University spin-offs: Still small after all these years Lars Bengtsson School of Management Blekinge Institute of Technology 371 79 Karlskrona Sweden
[email protected]
Academic paper (701) to be presented at the 56th Annual ICSB World Conference in Stockholm 1518 of June 2011. Subtheme: Creative Environments
1
ABSTRACT This study shows a pattern of modest size and growth rates among a sample of Swedish university spinoffs (USOs) after on average 25 years of existence. However, not only firm size and growth might indicate the importance of USOs’ commercial impact. The study provides some evidence that technological knowledge associated with the USO are transferred into use through licensing and/or copying by other firms or through the founders’ extra-USO activities by licensing other related technologies and/or founding other firms.
2
INTRODUCTION Previous studies of university spin-offs (USOs) have been concerned with explaining the varying pattern of USOs between countries (e.g. Clarysse et al, 2001), regions (e.g. DiGregorio and Shane, 2003), sectors (e.g. Shane, 2004) and performance (Lerner, 2005). Performance studies of USOs generally find USOs to be small and growth rates remaining modest in the first decade of their existence (Lerner, 2005). However, the knowledge concerning the long-term development of USOs is limited (Lawton Smith and Ho, 2006). While generally recognizing the long time for significant growth among technology- and science-based firms to appear, few studies, with some exceptions (e.g. Lawton Smith and Ho, 2006) have been made of long-term performance of USOs. Most studies on USO performance have been performed on USOs less than 10 years old (Mustar et al, 2008).
This research project uses a database created in a comprehensive mapping of Swedish university spin-offs performed in 1992 by Olofsson & Wahlbin (1993). In the mapping 124 Swedish USOs responded to a questionnaire containing questions regarding background and development of the USO. The USOs were founded from 1962 to the beginning of the 1990s. The paper reports on a follow-up study of 25 surviving Swedish USOs.
The research reported in this paper builds on previous empirical research regarding USOs performance. In line with this our research questions are: 1) What is the long-term performance, in terms of size and growth of Swedish USOs? Is it in line with previous research showing that USOs exhibit limited growth and remain rather small? 2) To what extent are the USOs’ growth realized outside the firm by technological knowledge diffusion to other firms through patents and licenses, and founder’s other activities?
3
METHOD The term university spin-off will here be defined “legal entities and enterprises created by the Higher Education Institutions or its employees to enable the commercial exploitation of knowledge arising from academic research” (Lawton Smith & Ho, 2006). The IPR to academic knowledge is in Sweden exempted from the normal rule in the patent laws, thus the IPR belongs to the teachers. In accordance with this very few USOs are created by the university itself. Instead the normal procedure is firms established by the university teachers. In fact, our sample contains no university-owned USO at all as all the USOs were founded before 1992 and Swedish universities were prohibited to invest in private companies before 1994. In contrast to several other investigations regarding USOs including student-founded spin-offs (see Druihle and Garnsey, 2004; Lawton Smith & Ho, 2006; Lindholm Dahlstrand, 1997) this study only include university employee-founded spin-offs.
Our sample of Swedish USOs originates in a study of Swedish USOs performed in 1992 by Olofsson & Wahlbin (1993). They sent out a questionnaire to some 322 firms located around the universities in Gothenburg, Linköping, Luleå, Lund, Stockholm, Umeå, and Uppsala. Of the 322 firms they got 153 responses of which 124 were within the relevant population, i.e., a university spin-off. The questionnaire contained questions regarding background and development of the USO. The USOs were founded from the early 1960s to the beginning of the 1990s. A first update of the 124 firms through the Swedish official company database “Affärsdata” was made in 2008. This update revealed that 49 (40 %) companies had not survived, 40 (32 %) still operates as limited companies, 21 (17 %) have been subject to reconstruction, acquisition or merger, and 14 (11%) companies are registered as inactive or on
4
very limited scale as a sole proprietorship. In this paper the 40 surviving companies operating as limited companies will be studied.
In February 2009 the current CEOs of the 40 firms still operating as limited companies were contacted for a structured telephone interview where the same questions as in the original mapping from 1992 were asked. Some questions about patents, technology diffusion, and use of supporting organisations were added to the questionnaire. Of the 40 CEOs, 15 were not possible to reach, which leaves us with 25 firms included in this study. The 25 USOs were founded between 1962 and 1990, and their median age is 25 years.
FINDINGS Table 1 below summarizes the distribution of the firms’ size and growth over the period 19902007. As is visible from the table most firms remain small both in turnover and number of employees. 17 firms (68 %) have between 0-5 employees. 5 firms (20 %) have between 6-20 employees. Only two firms (8 %) have grown more substantially to the size of 133 and 694 employees. These two firms account for 89 % of all employees and 92 % of all revenues (2007) in the sample of 25 firms.
