Spin-offs from research collaborations within a
European context
‘An explorative research to the leverage effects of the European Framework Programmes of Research & Development on the success of its spin-offs’
Master Thesis Business Administration Business Development
Rijksuniversiteit Groningen
Author: Frank van Roest Student number: 1344315
Principle: Netherlands House for Education and Research First Supervisor: Dr. Jan Kratzer
Second Supervisor: Prof. Dr. R.T.A.J. Leenders
1 Introduction
One of today’s biggest economic developments is globalisation. In a European context, this means the European Union (EU) has to compete against the United States (US), Japan and upcoming economies like Brazil, Russia, India and China (so called BRIC-countries). To reinforce Europe’s economy, the EU aims to be
the most competitive knowledge-based economy in the world by 2010.1
Universities can deliver a significant contribution to the economy in terms of
knowledge creation. 2 The past few decades, policy makers have become
increasingly interested in the role universities can play in economic development, and more specifically, in exploiting their own science base and transferring their scientific
knowledge to the private sector,3 so called valorisation. The key channels for
commercialisation are patens, licenses, research joint ventures and the formation of
spin-offs.4 An example of important legislation to help accelerate the
valorisation-process, is the Bayh-Dole Act or University and Small Business Patent Procedures Act, which is launched by the United States in 1980. This Act allowed universities to maintain control over Intellectual Property Rights (IPR) gained from government
funded research,5 and resulted in a boost for knowledge (and technology) transfer
activities.6 In this regard, university spin-offs (USOs) play an important role in
knowledge transfer, and as a consequence, in economic development. Although university spin-offs are a widely recognized phenomenon in the US, the phenomenon
is still in its infancy with respect to European universities.7 European universities
possess a large repository of scientific knowledge, but seem to be less successful in commercially exploiting this knowledge compared to countries like the US and Japan.
This phenomenon is the so called ‘European Paradox’.8 Nevertheless, the European
Commission (EC) already acknowledged the importance and potential of technology
transfer and the creation of spin-offs.9 The EC aims to enhance university-industry
collaboration, among others, through its Framework Programmes (FPs). These FPs are international research collaborations between universities, small and medium-sized enterprises (SMEs) and large enterprises, and can act as an intermediary between universities and the industry. Moreover, international research
1
See European Councils, 2000-2004, p5
2 See O’Shea et al., 2008, p2 and Yusuf, 2008, p1168 3
See Lockett and Wright, 2005, p1043 and Mustar et al., 2005, p289
4 See Locket et al., 2005, p981 5
See Siegel et al., 2004, p116
6 See Link en Scott, 2005, p1106-1107 7
See Debackere and Veugelers, 2005, p322 and Ndonzuau et al., 2002, p281
8 See European Commission, 2002 9
collaborations are likely to stimulate the ‘triple helix circulation’ 10 which means that the circulation of people, ideas and innovations between government, industry and universities enhances creativity, ideas and skills.
Although the EU aims to be the most competitive knowledge-based economy in the world by 2010, in which the FPs could play a role, little attention has been paid to which extent the FPs contribute to the success of spin-offs derived from these programmes. Consequently, the purpose of this paper is to gain more insight in the economic benefits of European research collaboration. The aim is to examine to which extent university participation in the European FPs has a leverage effect on success factors for USOs based on these programmes. Nonetheless, this paper is solely explorative and does not aim to deliver a scientific contribution in terms of generalisation.
To provide a conceptual framework, the definition of the type of spin-offs mentioned above will now be provided. First, the concept of European FPs will be further specified. Secondly, the existing definitions of university spin-offs will be given. Finally, an integral definition will be presented.
