MAXIMISING THE POTENTIAL OF UNIVERSITY SPINOUTS

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MAXIMISING THE POTENTIAL OF UNIVERSITY SPINOUTS

• Richard T Harrison
• Dixons Chair of Entrepreneurship and Innovation

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INTRODUCTION

• Examine dynamics of university spinout companies
• In-depth longitudinal case study
• European focus
• Focus on role of university technology transfer
  offices
• Second-order spinouts

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THE RESEARCH

• The research on which this presentation is based
  has been undertaken in collaboration with Dr
  Claire Leitch, School of Management and
  Economics, Queens University Belfast, and is
  part of an on-going research programme into the
  performance of university spinout ventures

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CONTEXT

• The technology transfer agenda
• HEIs as a research base
• Focus on commercialisation of scientific and
  technical knowledge
• Instrumental tax dollars have paid for this
• Principled we ought to make an economic
  contribution (or, save the planet)
• Utilitarian we need a return on expenditure on
  research

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FORMS OF COMMERCIALISATION

• Commercialisation and technology transfer takes
  many forms
• Licensing technology
• Spinout company formation
• Collaborative research and TT projects
• Faculty/student/industry exchange and internship
  programs
• Consultancy/applied research
• Teaching, education and outreach programs

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THE ENTREPRENEURIAL UNIVERSITY?

• This leads to calls to reinterpret the role of
  the university as a
• Hotbed of entrepreneurship
• Locus of economic development
• Agent of regional transformation

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UNIVERSITY-INDUSTRY COLLABORATION

• 3 models, for example
• Etzkowitz and Leydesdorff the triple helix
  model research, teaching, contribution to
  economic development
• Gibbons et al Mode 2 research multi or
  transdisciplinary research with applied/problem
  focus
• Florida industrialising knowledge the
  entrepreneurial university and regional
  development
• All focus on closer links (both actual and
  desired) between universities, industry and
  government, and all essentially predicated on a
  view that increased UIC is a good thing

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A BENEFICIAL RELATIONSHIP?

• now that the experiment of university-
• industry collaboration has been under way for
• nearly 20 years, it is appropriate to examine
• their (the universities) experience relative to
• actual benefits and draw inferences about the
• future of the collaboration
• (Lee, 2000, pp. 112)

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SPINOUTS

• in theory university spin-offs offer a means
• of resolving some of the tensions of
• commercialising knowledge while providing a
• mechanism for capturing economic benefits at
• the local regional or national levels
• (Rappert et al., 1999, pp. 874)

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THE SPINOUT PHENOMENON

• US data (AUTM figures)
• 1980-1993 1169 university spinout companies
  started (83.5 per year)
• 1994-2001 2701 university spinout companies
  started (337.6 per year)
• Reflects
• More (and better?) research
• More commercial orientation (and pressure)
• Better access to resources (eg venture capital)

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THE UK POSITION

• Less systematic evidence, but appears to be a
  much more recent development
• some universities have been doing this for 15
  years
• scale has increased rapidly in last 5-7 years
• but, in 2001 34 of UK HEIs had created no
  spinouts that year, and 25 had created none in
  previous 5 years

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Table
1 Spin-offs and new commercial companies from UK
HEIs  
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THE SPINOUT ISSUE

• Number does not equal quality
• Performance (growth, attracting outside equity)
  is crucial no systematic data
• Understanding of spinouts
• Few systematic studies
• Lack of theoretical rigor
• Definitional inconsistencies
• Bias towards US studies

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DEFINITIONAL ISSUES

• Technology transfer from universities and
  laboratories
• Planned or spontaneous
• Inventor-entrepreneurs or surrogate entrepreneurs
• Orthodox, hybrid and technology spinouts

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IN THIS PAPER

• University spinouts commercial exploitation of
  research and knowledge generated within academic
  institution
• University founded companies commercial
  opportunity, but not necessarily research based
  and no involvement of university personnel (other
  than TTO)
• Second order spinouts based on technology
  developed in original spinout with no connection
  to research base/personnel of the university

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A REGIONAL CASE STUDY

• Explore dynamics over time
• Examine performance issue
• Assess regional development implications of
  spinout activity
• Context Northern Ireland 1.5m population,
  peripheral region, 2 HEIs with gt40,000 students,
  4000 Faculty and UK64m (US98m) sponsored
  research income
• Significant recent spinout activity (Table)

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Table
2 Spin-offs with some HEI ownership in the UK
by country  
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NI PERSPECTIVE 2000/1

• 19 spinouts (8.6 UK total)
• 6 staff start-ups (8)
• 45 survivor spinouts (10.5)
• 15 UK employment in survivors
• 23 aggregate UK sales by survivors
• For comparison regional share of UK sponsored
  research income is 1.83

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ASSESSMENT

• Number of spinouts in NI is high
• they assume greater relative importance as
  engines of growth of the weak regional economy
  (Blair and Hitchins 1998)
• They have contributed to the economic well-being
  of Northern Ireland (Blair, Cartin and Curran
  2000)
• But, who has contributed, how have they
  contributed and what has been the role of the
  University TTO?