Approximately 10 firms remain consulting firms indicating that they sell their technical knowledge by the hour and in a limited way have packaged their knowledge into software, i.e., services, computer programs or other intangibles, or into hardware, i.e., tangible products.
5
Industry
Company
Line of business
Telecom Computers
A A B A B C D A
Hardware* Software** Software Software Royalty admin. Hardware Hardware Consulting
B C D E F A A B A B C D E
Biotech/Pharma
Energy/Environm
Industrial materials Tools/machines Others
F
G H I
Turnover 1990 in 1000 EUR (appr.) 675 840 5 84 510
Turnover 2007 in 1000 EUR (appr.) 360 14300 76 890 190
Growth rate 19902007 (%) -46 1702 1520 1060 -63
No. of empl. 1990
No. of empl. 2007
11 8 2 5 8
2 133 2 17 1
Growth rate 19902007 (%) -82 1662 0 340 -87
1513 85 0
1530 130000 270
0,9 152941 27000***
8 2 0
6 694 2
-25 34700 200
Consulting Consulting Consulting Consulting Software Hardware
87 7 2 0 3 1
17 49 62 54 31 163
-81 700 3100 5400*** 1033 16300
2 2 2 0 1 2
1 1 1 0 0 3
-50 -50 -50 0 -100 150
Hardware Hardware Hardware Consulting Consulting Consulting 50% consulting 50% hardware 15% consulting 70% software 15% hardware Hardware Consulting Software
1680 680 3 252 257 3 86
3830 3760 12 1470 1 16 345
228 553 400 583 -99,9 533 401
18 15 0 5 1 0 3
21 9 0 19 0 2 3
117 -40 0 380 -100 200 0
170
1030
606
5
9
180
173 2 2
123 23 25
-29 115 125
4 0 1
2 1 1
-50 100 0
*Hardware includes products and other tangibles. **Software includes service and other intangibles. ***Start-up 1990. Table 1. Distribution of size and growth of USOs.
In table 2 the frequencies of the firms’ selling licenses or have noticed/allowed free transfer of their technologies to other firms are described. 11 of the firms (44 %) have sold licenses and
6
11 firms (44 %) have noticed/allowed free transfer of their technical knowledge to other firms. In all, 17 firms (68 %) reported transfer of their technical knowledge either through licensing and/or free transfer of technology. Thus, it seems pretty common that USOs transfer their technical knowledge through sale of licenses and/or free transfer possibly contributing to growth in other firms.
When instead asking if the founders of the USOs have licensed other related technologies we find this is also rather common; in 9 firms (36 %) or about 1/3d of the cases in this sample. Even more common is the frequency of founders founding other companies than the ones identified in this sample; in 13 cases (52 %). In all, founders’ activities in licensing related technologies and/or founding other firms, was reported in 15 cases (60 %). Thus, the founders of the USOs possibly contribute to growth in other firms through licensing of other related technologies and/or through founding of new firms. In two cases, Biotech/pharma firm D and Energy/environment firm E, all the forms of technology transfers; licensing, free transfer, other technology licensing and founding new firms, have been used. As Biotech/Pharma D is also the firm that showed the largest size and the most impressive growth in absolute numbers in the sample, the added growth in other firms might be even more impressive than first impressions. Moreover, the small and unimpressive growth of Energy/Environment firm E, 0 employees and 54,000 Euros in turnover (2007) might be an illusion as their technologies have been licensed and transferred for free to other firms. The founder of this firm has also licensed other related technologies and founded other firms.
The frequencies of USOs licensing and/or providing free transfer of technological knowledge has in this survey showed to be fairly common, in 2/3rds the cases. The founders’ activities in
7
terms of licensing other related technologies and/or founding new firms have also proved to be fairly common, in roughly 60 % the cases.
Industry
Comp any
Line of business
Telecom Computers
A A B A B C D A
Biotech/pharm
Energy/ environment
Industrial materials Tools/machine Others
Hardware Software Software Software Consulting Hardware Hardware Consulting
Sale of licenses from USO Yes Yes Yes Yes Yes -
Free transfer to other compan’s Yes Yes -
Founder(s) sale of licenses for other tech’s Yes Yes Yes
Founder(s) founding of other companies Yes Yes Yes Yes -
B C D E F A
Consulting Consulting Consulting Consulting Software Hardware
Yes Yes Yes -
Yes Yes Yes -
Yes Yes
Yes Yes Yes Yes -
A B A B C D E
Hardware Hardware Hardware Consulting Consulting Consulting 50% Consulting 50% hardware 70% software Hardware Consulting Software
-
Yes Yes Yes Yes
Yes Yes Yes
Yes Yes Yes Yes
Yes
-
-
-
Yes Yes
Yes Yes -
Yes -
Yes -
F G H I
Table 2. Licensing, free transfer of technology, founders’ other licensing and founding activities.