To enhance industry-university (and government) collaboration and the integration of national innovation policies within the EU, the Commission has
launched the Framework Programmes of Research & Development.11 These are
multi-annual programmes of which the most recent is the Seventh Framework Programme (FP7). FP7, for instance, runs from 2007 till 2013 and has a budget of
over 50 billion Euros in total.12 The EC publishes calls for proposal on given moments
(in various fields) on which participants can react by proposing their projects. To enhance transnational knowledge transfer, the basic condition for a EU funded research project is the participation of parties of at least three different European countries (or in some cases partner countries like Israel). Both public and private institutions can join a collaborative research project. The selection of projects funded by the FPs is based on societal impact and excellence. If a project proposal has been approved, it will be partly funded by the EU, depending on the content of the project and the characteristics of the participant. It’s important to stress that the framework considers that the primary activities of public research institutions, in particular the conduct of independent research for more knowledge and better understanding, including collaborative research, and the dissemination of research results will
10
Triple Helix refers to University-Industry-Government relations. See Dzisah and Etzkokowitz, 2008, p101-102 and Etzkowitz and Klofsten, 2005, p245
11
normally be of a non-economic character (i.e. there are no goods or services
provided on an existing market).13 Evidently, any economic activity (like spin-off
creation) performed should take place at normal market conditions.14 Hence, all
research funded under FPs has a pre-competitive character. Most projects however, do have a market orientation, and in approximately 50% of the cases the motivation
to participate in FPs is based on commercial objectives.15 Consequently, the IPR
attained from these projects can lead to spin-off creation.
Because on their natural leaning towards research activities as well as their support for basic research and increasing researcher capabilities and competencies, universities play a key role in the FPs, and ultimately, in the creation of spin-offs from these programmes based on the IPR and ideas gained during the university’s participation. According to Steffensen et al. the term spin-off means a new company that arises from a parent organisation (e.g. a university), which is a mechanism of technology transfer because the new company is usually formed in order to
commercialise a technology which originated in a university. 16 Additionally, Cooper
defines USOs as spin-off firms specialised in commercialising technology which is
owned by a university or university researchers.17 According to Lockett and Wright18
and Wright et al.,19 a USO can be narrowly defined as a new venture that is
dependent upon licensing or assignment of the institution’s intellectual property for
initiation. In line with this, Wright et al.20 define a USO as a start-up company whose
formation is dependent on the formal transfer of IPR from the university and in which
the university holds an equity stake. Likewise, O’Shea et al.21 and Hemer et al.22
state that a spin-off is formed by individuals who were former employees of the
parent organization. Finally, Link and Scott23 view the formation of USOs as an
output of university research related activity as well as an outcome of the university’s technology transfer efforts.
Based on existing literature and the context of European funded research collaboration, the integral definition for the type of spin-off subject to research in this paper is: A new company, often founded by former university employees, 12
See http://ec.europa.eu/research/fp7/index_en.cfm
13 See T. Luukkonen, 1998, p601 and Guy et al., 2005, p353 and Larédo, 1998, p589 14
See European Commission, 2007, p14
15 See T. Luukkonen, 2002, p437 16
See M. Steffensen et al., 1999 p96-97
17 Robert D. Cooper, ‘University Spin-off Firms in Canada and Their Economic Impact’, Ottawa: A
presentation to OECD (2001), see Raday (2007), p2
18 See Lockett and Wright, 2005, p1044 19
See Wright et al., 2008, p1207
20 See Wright et al., 2006, p 81-482 21
See O’Shea et al. 2008, p655
22 See Hemer et al. (2005), p1 23
commercially exploiting intellectual property rights or ideas from a university which participated in European funded international research collaboration in the form of Framework Programmes.
Figure 1 provides a model of a consortium under a Framework Programme.
Figure 1: model of spin-off from a European funded collaborative research project (source: own)
This paper is structured as follows. The following section develops a theoretical framework. Based on this framework, four propositions will be formulated. Chapter 3 outlines the research methodology used for this paper after which in chapter 4, the results will be presented. Chapter 5 provides a discussion concerning limitations and implications. Finally, in the last section of this article, the conclusions are presented.
2 Theoretical Framework
Although literature gives a provides variety of factors that influence the success of USOs and spin-off creation, only those factors which can probably be positively influenced by the FPs are taken into account in this paper. Ergo, factors that are of great influence on the success of spin-offs, but can barely be influenced by the FPs (such as academic entrepreneurship and incubation strategies) are not taken into consideration.
formation of the Consortium Agreement 24 is an important condition for the creation of a spin-off company afterwards, especially in regard to the IPR. The separation of the IPR is one of the three most important obstacles during the contract formulation of
collaborative research.25 Thus, without the (joint) ownership of the IPR, the university
is not able to exploit it and consequently, spin-off creation is very unlikely.
Furthermore, all the propositions made are for explorative purposes. Ergo, the propositions are no hypotheses
2.1 Venture Capital
Spin-off creation is not a phenomenon that is based on mere coincidence. It is an evolutionary process which undergoes various phases or stages. Different
key-actors and types of resources are involved throughout these stages26, especially
those actors that deliver a financial contribution to the new venture.
