Public officials in universities and ministries throughout the industrial countries are currently extremely interested in fostering the creation of spin-offs from the public research base. The reason is simple. Research-based spin-offs are generally understood to be small, new technology-based firms whose intellectual capital originated in universities or other public research organisations. These firms are thought to contribute to innovation, growth, employment and revenues. They are perceived to be flexible and dynamic, giving rise to novel fields and markets, and playing a critical role in the development of high-technology clusters. However, despite the promise of new-firm generation from cutting-edge research, a recent survey carried out by the OECD shows that in most countries, spin-offs remain rare and their economic impact is poorly documented.
Undoubtedly, universities and research institutions are far more entrepreneurial than they used to be. They patent more, licence their technologies more strategically, invest in incubators and science parks, and increasingly provide training and services to help their budding entrepreneurs. This business orientation is a response, on the one hand, to market changes in high-technology sectors especially in the fields of biomedical and information technology and to continuing budgetary pressures which have forced laboratories to look for alternative sources of funding, on the other. Spin-offs embody the success of this new business model among research institutions. A small number of spin-offs have become very high-profile companies Silicon Graphics and Genentech, both of which originated at Stanford University, immediately spring to mind. And the success of these stellar firms enhances the reputation of their parent, helping to attract students, faculty and funding. More directly, if a university holds an equity position in a spin-off or has licensed key intellectual property, the monetary benefits can be substantial. The prospects of winning big, therefore, make spin-off support an attractive gamble for academic institutions.
As the articles in this volume testify, the reality in most countries is somewhat less clear. The United States is the undisputed leader in the formation of research sector spin-offs. But how many firms are actually involved? According to Massing, the Association of University Technology Managers counts as spin-offs only those new firms that were created based upon technology licensed from university laboratories. In 1998, a total of 279 spin-off firms were reported from 132 of the top American universities, an average of a little more than two firms per university. However, close to 40% of the universities reported no start-up activity whatsoever during the year. Certainly, if one includes firms which were started by faculty, students and even alumni, but which did not licence technology from the home institution, the AUTM figures underestimate the number of American spin-offs.
Although not by as much as one might think. When one reads that MIT or Cambridge University have been responsible for the birth of thousands of new firms over the past decades, the fact is that most of these firms were started by alumni who did not explicitly exploit technology developed during their education. The figures remain impressive but direct technology transfer or support from the home institution for most of these companies was non-existent. Trailing the United States are Canada and the United Kingdom. Canada saw the birth of 69 spin-offs from 45 universities in 1998, while several universities in the United Kingdom claim that they generate close to four spin-offs per year. Even taking a relatively broad definition of what counts as a research-based spin-off, most other OECD countries witness the creation of no more than a couple dozen such firms each year. By contrast, they may see the birth of hundreds of new technology-based firms and thousands of corporate spin-offs per year.
Given the investments that local and national governments are making to improve the environment for spin-off creation, these relatively modest numbers come as a surprise. In 1999, for example, the United Kingdom created a funding pool of GBP 40 million, the University Challenge Seed Fund, to help universities foster spin-offs. To a certain extent, public policies put in place across the OECD in the 1980s and 1990s have substantially accelerated spin-off formation rates. Many countries have assigned ownership of intellectual property to the performing research institution; loosened employment laws to allow public researchers more contact with the private sector; provided seed capital for initial stages of funding; or fostered the development of service centres to help public would-be entrepreneurs realise their commercial goals.
However, in order for a typical OECD country to see its spin-off performance jump by an order of magnitude, from tens to hundreds of new firms per year, significant new political commitments would be necessary. A government would have to galvanise each of its research institutions into spawning several new firms per year. Is this feasible or even advisable?
The articles in this volume address what type spin-off performance a country can expect and how governments can help them achieve their potential. The articles focus on the evolution of public sector spin-offs over the past 20 years and the policies and structures that governments and institutions can exploit to facilitate their formation and growth. Together, the contributions paint a picture of the special role that public sector research spin-offs play in national systems of innovation.
