Fraunhofer

1. ISI Fraunhofer Institute Systems and Innovation Research Klicken Sie, um das Titelformat zu bearbeiten Firm formation and regional development -Success factors for academic spin-offs Workshop „Universities and regional development“, Pécs, 21-22 October 2005 Knut Koschatzky, Joachim Hemer

2. Contents 1. 2. 3. 4. 5. 6. Role and impacts of academic spin-offs Background and assumptions Research questions Regional develop-ment Support strategies Summary Effects

3. Factors influencing regional entrepreneurial activities • Amount, types, and mix of incubator organizations (e.g. private companies, R&D organizations, universities etc.), • Entrepreneurial "atmosphere"; for instance previous spin-off founders may serve as role models or examples for new entrepreneurs, • Technological regimes (entrepreneurial vs. routinized regimes), • Social mix of places, especially regarding educational level, • Ability of a region to attract and retain educated people and also entrepreneurs, • Quality of government and public support measures for entrepreneurship, • Existence of "intermediary institutions" and the provision of financing (private financing institutions and public banks).

4. Assumptions regarding academic spin-offs • Start-ups and high-tech spin-offs play a significant role in structural change and in the regional technological and knowledge modernization process. • The start-up intensity is strongly influenced by regional supply and demand conditions. • A positive correlation exists between the public governance of the structural ties of academic spin-offs by public funding and the regional integration of these firms and their contribution to the regional economy. • Foundation ideas are triggered by the exploitation of research results. • Academic spin-offs play a highly important role in the process of knowledge transfer. • Regional framework conditions as defined by the criteria of an entrepreneurial region exercise a positive stabilizing effect upon start-ups during their early phases.

5. Research questions • Which role do universities and non-university research organizations (NUROs) play in the support of academic spin-offs? • Which effects does this support have on the development of the new firms? • Regarding the supportive role of the different academic organizations and their effects on the spin-off firms, which conclusions can be derived for regional innovation policy addressing different kinds of organizational structures in regions? • Can the assumptions regarding academic spin-offs be verified by empirical evidence?

6. Methodological approach • Explorative case studies: • Five types of German scientific organizations: universities, Helmholtz Association of National Research Centers (HGF), Max Planck Society (MPG), Fraunhofer Society (FhG), Leibniz Association (WGL). • Sample: • 34 case studies with spin-offs in total. • 14 from the new federal states (East Germany including Berlin), 20 from West Germany. • 20 case studies used for this paper; 14 are not yet fully evaluated. • Selection criteria: type of parent organization, spatial distribution of parent organization (northern, eastern, southern and western Germany), technology: one of pre-defined 6 technology fields, age of spin off (formation until and after 2000).

7. Role and impacts of academic spin-offs in Germany Role of universities and NUROs in spin-off support • Support strategies of parent organizations (PO)

8. Role and impacts of academic spin-offs in Germany Role of universities and NUROs in spin-off support • Research exploitation and transfer

9. Role and impacts of academic spin-offs in Germany Effects of spin-off support on development of new firms • Performance assessment

10. Role and impacts of academic spin-offs in Germany Effects of spin-off support on development of new firms • Relationship between work division and company performance

11. Role and impacts of academic spin-offs in Germany Implications for regional development • Location factors • Small impact of regional infrastructure endowment on company performance, although well perceived as necessary precondition. • Location decision bases rather on soft location factors. • Strong impact through use of PI`s scientific and commercial contact network. • Proximity to PI supports mutual knowledge exchange with PI colleagues. • Proximity to PI eases collaboration (e.g. joint projects, work division, mutual contracts). • Weak momentum from regional economy; poor demand and no regional markets for spin-offs at start-up phase.

12. Role and impacts of academic spin-offs in Germany Implications for regional development • Start-up financing and growth • Spin-offs tend to be “lifestyle companies”; many founders deliberately choose low profile and modest growth strategies. • Founders rely on few financing sources and on small overall financing: no bank loans and (in East Germany) no private VC but much public funding. • Founders` prejudice vis à vis banks and Private Equity (VC) and vice versa. • Due to modest financing often sound and stable but slow commercial development. • Scarcity of finance is not main cause for eventual poor performance. • Due to small financing volume poor exploitation of growth potential. • Early stage financing gap verified again. • An important task for public promotion: public support schemes should insist on alternative financing sources and on an optimal financing mix.