The evolution of new ventures (e.g. USOs) is a complex phenomenon that has been portrayed in various stage models. Although there is no generally accepted stage model, all emphasise that the nature of a business changes as it grows.
Clarysse et al.27 suggest that the founding of a spin-off can be seen as a process in
which three different stages can be distinguished. The first, the ‘invention’ phase, is a period during which technical uncertainty prevails. In the second, the ‘transition’ phase, technical uncertainty becomes more limited and the business idea is validated. Finally, in the ‘innovation’ phase, the validation of growth expectation takes place.
Furthermore, Clarysse and Moray28 state that in this process four stages can be
distinguished: The idea phase, the pre-start-up phase, the start-up phase and the
post-start-up phase. In addition, Ndonzuau et al.29 describe the formation of a spin-off
in four stages: Generating business ideas, finalizing new venture projects, launching spin-off firms and strengthening the creation of economic value. These occur in the ‘black box’ of economic value creation from university research, in which ‘results of research’ form the input for the black box, and ‘creation of economic value’ the output.
Although the abovementioned stage models are not exactly the same, they all underline that a USO goes trough different stages during its development. It is important to stress that along with these stages, different types of financing are
24
The Consortium Agreement is a contract which should describe, inter alia, the relations between al participants in the research consortium and the division of IPR between the participants
25
See T. Luukkonen, 1998, p604
26 See Wright el al., 2004, p289-292 27
See Clarysse et al., 2005, p186
28 See Clarysse and Moray, 2004, p68 29
needed. These types roughly fall in two categories. The first category of financing, taking place in those stages preceding the spin-off creation and those immediately after, entails research & development expenditures (like the funding of projects by the FPs), seed and pre-seed capital. The second category of financing, taking place after the first few stages (depending on the stage model used for analysis), mainly encompasses venture capital (VC) and becomes increasingly important by every
subsequent stage.30
A venture capitalist is an organisation that provides funding for the new
venture in return for equity in the (new) company.31 Recent research shows that
access to VC is the most important factor, and key constraint, with respect to the
development of spin-offs.32 At the same time, VC firms lament the lack of sufficient
investment propositions with attractive prospects for future wealth generation,33 and
simultaneously, prefer to invest after the early stages where seed capital is needed. Although stage models can be used for purposes of analysis, it needs to be emphasised that these stages during the development of the USO are not wholly independent. In fact, the efficiency of this multi-stage process depends on its
‘weakest link’.34 In view of the above, proper completion of the early stages should
lead to easier attraction of VC in stages later on. Furthermore, studies suggest that
academic entrepreneurs should make their spin-offs more ‘investor ready’.35
Due to the characteristics of projects funded under the FPs, which involve millions of Euros in some cases, it can be seen that the first stages of development (before the actual creation of a spin-off) are well funded. With the large investments made in the early stages and the projects being selected on societal impact (pre-market), it could be suggested that USOs derived from the results of FPs are more likely to attract VC than those who are not derived from FPs (or similar projects with respect to funding/investment). Furthermore, the portfolio of USOs in terms of research & development collaborative agreements with industry (which is the case with the FPs) is a critical success factor for survival and secure financing, according
to Zucker et al.36 With the arguments mentioned above, the following proposition
could be suggested:
30
See Roberts and Malone, 1996, p26
31 See Roberts and Malone, 1996, p21 32
See Wright et al., 2006, p482, Lockett and Wright, 2005, p1044, O’Shea et al., 2008. p660
33 See Lockett et al., 2002, p1013 34
See Ndonzuau et al., 2002, p282
35 See Douglas and Shepherd, 2002, from p220 and M. Binks, M. Wright, A. Lockett, A. Vahora,
‘Venture Capital Finance and University Spin-outs’, Mimeo, University of Nottingham Institute for Enterprise and innovation, 2004 in Lockett et al., 2005, p985
36
Proposition 1. University participation in a FP prior to spin-off creation could lead to
easier attraction of VC for USO development in later stages, and consequently, to more commercial success.