The articles assembled here are the outcome of a workshop held at the OECD in December 1999 on High-technology Spin-offs.The workshop aimed to evaluate the importance of research-based spin-offs as a mechanism for technology transfer between the public and private sectors. The first four articles by Callan, Massing, Clarysse et. al., and Thorburn review the data available in OECD countries on the formation of public sector research-based spin-offs, as well as on their financial needs, their life cycles, and their economic impacts. To date, no government systematically collects data on spin-offs from universities or public research organisations. In part, the problem is in identifying which new firms should be considered public sector spin-offs. Uncertainty and variation in the definition of what type of relationship between a public institution and a new technology-based firm constitutes a spin-off hampers our ability to evaluate performances across countries.
The first article by Callan summarises the results of a 1999 OECD survey of government information sources on spin-offs. It attempts to compare national formation rates for research-based spin-offs. It presents national data from Australia, Belgium, Canada, France, Finland, Germany, Norway, the United Kingdom and the United States. While countries use their own measures, the article proposes a working definition that would facilitate future comparisons. The major conclusions are that there is substantial variation across countries in the generation of spin-offs and that many countries could probably improve the environment that fosters their development. However, the impediments to spin-off formation are not yet well understood as data on financing, growth and life cycles are hard to come by.
The article by Massing describes the annual Association of University Technology Managers (AUTM) Survey of technology commercialisation activities at North American universities, teaching hospitals, and patent management firms. The AUTM pioneered the systematic collection of data on research-based spin-offs. The article describes the type of information the AUTM gathers and the trends that have been identified. Massing also addresses the history of AUTM's statistical work and the benefits that various groups (the institutions themselves, policy makers, and the private sector) can derive from the publication of comparable spin-off data throughout North America.
In the third article, Clarysse, Heirman, and De Groof present results from a Belgian study of the early-growth phase of new technology-based firms to explain why European new technology-based firms fail to grow like their US counterparts. They conclude that structural deficiencies such as the financial, fiscal or regulatory climate cannot explain this slow growth. Rather, the entrepreneurial climate of the firm's region and its experiences and opportunities for knowledge acquisition are determinative. Regions that are not supportive of spin-off early-growth needs before the first infusion of venture capital have a lower incidence of high-growth ventures. The challenge for Europe, they conclude, is to create an environment that allows spin-offs to learn how to translate research into a product tailored to market demand and to develop an appropriate business model. Intermediary institutions and incubation centres will play a key role.
The fourth article by Thorburn provides an overview of spin-off formation in the non-university sector in Australia. The Commonwealth Scientific and Industrial Research Organisation (CSIRO) is a single but diversified nation-wide set of research and development organisations. It has regularly spun off firms since the late 1970s. Thorburn describes not only the evolution of spin-offs in Australia but also benchmarks CSIRO performance with AUTM data to identify where Australia is reaching its potential and where there is room for improvement. Finally, Thorburn identifies the impetus behind spin-off creations, their sectoral specialisation, and the various models of spin-offs in order to explain the choice of organisational structures for different spin-offs.
The article by Matkin turns our attention to the different structures that tie spin-offs to their parent organisation. Matkin traces the history of US university involvement in spin-off companies and describes different organisational models, including the increasingly common practice of taking an equity ownership position. The alternative organisational forms that universities are creating can both facilitate the formation of spin-offs and help buffer the university from the negative aspects of commercial involvement. Each model has advantages and disadvantages which should be considered by institutions and governments in their efforts to promote spin-offs.
Schutte, Sijde and Tilburg delve into the strategies that European universities have espoused to better foster spin-offs. They present the history of the European Consortium of Innovative Universities, and describe the range of policies being developed by its membership to encourage entrepreneurship, including: incubator facilities, coaching and counselling, financing, networking, training, and new incentives for mobility. The success of spin-off activities at the University of Twente and University of Warwick are described in detail.