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CONTRIBUTION

• Comes in many forms
• To employment creation
• To wealth generation (tax base, exports etc)
• To competitiveness (technology/innovation led)
• To economic development (retention of skilled
  labour cf Floridas creative class arguments)
• To HEI institutional revenue streams but this
  is minor total realisations represent 0.5 of
  the aggregate HEI sector gross revenue stream
  1999/2000-2000/1

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Table 3 Income to HEIs from the sale of
shares in spin-off companies during 2000-01
(000)
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THE CASE STUDY

• QUBIS Ltd
• To commercialise RD activities through spinout
  formation
• To exploit university-based opportunities
• To act as a venture capitalist
• To contribute to economic development
• To transfer technology to local and national
  economies
• To enhance the universitys profile

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QUBIS - ACTIVITY

• Established 1985
• 37 university spinout and university founded
  companies
• 29 companies in portfolio, 8 divestments
• In 2002 portfolio had 36m sales, 650 employment
  (see graphs)
• Since 2000 20m external VC into 5 portfolio
  companies

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PEFORMANCE SUMMARY

• Long lead time between establishment of a TTO and
  significant economic benefits
• Long research to market cycles
• Absence of deep regional technology
  infrastructure
• Few network externality and spillover benefit
  effects
• Highly skewed contribution to benefits (see
  below)
• Implication most spinout research focuses on
  research intensive institutions in technology
  intensive locations this may be
  unrepresentative of both process and impact of
  spinout company development

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KAINOS SOFTWARE

• 2nd QUBIS supported company founded 1986
  joint venture QUB/ICL
• Experienced CEO hired at outset surrogate
  entrepreneur/university founded company
• Software design company now in eBusiness and
  CRM
• 1986-2000 growth at 20pa
• Accounts for 40 of all sales/employment in the
  QUBIS portfolio (has been up to 60 recently)

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SECOND ORDER SPINOUTS

• Impact of Kainos to QUBIS (And of QUBIS to the
  region) not limited to this
• 3 second order spinouts
• Lagan Technologies call centre software (1994)
  Kainos founding team member left to set up
• Amacis electronic comms company established
  by Lagan founder as he left Lagan
• Meridio spinoff of the product development
  division of Kainos

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• Qubis involvement in all 3 ventures
• Provides investment capital
• Takes equity position
• Provides advice on business development
• (with Lagan only, provides incubator support and
  resources eg subsidised accommodation)
• Despite there being no connection between these
  second order spinouts and university research and
  personnel

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• The impact is significant in 2002 these 3
  companies employed 140 add to the 240 in Kainos,
  and almost 60 of QUBIS portfolio employment is
  in this family
• Without involvement in second order spinouts the
  apparent impact of QUBIS on the economy would be
  significantly reduced
• But this impact arises in part from activities
  other that university technology transfer

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SO, WHAT IS GOING ON?

• QUBIS has followed the people into Lagan,
  Amacis even though they were never university
  people. This is a VC rationale (invest in
  entrepreneurs/management teams with track
  record), but without the upside as no exit event
  has occurred in any of these companies

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• QUBIS has followed the technology the the
  Meridio case. This was an institutional decision
  to set up a product company as a separate venture
  QUBIS followed its original investment in the
  technology and people (the CEO) embodied in the
  original Kainos

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• In other words, in these cases the University TTO
  has invested capital, time, effort and resources
  in supporting second order spinouts which have no
  University connection except indirectly through
  the original university-founded company

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IMPLICATIONS

• Regional economic development in a thin
  environment for technology venture development
  QUBIS support for second order spinouts provided
  business development and investment support not
  otherwise available
• Actual support (equity, resources)
• Reputational enhancement (signalling to other
  actors)
• Viewed as part of the TT mission to maximise
  the return to the original investment by
  following good people and technology
• Low opportunity costs spinout formation rates
  at least as good as in other comparable
  institutions since mid-1990s

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CONCLUSION

• Business development process for spinouts may be
  fissile second order and subsequent spinouts
• Evolution of the role of the TTO more involved
  in on-going business development process
  (commercial rather than academic spinouts)

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• Context peripheral non-technology intensive
  regional economy
• Implications for TTO involvement in
  non-university connected second order spinouts
• Meets regional economic development rationale for
  TT activities
• Capitalise on further potential of people and
  technology in original spinout
• But as business development infrastructure
  improves the need for this lessens