2.2 Social Capital
For new ventures, alliance networks prove to be especially valuable in
overcoming constraints commonly associated with the ‘liability of newness’.37 This is
corroborated by several studies which imply that a new ventures ability to build alliance networks is critical, as it can be considered a method for building competitive
advantage.38 In contrast, a new venture cannot succeed without good social
networks.39 New ventures normally do not have an existing alliance network upon
which they rely, but must instead start with a clear slate when establishing
foundations to initiate and grow their network.40 However, due to the background of a
USO based on a FP, it is likely that these USOs (the academic entrepreneurs as founder of the new company) often have an international network as soon as the spin-off is created. This network can vary from very important resource suppliers to symbolic support such as legitimacy. The ties within this network together form a firm’s ‘social capital’. Although social capital has been defined in several ways, there
is no one unifying definition at hand.41 Among others, Greve and Salaf claim that
social capital is the sum of the actual and potential resources embedded within,
available through, and derived from a relationship network.42 Gabbay and Leenders
make a distinction between ‘social capital’ and ‘corporate social capital’, where corporate social capital accentuates social capital of organisations, rather than on individuals. They define corporate social capital as ‘the set of resources, tangible or virtual, that accrue to a corporate player through the player’s social relationships,
facilitating the attainment of goals’.43 According to Smith and Lohrke,44 social capital
derived from a firm’s network is important, because it can provide the entrepreneur access to useful, reliable, exclusive and less redundant information, which, in turn, improves a venture’s likelihood of success. Moreover, developing links between
37
Liability of newness means that young or “new” firms face particular difficulties and greater risk of failure. See A. Stinchcombe, ‘Social structures of organizations’, Handbook of Organizations, Chicago, Rand McNally (1965) in Smith and Lohrke, 2008, p316
38 See Milanov and Fernhaber, 2007, p2 39
See P. Mustar, ‘Spin-off enterprises: how french academics create Hi-Tech companies: The conditions for success or failure’, Science and Public Policy, 24 (1), 37–43, in Ndonzuau et al., 2002
40
See Milanov and Fernhaber, 2007, p2
41 See Gabbay and Leenders, 2001, p2-4 42
See Greve and Salaf, 2003, p2-3 and Borgatti and Foster, 2003, p993
43 See Gabay and Leenders, 2001, p10 44
industry and university (for example by mean of the FPs) fosters entrepreneurial awareness. According to Von Hippel, new information about a technological discovery might be complementary with an industry partner’s prior information and sensitivity about how existing markets operate, market trends, patterns of behavior
and how to overcome barriers of entry. 45 Important prior information about those
markets might include information about key customer and supplier relationships, vital sales techniques, or essential capital equipment requirements that differ across markets.
In regards to the motivation of participation in the FPs of the researchers themselves (so called first-circle goals), both knowledge and networking objectives
scored highest.46 Especially accessing complementary expertise via the formation of
new partnerships and networks is very important. Furthermore, although FPs are formally fixed term alliances spanning approximately three year, in practice many alliances span the project life-cycle with central partners continuing their collaboration
in a new EU project or another.47
Therefore, the following proposition could be suggested:
Proposition 2. University participation in a FP prior to spin-off creation could lead to
more social capital derived from these FPs during the creation and later stages of the USO, and ultimately, to more commercial success.
2.3 Early Internationalisation
One of the main goals of the FPs is the enhancement of international
knowledge transfer. For this reason, all research collaborations under the FPs have a very international character and focus. In fact, next to international research collaboration, the projects funded under the FPs are selected on societal impact on a European scale.
In comparison to large and established firms where internationalisation is often a slow and evolutionary process, USOs from SPs are likely to already have an international scope at inception, due to the international character of research collaboration under the FPs in the first place. The early imprint of internationalisation at start-ups is often being referred to as ‘international new ventures’ (INVs),
45 See E. Von Hippel, ‘The Sources of Innovation´, New York, Oxford University Press (1988), in Wright
et al., 2004, p290
46 See Guy et al., 2005, p355 47
global firms’ or ‘early internationalising firms’48 (from now on being referred to as INVs). An INV has been defined as a business organisation that, from inception, seeks to derive significant competitive advantage from the use of resources and the
sale outputs in multiple countries.49 Similarly, Knight and Cavusgil define INVs as
business organizations that, from or near their founding, seek superior international business performance from the application of knowledge-based resources to the sale
of outputs in multiple countries.50 Moreover, McDougall and Oviatt state that
international research collaboration (like the FPs) are one of the key topics with
respect to international entrepreneurship.51 Often the value creation of the firm is
based on a cross-border combination of valuable resources (such as technical
knowledge). Ergo, the firm needs to internationalise to create value.52
Rialp et al., use a model that highlights that a firm’s intangible resource base (like organisational, technological, relational, and human capital resources) may be of the highest importance in generating a critical level of firm internationalisation
capability.53 Essentially, the firm specific international capability, which often involves
complex relational interactions and internationally intensive routines, can become a source of competitive advantage.