Finally, the Workshop Rapporteur, Philippe Mustar, presents conclusions about the nature and importance of spin-offs, taking inspiration from the wide-ranging discussion of the formation of spin-offs across the OECD, the attempts to benchmark national performances, the explanations of the determinants of variation in national data, and the strategies open to institutions and local or national governments to close this gap. Rather than decry the paucity of data on spin-offs, Mustar interprets the variety of experiences across countries and the lack of a fixed definition as a sign of a phenomenon in full experimentation and growth. For Mustar, there are many different types of spin-offs, only a few of which will become high-growth firms, while the role of the majority is probably that of a bridge or translator between public research and the private sector. The public sector's interest in spin-off formation is justified and there are indeed multiple levels at which public institutions, national or regional governments can and do make a difference. Experimentation in policy support is encouraged. However, it should be borne in mind that the support structures necessary for fostering spin-offs is complex and requires training programmes, financing, consulting services, and networks of firms. The whole panoply must be present, perhaps in a local cluster but is expensive and difficult to create de novo.
Despite the fragmented nature of our understanding of spin-offs, together these articles lead to several conclusions. First, spin-offs are a category of technology-based firms which has grown considerably since the early 1980s in many OECD countries. The number of spin-offs formed each year is generally on the rise, although it remains modest. Second, there is enormous variation across countries, and across public research organisations, in the propensity to create spin-offs. Some countries see no more than a handful of spin-offs per year, while the United States records a few hundred. The discrepancies are not simply due to differences in GDP or public research budgets. Third, not only is the net number of spin-offs small, it also appears that their size, growth rates, revenues, and product generation are modest, at least in the first decade of their existence. Their economic impact needs to be studied over a longer time horizon. In the first ten years of life, while a small percentage of spin-offs do blossom into high-technology giants, a large proportion survives without growing considerably. These firms fill a special niche between public research and the private sector they are mediators or intermediaries that sell their knowledge as consultants or contract researchers. In other words, the importance of public sector spin-offs lies in their role as rapid conduits of commercially relevant ideas.
While the number of research spin-offs is likely to continue to increase, it is not inconceivable that they will remain a small sub-population of new entrepreneurial firms. There are several good reasons for this. First, spin-offs are mainly in the biomedical and the information technology fields. It is not clear whether this is due to low costs of entry, small scale economies, the closeness of industry to research, or the fact that it is possible for firms to act as research consultants while developing new products and services. Clearly, not all academic disciplines are equally able to generate new firms. Second, spin-off firms tend to come from a small number of top research institutions. There are exceptions, but the support structures on which public spin-offs rely are expensive and not worth developing if an institution does not generate enough intellectual property to justify a professional technology commercialisation staff. Third, there is probably an upper limit on the number of spin-offs even the top institutions can initiate given the conflicting demands placed on their faculty and staff. Many other forms of technology transfer and commercialisation compete with spin-offs. For example, the licensing of commercially relevant technologies to industry has the advantage of being less time-intensive for research personnel.
Despite these caveats, spin-offs will remain in the public eye. The interests of public officials in spin-off creation are complex. Spin-off policy is about more than the commercialisation of publicly funded technologies. Governments use spin-offs as a way to promote regional development, to encourage networking among research laboratories and local business, to spur new technology industries, and to create dynamic environments supportive of entrepreneurs of all types. In fact, it should probably be made explicit that spin-offs are not the only desired economic outcome.
The interest in spin-offs is warranted because they do play a unique role in many economies. Contrary to popular belief, spin-offs may act more as mediators between the research and industry communities than as product innovators. Studies show that many spin-offs are small and slow-growing firms, with few products but longer survival rates than the average start-up. Many research spin-offs are likely to be contract research or consulting boutiques that retain close ties to their parent institution. For policy makers, the lesson is that universities and research institutions may not be able to squeeze out as many spin-offs as one might have initially hoped, although the upper limit has not been reached in most countries. Research spin-offs have an important place in the innovation process, but their promotion must be part of a wider policy package which fosters an entrepreneurial business environment and encourages networking among universities, industry and the public sector.
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