University spin-off companies have a high failure rate. Hundreds have been launched in the UK during the past decade to exploit a piece of intellectual property that has been developed in an academic institution.
But very few have been sold or floated on the stock market, and on one estimate well under 10 per cent have succeeded in generating wealth.
But spin-offs do have an important part to play in transferring technology from academia into the commercial world. They are an effective vehicle for commercialising uncertain, early-stage technology that established firms are too cautious to take up.
Academic Entrepreneurship , a study drawn mainly from US experience, lists the types of technology that are best suited to spin-off activities.
Whereas an established firm would tend to invest in incremental technology with a specific purpose in mind, ideas that are radical in nature, at an early stage of development and capable of a wide range of potential outcomes, might be more suited to a spin-off. Some industries lend themselves to this process more than others. Biotechnology is the prime example, with as many start-ups in this sector emerging from university research departments as from corporate laboratories.
Scott Shane, a US academic, sets out why this is the case. Patent protection - a crucial ingredient of the most successful spin-offs - is stronger in biomedical research than in other types of innovation.
Breakthroughs often come in the form of discrete discoveries that can be used independent of other technology - and ideas may matter more than price to potential customers. And advances made by academics in this area tend to be more closely related to commercial activity than in other areas of science.
Even in biotechnology, academics find it difficult to raise development finance from the private sector. Although the US has a highly developed venture-capital sector, Shane emphasises that Uncle Sam plays a central role in early stage finance. Many US biotech spin-offs owe their birth and early survival to the Small Business Innovation Research Program. With other technologies, the proportion is higher.
There is a message here for UK policymakers, who tend to turn on and off the tap of government seed funding. The book makes two other points relevant to UK policy. First, it highlights the important part played in the US by wealthy individuals - so-called angel investors - who are much less active in the UK. Second, it emphasises the importance of the inventor's continued involvement in successful spin-offs, to take the technology forward. This is relevant in the light of last year's Finance Act, which adversely changed the tax position relating to an academic's shareholding in UK spin-offs.
Shane works his way through the considerations that shape spin-off activity and the ingredients of success or failure in great detail. But the book is vague about the big picture: in particular, the overall economic impact of spin-off activity. And it is very heavy going. A clearer account of most of the same issues is to be found in a recent study by Nottingham University Business School that puts forward a number of ways in which universities can improve the performance of their spin-offs, and identifies the key phases in the development of a spin-off business. And it does not require too many cups of black coffee to get to the end.
Richard Lambert is former editor of The Financial Times .
Academic Entrepreneurship: University Spinoffs and Wealth Creation
Author - Scott Shane
Publisher - Edward Elgar
Pages - 335
Price - £65.00 and £29.95
ISBN - 1 84376 454 7 and 1 14542 221 X
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