Di Gregorio et al., developed a typology-model of new ventures. This model contains four quadrants: domestic new ventures (quadrant I), accelerate internationalisation of sales (quadrant II), cross-border combinations of resources and individuals (quadrant III), international resource and market combinations (quadrant IV). The first quadrant mainly involves ‘normal’ start-ups where no international resources or markets are involved (domestic ventures). The second quadrant mainly encompasses those ventures which begin international sales at an early stage, but do not use international resources. Next, the third quadrant contains ventures with a focus on national markets. The combinations of resources across national borders however, is the basis for the existence of this type of INV, and, moreover, its source of competitive advantage. The last quadrant regards ventures that rely on international sales as well as international resources. These types of
companies are arguably the most ‘global’ of all.54
USOs from FPs are most probably located in quadrant III, and perhaps in later stages, quadrant IV. These USOs can use their intangible, international
48
See Rialp et al., 2005, p148
49 See McDougall et al., 1994, p470 50
See Knight and Cavusgil, 2000, p124
51 See Mcdougall and Oviatt, 2000, p903 52
See Al-Laham and Souitaris, 2008, p569
53 See Rialp et al., 2005, p161 54
resources (like network relations and knowledge derived from international research collaboration) as a competitive advantage. The fact that product development took place with a focus on societal impact on a European scale makes it more likely that along with the development of the USO, market development on an international level takes place, which places the USO in quadrant IV.
With the arguments mentioned above, the following proposition is suggested:
Proposition 3. Due to the international character of the FPs it is likely that USOs
from these FPs are INVs and use their international resources to reach a sustainable competitive advantage, which should lead to more commercial success.
2.4 Additionality of the Framework Programmes
Innovation in a knowledge economy relies heavily on research and development (R&D) investments. However, companies tend to under-invest in R&D activities due to the market failure rationale. This rationale rests on the assumption that, in the absence of remedial actions, firms tend to under-invest in innovative activities because their inability to appropriate all the benefits arising from these
activities.55 For this reason, governments of European countries and the EU have
developed instruments to enhance R&D investments. These instruments are based on the concept of ‘additionality’. Additionality is the difference that government sponsored programmes have made to companies. Accordingly, additionality is expected to gauge the difference between the presumed under-investment in R&D activities by firms and the actual joint investment by firms and public agencies in R&D
activities prompted by the public programmes.56
The FPs are a prime example of one of the public programmes to enhance R&D investments, especially in terms of collaborative R&D. For example, 57 percent of the participants in the fifth Framework Programme (for the period 1999-2003) claimed that they would not have undertaken their R&D projects at all in the absence
of Framework funding.57 Furthermore, the collaborative R&D projects have many
benefits (in addition to those mentioned in earlier paragraphs), such as economies of scale, acceleration of the innovation process and utilisation of R&D spillovers within
the consortium.58
55 See Dasgupta and David, 1994 and Luukkonen, 1998, p602 56
See Luukkonen, 2000, p712
57 See Guy et al., 2005, p356 58
On average, EU consortia have seven partners. This means one of the additionality effects of the FPs probably is that these research collaborations are
bigger than those conducted by companies outside the FPs.59 Therefore, it is likely
that the consortia under the FPs reach a significant critical mass for conducting R&D
activities, which is an important motivation for contribution in the FPs.60
Moreover, Kuhlmann asserts that the selection of projects for EU funding should be based, beyond their quality in terms of scientific criteria, partnership, and project management, on (1) their contribution to create a critical mass of human and financial resources across all the member states; (2) or guarantee a significant contribution to the implementation of one or more community policies; (3) or address problems arising at community level including social needs, or questions relating to
standardisation or the development of the European area.61
In conclusion, it could be stated that due to the critical mass of projects funded under the FPs, and the pre-market characteristics of these programmes, that it is likely that the technologies and products derived from the FPs are rather radical, instead of incremental, which is often the case with innovations in existing markets.
