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Predicting Spinoff Success

Predicting Spinoff Success

Universities are fast becoming ground-zero for the commercialization of new technologies based on internal IP.

Universities have long been touted for their role in regional and state economic development, not only for their well-established role in education and research but, increasingly, the commercialization of new technologies. New spinoff companies, based on intellectual property stemming from university R&D, offer a promising vehicle for technology commercialization and have the potential to generate jobs, and even enhance the quality of traditional faculty responsibilities. Furthermore, university, state, and federal policymakers are increasingly seeking ways to encourage the establishment of university spinoff companies and support their growth.

A recent study examines factors of success among university spinoffs, offering practical insights for entrepreneurs, policymakers, and scholars alike. Spinoff success is defined as technology commercialization, measured by whether or not these early-stage companies have sales. The study, entitled "Harnessing University Entrepreneurship for Economic Growth: Factors of Success Among University Spinoffs," appears in the February issue of Economic Development Quarterly, a peer-reviewed journal that focuses on economic development and revitalization, primarily in the United States. The study is based on a unique, nation-wide sample of faculty entrepreneurs at public universities who have established spinoff companies in a variety of technology areas and are at different stages of development.

Factors affecting sales

The study finds that a number of entrepreneur-, firm-, and university-specific factors significantly predict spinoff success. For the individual faculty member, consulting with industry provides insights and experiences that positively impact their ability to understand markets and technology development. At the firm-level, spinoffs that have research joint ventures with other companies, external sources of intellectual property, professional (non-faculty) management, and venture capital funding are more likely to commercialize their technology compared to those that do not.

Joint ventures and IP sourcing from other companies and universities provide valuable technical solutions while professional management addresses an important challenge recognized from other studies: academic researchers do not usually have the skills needed to effectively run and grow a company. And according to faculty entrepreneurs in the sample, venture capitalists are not only important sources of funding, they also provide mentoring and networking services and technical expertise important to spinoff performance.

Other factors in the study were shown to negatively impact spinoff success. Specifically, spinoffs attempting to commercialize technologies in the life science industry have an especially tough challenge: results show that these companies are approximately 40 percent less likely to commercialize their technology. Finally, spinoffs that rely primarily on a university for entrepreneurship services are less likely to commercialize their technology.

In short, these findings show that all spinoffs are not created equally. Spinoffs in the life sciences face especially acute challenges with staggering capital requirements, complex scientific issues involving the human body, and regulatory hurdles with the Food and Drug Administration. Beyond industry-specific considerations, spinoffs with access and strong external linkages to new technologies, ideas, funding, and management are more likely to commercialize their technology.

Need to strengthen external networks

Combined with the (negative) findings related to university entrepreneurship services, the study shows that networks are critical for spinoff success. In other words, if the findings are generalizable to broader populations of spinoffs, then policies and programs designed to spur academic entrepreneurship should establish and strengthen dense networks of funders, professional managers, support services, potential customers, and a variety of innovation sources to improve commercialization.

In some regions, entrepreneurial support networks have long existed in specific technology focus areas—like social networks to support the medical device industry in the Minneapolis, MN, metropolitan area. In other areas, these networks need to be built or strengthened, an acute challenge for most rural regions in the U.S. and beyond. In any case, this study shows that while university spinoffs may not automatically lead to new jobs and prosperity, policymakers will at least be better equipped to fashion policies and programs to improve the likelihood of commercialization and, therefore, economic development.

Chris Hayter, PhD, is the executive director of the Academy's Policy Evaluation & Transformation Group.

Image credit: David Crockett /