CONCLUDING DISCUSSION Previous studies of USO performance (Lawton Smith and Ho, 2006; Lerner, 2005; Lindholm Dahlstrand, 1997; Mustar et al, 2008) have shown a pattern of limited growth among most of the surviving firms. In our sample of Swedish USOs the same pattern can be recognized. The 8
USOs remain small even after on average 25 years of existence. However, this survey has also shown the importance of a few firms, in the sample the two firms Biotech/Pharma D and Computers A, making up roughly 90 % of the employees and turnover in the whole sample.
In this survey it has also been shown that 2/3rds of the USOs reports transfer of their technical knowledge through licensing and/or free transfer. Thus, business growth from the particular technology developed and commercialised in the USOs studied here, might also show up in the firms acquiring licenses and/or copying the technology. In this study we are only able to show that licensing and “copying” by others is a very common pattern among USOs. Further studies concerning the frequency and magnitude of these transfer mechanisms need to be carried out. However, the growth caused by the commercialisation of a particular technology through a particular USO might be underestimated when only focusing on the USO and not other firms exploiting the same technology.
The survey reported here has also shown a common pattern of founders’ extra-USO activities, i.e., founders’ licensing other related technologies and/or founding of other firms. In 60 % of the USO cases the founders have either licensed other related technologies and/or founded other firms. Thus, business growth related to the founder of the USO might show up in other firms licensing related technologies and/or in other firms founded by the academic founder. Also, here further studies are needed in order to verify the frequency and to shed light on the commercial magnitude of these extra-USO founder activities.
9
REFERENCES Carter, N M and Gartner, W B and Reynolds, P D. (1996), Exploring Start-up Event Sequences, Journal of Business Venturing, 11, pp 151-166. Clarysse, B and Heinman, A and Degroof, J J. (2001), An Institutional and Resource-based Explanation of Growth Patterns of Research-based Spin-offs in Europe, in OECD2001 Fostering High-tech Spin-offs: A Public Strategy for Innovation (pp 95-96), Paris: STI Review No. 26, OECD. Di Gregorio, D and Shane, S. (2003), Why some universities generate more start-ups than others? Research Policy, 32, pp 209–227. Druihle, C and Garnsey, E. (2004), Do Academic Spin-Outs Differ and Does it Matter?, Journal of Technology Transfer, 29, pp 269-285. Lawton Smith, H and Ho, K. (2006), Measuring the performance of Oxford University, Oxford Brookes University and the government laboratories’ spin-off companies, Research Policy, 35, pp 1554-1568. Lerner, J. (2005), The University and the Start-up: lessons from the past two decades, Journal of Technology Transfer, 30(1/2), pp 49–56. Lindelöf, P and Löfsten, H. (2003), Science Park Location and New Technology-Based Firms in Sweden, implications for Strategy and Performance, Small Business Economics, 20, pp 245-258. Lindholm Dahlstrand, Å. (1997), Growth and innovativeness in Technology-based spin-off firms, Research Policy, 26(3) pp 331-344. Mustar, P and Wright, M and Clarysse, B. (2008), University spin-off firms: lessons from ten years of experience in Europe, Science and Public Policy, 35(2), pp 67–80. Olofsson, C and Wahlbin, C. (1993a), Teknikbaserade företag från högskolan. (In Swedish) (Technology-based firms from higher education), IMIT, Linköping.
10
Olofsson, C and Wahlbin, C. (1993b), Firms started by university researchers in Sweden – roots, roles, relations, and growth patterns, Frontiers of Entrepreneurship Research, Babson College, Wallesley, Mass., pp 610-620 Shane, S. (2003), A General Theory of Entrepreneurship, Edward Elgar, Cheltenham. Shane, S. (2004), Academic Entrepreneurship: University Spinoffs and Wealth Creation, Edward Elgar, Cheltenham. Smith, H L and Ho, K. (2006), Measuring the performance of Oxford University, Oxford Brookes-University and the government laboratories’ spin-off companies, Research Policy, 35, pp 1554–1568. Vohora, A and Wright, M and Lockett, A. (2004), Critical junctures in the development of university high-tech spinout companies, Research Policy, 33, pp 147-175.
11
