strong support and selectivity Universities KUL (<2000), UCL, ULG KUL ( ) Specialized research Institutions IMEC 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 autonomous Steps taken for proactive opportunity search Growing IP capabilities Organization of research geared towards technology transfer Proactive opportunity search Strong IP capability for opportunity assessment Opportunity testing Hardly any opportunity testing from within the university Opportunity testing occurs after founding without university support. Can take several years. Growing capabilities for testing IP opportunity Small investment in product development and market research Seed funding: provided by the research divisions own funds Strong IP capability for IP testing and establishing IP defense Testing of business opportunity relies on hiring people with industry backgrounds Seed 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 universitys fund in partnership with financial institutions Supported by the institutes local and international networks and on management hired to lead the venture Growth funding through privileged relationships with VCs

28 Findings – Venture Formation

29 Findings – Venture formation SMEsGrowth-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

30 Findings – Venture formation Coding Capitalization Ownership Management structure Growth orientation

31 Findings – Venture formation Literature SMEsLater growth oriented firms Early growth oriented firms Outliers – lack of data Total <

32 Findings – Venture formation 1) 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

33 Ventures are spun off at an early stage. They adopt a basic business model: contract based work Findings – Venture formation 2) Under conditions of low support – low selectivity (universities)

34 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 formation 2) Under conditions of low support – low selectivity (universities)

35 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 formation 2) Under conditions of low support – low selectivity (universities)

36 Proposition 1 Late growth oriented firms are archetypes of growth- oriented spin-off ventures In environments with little entrepreneurial capabilities Findings – Venture formation 2) Propositions

37 Proposition 2 Late growth oriented firms are representative of research-based ventures Findings – Venture formation 2) Propositions

38 Key for late growth-oriented firms is to succeed in their transitory phase… … more than to grow fast early on Findings – Venture formation 2) Propositions

39 Success in transitory phase –Operate on a dual mode –Not to fall in a consultancy trap Findings – Venture formation 2) Propositions

40

41 Discussion

42

43 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).

44 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

45 SELECTIVITY HIGH IMEC VIB SUPPORT LOW KUL ( until 1999) UCL –ULG RUG - ULB LOW HIGH Discussion 1 – Support - selectivity KUL (>1999)

46 SELECTIVITY HIGH IMEC VIB SUPPORT LOW KUL ( until 1999) UCL –ULG RUG - ULB LOW HIGH Discussion 1 – Support - selectivity KUL (>1999)

47 SELECTIVITY HIGH IMEC VIB SUPPORT LOW KUL ( until 1999) UCL –ULG RUG - ULB LOW HIGH Discussion 1 – Support - selectivity KUL (>1999) ? ?

48 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

49 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

50 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 TTInnovation 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 networkScientific network; network in industry and in the entrepreneurial community Scientific network; local and international network in industry and in the entrepreneurial community

51 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?

52 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?

53 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

54 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

55 Discussion 2 – Spin-off framework as a management tool SMEs Late growth Orientated firms Early growth oriented firms Resources Time Staging the spin-off strategy?

56 Discussion 2 – Spin-off framework as a management tool SMEs Late growth oriented firms Early growth oriented firms Multiple strategies?

57 Title Direct indicators for the commercialization of research Discussion 3 - Further research

58 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 SantAnna (Italy) GKI Economic Research Co. (Hungary) Halmstad University (Sweden) (*) Also covers the Netherlands

59 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

60 Discussion 3 - Further research Objectives


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