In addition, Debackere and Veugelers claim that USOs (based on the exploitation of a new technology) fulfill a bridging function between curiosity-driven academic research (basic research) on the one hand and strategy-driven corporate
research (applied research) on the other hand62. These new ventures have the
potential to introduce technological disequilibria that change the rule of competition in existing industries. Similarly, Nerkar and Shane state that new technology firms are likely to survive if they exploit radical technologies, especially complex technologies which are hard to imitate during the founding period of the new company (which has a high probability in case of the technologies derived from the FPs, due to required
critical mass for the development of that certain technology).63
With these arguments given, the following proposition could be stated:
Proposition 4. The effects of additionality of the FPs and pre-market characteristics
of research conducted under the FPs make it more likely that USOs based on these programmes commercially exploit a radical technology, which should lead to more commercial success.
59
See Luukkonen, 2002, p446
60 See Guy et al., 2005, p355 61
See Kuhlmann, 2001, p963
62 See Debackere and Veugelers, 2005, p326 63
3 Methodology
The aim of this paper is to examine to which extent university participation in the European FPs has a leverage effect on success factors for USOs based on these programmes. To do so, an extensive literature review (based on impact assessments, papers of the EC and scientific articles) was needed. This literature review evolved in the four propositions of chapter 2. The propositions were tested in real life cases.
3.1 Data Collection
The four propositions stated in chapter 2 need to be tested in real-life cases. For practical reasons, this was done within the Netherlands and Flanders (Belgium). However, the origin of a USO from a FP (in this case; the results of the FPs) is seldom or never mentioned on, for example, the website of this USO, nor on the websites of universities or incubators. These organisations simply do not characterise themselves as such. Thus, obvious methods for finding organisations that fit into the given profile, like the use of Internet search engines, did not provide useful results. This that means alternative methods for finding these organisations had to be adopted.
After an extensive search, in total six USOs were found which had their origin in a FP (USOs from FPs appear not to be a wide phenomenon in the Netherlands and Flanders, according to several ‘experts in the field’). These organisations were found by using Impact Assessments of the EC, and the use of Technology Transfer Offices (TTOs), IPR-specialists and incubators of three universities: the University of Groningen (RUG), the University of Twente (UT) and the University of Leuven (KU Leuven), of which the first two mentioned are situated in the Netherlands, and the last one in Flanders. Due to practical reasons and time constraints, these
organisations were approached by telephone.64 For the sake of analysis,
semi-structured interviews were conducted, which lasted approximately half an hour per interview. The interview covers four sections according to the four propositions being made. The sections are subdivided into several questions which underlie the proposition and are based on the theoretical framework (see chapter 2).
In the end, only two offs were willing to respond (both high-tech spin-offs). The person who was interviewed in these two cases, was the academic entrepreneur, in particular because this person participated in the FP (on behalf of
64
the university), as well as the fact that he or she is the entrepreneur of the USO. To increase the amount of empirical backing, two incubators (from Groningen and Leuven) as well as one technology transfer specialist have been interviewed who have experience in the field of spin-offs that are subject to this research. These persons are considered as ‘cases’ as well as the interviews with the academic entrepreneurs of the spin-offs themselves.
An important note has to be made in regards to sampling. As a result of the regional scope (the Netherlands and Flanders) and the difficulty to find USOs that fit into the profile, only six of these USOs have been found. Furthermore, there are no figures available with respect to the total amount of USOs from FPs in Europe nor the Netherlands and Flanders. As a consequence, it is not clear how big or significant the sample is in comparison to the total amount of USOs from FPs within the Netherlands and Flanders (ergo, the population). To this extent, the sample is random.
From now on references in the results will be made to the two USOs as case A and case B, the incubators as case C (Leuven) and case D (Groningen) and the technology transfer specialist as case E (see table below)
Case A USO from FP
Case B USO from FP
Case C Incubator (Leuven)
Case D Incubator (Groningen)
Case E Technology Transfer Specialist
Table 1: typology of cases
3.2 Data Analysis
This research aims to find economic benefits of the FPs for USOs (in an explorative way). Although spin-off creation from the FPs is not a wide phenomenon, it is desirable to examine more than one case to explore and analyse a phenomenon.
