A UNIVERSITY can actively and directly manage the creation of new companies and invest in the human and physical resources needed for their success. Such an approach may provide a greater chance for success than licensing the university’s technology to a start-up company, which would likely be completely separate from the university. The approach of establishing and licensing to a spinout does, however, introduce a number of significant risks.
The strategy of creating university spinouts appeals to universities in developing countries for several reasons. Licensing is often the “preferred” option for university technology transfer, simply because it is less complex, it requires an acceptable licensee who is both interested in and capable of developing the technology.
The goal of commercialising university technologies is to generate economic growth, the creation of new companies, generation of jobs and attracting additional investment. Because universities and public sector research institutes are often the giants of Research and Development (R&D) within a developing economy, they need to be relied upon as sources for human capital and investment in entrepreneurship, since there may be no other sources.
Universities and research institutions should have realistic expectations concerning the risks of investing institutional resources in creating and spinning out new technology-based companies. Publicly funded institutions should consider how best to achieve their primary missions of delivering social and economic benefits, and they must caution policymakers against exerting too much pressure on their region’s universities to create new companies, because the process is difficult, consumes limited institutional resources, and is risky.
Universities and research institutions should, as a rule, favour licensing out to existing companies and third party start-up companies and get involved only in the higher-risk strategy of investing the institution’s own time and resources to create a spinout with measured and informed caution.
The process of creating a spinout is essentially one of providing the right social/professional environment, legal/financial framework, and resources for something new to grow and succeed and — given the risks — to fail “gracefully” if need be, without causing harm beyond the loss of opportunity and the initial investment.
A very important element of creating spinout companies is to channel the enthusiasm and commitment of those who believe in the technology, want to see it succeed, and aspire to a positive outcome (for example, by providing products that improve the well-being of citizens).
Pragmatic information about how universities can transfer their intellectual property (IP) rights to a spinout company (normally through a licensing agreement) and then convert the intellectual property into products or services for the public’s benefit involves key issues related to negotiating such transfers:
- the general attitude toward spinouts held by a public research organisation’s senior administration and council
- various licensing considerations
- the use of milestones
- the amount and kind of compensation that should be received for licensing a technology sublicensing, and warranties and indemnities, must be carefully considered.
Conflict of interest (COI) and conflict of commitment (COC) issues arise when employees of universities become engaged in spinout companies.
The Zimbabwean Government is encouraging public research organisations to use their inventories of IP rights to create spinouts. Successful spinouts create new jobs, contribute to economic development and potentially grow into large corporations. Innovation Hubs are key players in this effort but they should balance the interests and mission of the universities with the objectives of the spinout and the needs of society.
The role of venture capital
One way that universities can more effectively use their intellectual property is by attracting venture capital. Rather than venture capital driving the creation of new companies, it is the creation of new companies that attracts venture capital.
Universities and government policies are able to constructively influence the creation of new companies. Venture capital can, and does, play a critically important role in technology-based entrepreneurship, and the types of environments that can encourage entrepreneurship thereby attracting venture capital.
Venture capital is a specific sector of the financial industry that channels investment from institutional and private investors, corporations, pension funds, and government agencies into venture funds that in turn invest in portfolios of equity in new companies. Venture capital may also be actively involved in the management of the companies, participating on the board and even providing business services.
In return for bearing and managing such risks, venture capitalists expect to achieve sufficiently high internal rates of return, typically between 20 and 40 percent. A favourable environment for creating and growing new companies consists of an encouraging business culture (one that rewards success and treats failure as a learning opportunity), access to intellectual capital (such as that flowing from universities), sufficient financial capital, and reliable physical capital (facilities, laboratories, communications). All of these are enhanced if there is a low cost of living and a high quality of life.
Government can encourage entrepreneurship by providing a favourable environment. Once enough companies exist, they will themselves further transform the environment, attracting or creating the skills and capital that can develop into a technology cluster.
Ultimately, the practice of investing venture capital is a skill that can be imported into the country, where it can be mastered by local investors.
Technology transfer intermediaries
It is also important to know what other forces discourage or encourage the commercialisation of inventions. Barriers can arise due to the cultural differences between academic institutions and business.
These barriers can be overcome by motivated technology transfer intermediaries.
Inventors are usually creative, self-motivated, flexible individuals, but this does not mean that they naturally pursue the commercial potential of their discoveries. Much can be done to improve the environment surrounding an inventor.
If an environment promotes creativity and is receptive to invention disclosure, it will not matter as much if an inventor has less self-confidence or is less of a risk taker.
Business incubators are tools for stimulating local economic development. The concept of an incubator is simple and appealing: it provides a facility and services (for example, business planning and legal, accounting, and marketing support) to catalyse small business growth. Incubators have proven very effective. Incubated companies have a dramatically higher rate of survival than the average spinout. Additionally, companies that “graduate” from incubators provide jobs. The six steps for setting up and operating successful incubators:
- Conducting a feasibility study
- Identifying and securing stakeholders
- Identifying a market niche
- The formation process
- Establishing services provided
- Strategic planning
Well-managed business incubators often distinguish themselves by serving as a focal point for access to the broad spectrum of available business services. A well-positioned business incubator will help its tenants to access the range of existing programmes and, in addition, provide access to informal networks for business and financial advice and assistance.
Successful business incubator programmes are marked by foresight, focus and leadership. Successful incubator programmes also know how to identify, organise and maximise talent and resources, making the most of community support and entrepreneurial networks.