13. Role and impacts of academic spin-offs in Germany Implications for regional development • Strategic management and qualification • In seed phase often lack of strategic planning and, later, of strategic management. • Often lack of corporate goals or visions. • Normally poor marketing and management skills. • Lack of market analyses, Markets and competition very often wrongly assessed. • Market signals often misunderstood. • Financiers also lack scrutiny skills. • Hence: • better qualified people with financiers and public support agencies to properly evaluate business plans and market potentials, • Need for of scientific founders, • managerial qualification eventually precondition if public funding is involved.

14. Role and impacts of academic spin-offs in Germany Implications for regional development • Role of product characteristics and product-market-strategies • Parent institutes too often leave founders with immature product developments, leading to unplanned R&D efforts. • Markets are mostly niches; too small to grow reasonably. • Even high-tech niche markets not attractive for VC. • Absence of serious product-market-strategies. • Importance of patents or at least exclusive licenses to achieve USP. • German spin-offs predominantly offer investment goods rather than consumer goods, they have thus little autonomy on the markets.

15. Role and impacts of academic spin-offs in Germany Implications for regional development • Starting points for spin-off policies • No uniform policy; each scientific institution should seek its individual policy. • Universities: broad scope of general support, low selectivity and specialization, instigation and sensitization rather than focused preparation; clear position towards commercializing of research results and the trade-of between the TT-stands licensing and spin-out. • Highly specialized university institutes or NUROs: intense, selective and specialized support; careful preparation of founder, company and market; provision of all relevant know how and licenses; brokering of contacts and finance; close scientific and commercial collaboration as long as beneficial for both sides; positive orientation towards commercializing of research results; active and strategic IPR-management; skilled, experienced TTO staff. • Effective TTO performance requires critical mass of TT or spin-out cases.

16. Role and impacts of academic spin-offs in Germany Summary of findings • Start-ups and high-tech spin-offs play a significant role in structural change and in the regional technological and knowledge modernization process: • Poor integration of spin-offs in regional economy in early stage of existence. • Pronounced linkages to scientific networks, but poorly networked with commercial and business sectors of regional economy. • Linkages rather on interregional than on regional scale. • Lack of financial resources and management skills limit contribution to regional structural change. • The start-up intensity is strongly influenced by regional supply and demand conditions: • Not much evidence for this assumption. • Regional demand was exception than the rule.

17. Role and impacts of academic spin-offs in Germany Summary of findings • A positive correlation exists between the public governance of the structural ties of academic spin-offs by public funding and the regional integration of these firms and their contribution to the regional economy: • Correlation strongly depends on appropriateness, complementarity and diversity of support measures. • Direct grants tempt new companies to operate far to the market and close to scientific community. • Public funding increases distance of academic spin-offs to market.

18. Role and impacts of academic spin-offs in Germany Summary of findings • Foundation ideas are triggered by the exploitation of research results: • Only in few cases are the spin-offs built upon some already exploitable research results of the parent institutes. • Technological developments rarely developed to a marketable state. • Academic spin-offs play a highly important role in the process of knowledge transfer: • Many spin-offs hold licenses granted by their parent organizations or own patents. • Bi-directional knowledge transfer plays important role in firm development. • Regional economy benefits less due to weak regional linkages.

19. Role and impacts of academic spin-offs in Germany Summary of findings • Regional framework conditions as defined by the criteria of an entrepreneurial region exercise a positive stabilizing effect upon start-ups during their early phases: • Soft location factors are important: dynamic and pro-entrepreneurial atmosphere. • Physical infrastructure plays minor role (due to similar endowment in German regions). • Spin-offs located in less entrepreneurial or peripheral regions are effected from the lack of a supportive entrepreneurial environment especially in the early phase of their development. • In this respect, universities and technical colleges could have a special supportive function for academic spin-offs in peripheral regions.