All the data collected by conducting semi-structured interviews (five cases in total) had to be ordered and analysed. To do so, cross-case analysis was
necessary.65 Different strategies for cross-case analysis were applicable, like the
mixed strategies of Miles and Huberman (the mixed use of case-oriented strategies and variable oriented strategies) and pattern matching which is used by Yin (although
65
no specific strategy has been used). The analysis was used to identify matching patterns. Especially the use of a matrix provides a good overview of the results compared to narrative text. This matrix helped to identify similarities and differences between the cases (not within) as well as the similarities and differences between the expected outcomes (based on the theoretical framework) and the actual outcomes. The latter mentioned should ultimately underscore or reject each of the four propositions made in chapter 2.
3.3 Quality of the Research.
With respect to the quality of qualitative research, four scientific criteria need
to be described: reliability and validity66.
It is harder to prove the reliability of qualitative research than quantitative research, and this research should thus be open to criticism. In order to reach a certain level of reliability, it is necessary to follow a procedure which can be replicated by another investigator. Therefore, the same set of questions (interviews) was asked to every respondent. The conduct of research by another researcher (with the same cases) would probably lead to the same results. Due to technical constraints, recording the interviews was impossible, which could lead to a more biased view.
Validity comes in different forms. The types discussed here are internal and external validity. The internal validity means whether or not the research measures what it should measure. All the propositions made have a dependent and independent variable (de dependent variable in every case is commercial success) and are based on existing literature. All the variables and underlying principles are treated in the interviews.
The external validity entails to which extent the conclusions of a study have a larger import and to which extent these can be generalised. The external validity has been enhanced by investigating multiple cases. Because of the small sample size as well as the fact that only one country plus one region were involved in this study, the findings should not be considered to be (fully) generalisable, not in the least because of reasons of external validity. However, this study is explorative and has no intentions in terms of generalisation. Ergo, external validity is not a real issue in this research.
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4 Findings
This chapter covers the results of the research mentioned in chapter 3. The results should partly represent the rejection or endorsement of the propositions of chapter 2. The results regarding these propositions are now being presented respectively. The discussion considering these results (for each propositions) is presented in the next chapter.
4.1 Venture Capital
In the interviews, in four out of five cases, the first proposition was approved to a certain extent. Both the incubators as well as the USOs themselves acknowledged the different stages a USO has to go through and the different types of financing that is needed in every stage. It was emphasised though, that not the actual participation in a FP was reason for easier attraction, but that the attraction heavily depends on the quality of the IPR. The Business Program Manager of one of the incubators (case C) stressed that:
“It is not the actual participation that leads to easier attraction of VC. Venture Capitalists seek for business opportunities. One of the main criteria for the selection is the exploitability of IPR. The fact that millions are spent on projects under the FPs normally leads to better IPR. It is the quality of this IPR which could lead to easier attraction of VC.”
One of the USOs (case B) did not need VC at all. This was due to the huge investments he made himself in the early stages. The respondent did underline the importance of VC for further growth, but in his case, the company was sold because he was about to retire. Although in general (four out of five) it was underpinned that participation in the FPs could lead to easier attraction, the technology transfer specialist did not agree with the proposition at all. She stated:
the quality of the IPR turns out to be very poor, the attraction of VC might even come in danger”
Taking the abovementioned into consideration, the first proposition is only true to a certain extent. It is not the actual participation which could lead to easier attraction of VC (and to more commercial success), instead it is the IPR which are derived from the projects which could lead to easier attraction.
4.2 Social Capital
In the case of social capital, every respondent underscored a positive relationship between the participation of the university in a FP, and the ‘amount’ of social capital and the contribution of social capital to commercial success. So in short, all cases underscore proposition one. In contrast, they did differ in their remarks towards the propositions. The respondent in case A stated that he used his network (which was derived from the FP) intensively for both market exploration and technical knowledge (sharing). As he stated:
“I still use my network for finding new markets and technological development. More important, I get access to ‘the big companies’, which is important in my industry.”
This is in line with case C. This respondent emphasised that one of the main purposes of the FPs is the creation of a network (which should enhance knowledge transfer, according to the EC). The other USO claimed that the advantages of social capital derived from the FPs do exist, but these advantages are only marginal. He also emphasised that the advantages are mainly useful in later stages of the spin-off, in contrary to case C, who claimed that these advantages are more useful at inception. Case E stated that the advantages of social capital from the FPs are mainly applicable to high-tech companies (spin-offs). Furthermore, the incubator from Groningen acknowledged the advantages of the FPs in terms of social capital, but also gave a warning:
This means that social capital could also have negative effects.
4.3 Early Internationalisation
When asked the respondents all underlined that the character of the FPs is very international. Both the USOs already work internationally. Especially case A confirmed the importance of the international scope of the FPs and the use of resources later on.
“The project under the Framework Programme gave me lots of opportunities. I speak to a lot of international parties and I learn a lot from it. I have come in contact with some key players of my industry, which gave me more insight in market opportunities and technologies.”
Case B, the other USO, stressed that he used to use his international resources especially to gain important knowledge with respect to his industry (some partners during the FP are research institutes) and, moreover, he used his international resources to sell his company (to a German company). All cases confirmed that participation in the FPs at least ‘opens doors’ towards internationalisation, but they all rejected that the FPs are directly related to more international sales, accept case A. Furthermore, case E stressed that the people participating in the projects (on behalf of a company or research institution like a university) are researchers, who do not have sufficient marketing knowledge, and thus could not be used for exploring market opportunities.
4.4 Additionality of the Framework Programmes
All respondents affirmed that due to the additionality a certain critical mass or competitive edge can be reached, although case A stated that:
“This is true in theory, but in reality many participant work relatively independent, which does not contribute to critical mass.”
information (what leads to more independency among the participants). Furthermore, both incubators claimed that in many cases the projects are pre-competitive and technologies tend to be rather new, thus radical/disruptive. Nevertheless. the incubator from Leuven stressed that it depends on the project, and radical technologies are a more common phenomenon in the technology sector than in, for instance, the health sector.
5 Discussion and limitations
This section covers the discussion of the results presented in chapter 4. It also treats the limitations of this article (paragraph 4.2)
4.1 Discussion Results
First, regarding to the first proposition, it could be suggested that the better a university (in this case) winds of the early stages in terms of obtaining good IPR, the easier the attraction of VC in later stages. The proposition on itself, claiming that participation of a university leads to easier attraction for a USO, is not true, although it could lead to easier attraction if participation leads to better IPR. Secondly, the second proposition seems to be true in most cases, although social capital could also be a burden in some cases. In this case however, it is no longer social capital, but
social liability.67 Furthermore, the third proposition was supported by all of the
respondents, although international sales were not directly related to the FPs. It could be suggested that the FPs ‘provide’ the USOs with an international network, as a resource for competitive advantage, but that expansion to cross-border markets is mainly caused by the entrepreneurial skills of the owner of the USO (often the academic entrepreneur). Finally, the fourth proposition was partially endorsed. This was probably mainly due to the differences between the projects (and their respective characteristics) under the FPs.
spin-offs and the Commission should take measures to make spin-off creation more easy. One major reason for this could be a paradox that all FPs inhibit: The FPs aim to enhance the competiveness of the European Union, but EU legislation prohibits state-aid to single firms.
4.2 Limitations
Every research has it limitations, and so does this one. This article is explorative and aims to shed light on the phenomenon USOs from FPs. Due to a very limited number of USOs from FPs known within the Netherlands and Flanders, and even less respondents, this research is rather lean in regards to testing the propositions. In order to make generalisations, further research is required. First, the phenomenon takes place at a European level, and should thus be investigated on this level. Secondly, more USOs should be involved in the research and quantitative methods should be adopted. Furthermore, the FPs could have other effects (or
indirect effects), like the attainment of managerial skills for project managers68, which
are not taken into consideration in this research. Another limitation comes from the fact that the FPs are subdivided into various fields, like telecommunication, health, nanotechnology, energy, space, etc. All these fields, or actually industries, have different economic and industrial characteristics, and probably as a consequence, different characteristics with respect to spin-off creation. In further research, all these variables should be taken into account. In conclusion, the propositions of this research could be used for hypothesis-building in further research.
6 Conclusions
The aim of this paper is to examine to which extent university participation in the European FPs has a leverage effect on success factors for USOs based on these programmes. This was tested in two real USO cases and three ‘extra’ cases. Based on the gathered data, it could be concluded that the FPs do have a leverage effect on these USOs, especially in regards to social capital as an international resource. The FPs can provide one or more competitive advantages for USOs in comparison to those start-ups that did not participate in a FP (or something similar). It is clear though, that all leverage effects treated in this research (all propositions) are true to a certain extent, depending on the USO and the project of which that USO evolved. To 67 See Gabbay and Leenders, 2001, p 7
68
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