Search CFI Website
stor

Orion Technical Associates

WBT Showcase

EquityNet

Become A Sponsor

Viewpoints Archive

University Spinouts: Best Practices and Issues
Diane Pamintera

Diane Palmintera
President
Innovation Associates
Reston, VA


University technology transfer and commercialization activities that create spinout companies increasingly impact local and state economies.  Each year Stanford University files more than 300 patents, and has produced spinout winners that include Google, Sun Microsystems, Silicon Graphics, Netscape, Cisco Systems, and Yahoo.  Similarly, each year at MIT about 150 new university-related companies are founded, with at least 10 percent of those directly resulting from university technology transfer and commercialization activities. 

Bi-coastal university “stars” are impressive for commercializable inventions, but major players in Midwest and central states include the University of Pittsburgh Medical Center, Purdue University, University of Wisconsin-Madison, and Iowa State University (ISU).  ISU, for example, has over 450 active licenses yielding income and ranks in the nation’s top five for active licenses and licenses executed (when intellectual property (IP) data is “normalized” to account for differences in research and development expenditures).

Success has come from the input and convergence of multiple factors such as the university research and development (R&D) base, core competency and strategic focus, research infrastructure, entrepreneurial incentives and culture, university-industry enablers, intermediary facilitators, and leadership – political, academic and corporate.  Other critical factors are financial and management resources, particularly early-stage capital available to university entrepreneurs to fill critical gaps.

Lessons from Best Practices

Innovation Associates (IA) has provided recommendations to states, universities, and corporations to enhance commercialization infrastructures based upon extensive best practice work throughout the U.S., Europe and Asia.  IA’s recent book – Accelerating Economic Development through University Technology Transfer (click here to purchase a download copy) captures some U.S. best practices and reveals several important lessons:

  • Strong and focused university research feeds the pipeline for commercialization.  Model universities have built strong, focused research bases by first assessing core competencies and then developing strategic plans around them.  Following these plans they have (a) hired “stars” in targeted fields, (b) targeted federal R&D funds, (c) increased corporate sponsored research and (d) promoted state initiatives that leverage federal and corporate funds. 
  • Federal R&D funding provides a critical base for success.  Federal funding, particularly from the U.S. Department of Defense and the National Institutes of Health, normally accounts for the majority of the universities’ research expenditures.
  • Early-stage capital is critical in launching university start-ups.   Entrepreneurs from universities successful in generating start-ups have access to seed capital.  Also, they receive help from local universities and intermediary organizations to develop business plans, showcase their companies and network with potential investors.  Where early-stage capital does not exist, universities, public and private sectors have stepped in to create it, often seeding private funds that leverage additional monies.  Angel investor networks are often an important source of startup capital and mentoring.
  • Entrepreneurial culture is key.  Creating an entrepreneurial culture at the university is both “bottom up” and “top down”, requiring a combination of leadership from the top and entrepreneurial drive from the bottom.  University leadership helps ensure success by providing implicit or explicit rewards and incentives for technology transfer and commercialization activities, and setting hiring practices that favor industry and entrepreneurial experience.
  • Strong networks build the entrepreneurial culture inside and outside the university.  Students and faculty at MIT, Stanford, and Cambridge are armed with knowledge of opportunities to network with potential investors, corporate clients, partners, service providers, and other entrepreneurs.  Technology transfer and licensing offices often encourage and facilitate interaction with venture capitalists, law firms, and corporations, early in the technology transfer process.
  • Entrepreneurship programs add value.   Engineering and science students as well as business students gain from technology transfer and commercialization courses and activities. Activities usually include business plan competitions, practicum with start-ups, and mentoring by successful entrepreneurs.
  • Private corporations and foundations play a major role. St. Louis, the Danforth Foundation, Monsanto and the McDonnell Family have funded substantial initiatives and, in Pittsburgh, the Heinz Endowments and other corporate contributors have provided the majority of funding for the Pittsburgh Life Sciences Greenhouse.
  • Incubators and research parks provide a visible tech-based entrepreneurial presenceSome universities, such as UW-Madison and Purdue, have had to build an entrepreneurial presence.  Their research parks are now quite successful, each employing several thousand high-tech workers and adding a technology presence where once there was none.
  • Champions catalyze successful technology-based economic development.   Often a strong university president or chancellor, as a champion, is present where a major research university has played a strong role in fostering regional economic development. 

Issues

Factors that continue to affect effective spinout of university innovations include:

  • Friction between private industry and many universities over IPIndustries complain that universities have become less flexible as they become more commercially savvy and realize the potential monetary return from inventions.  University researchers complain that administrations push them to work on more formal terms with industries, and this has led to some corporations rethinking research relationships.  Small businesses can also be pushed out as technology transfer offices require more formal relationships with researchers.
  • Tug and pull between the mission of teaching and commercializing inventionsAt many universities a “less than whole-hearted” support from leadership or rank and file has resulted in commercialization being treated like a tolerated stepchild.  But this is changing as young faculty hires have demanded more opportunities for flexibility and greater earnings.
  • Favoring IP licensing over spinout company creation.   It requires more funding and technology transfer staff time to spin out a new company than to license IP.  Moreover, most technology transfer offices are ill equipped to launch enterprises and do not view launching start-ups as part of their job. 
  • Unproven seed capital operations within the university.  Improving access or providing seed capital are new efforts for most universities.  Most focus on helping faculty conduct proof-of-concept rather than supporting spinout creation.  Although endowments could be an enormous source of seed capital, universities are reluctant to take risks with these funds.   

In summary, many U.S. universities still struggle with basic issues such as university-industry IP ownership, and lack knowledge and capacity to launch enterprises.  Universities that have achieved success have done so through decades of effort.  Not every community has a Stanford or a MIT, but academic, public and private sector leaders can work together to identify, strengthen and leverage their own resources to enhance innovation-based economic opportunities. 


*Number of total licenses/options executed in FY 2003 as reported by the institution (Question 9A, AUTM Licensing Survey™: FY 2003).  Rank is derived from number of licenses/options executed in FY 2003 (AUTM) per $ thousand R&D expenditures in FY 2003 (NSF). 

Viewpoint Archives

EquityNet

Capital Formation Institute, Inc.
a 501(c)(3) non-profit organization
Office of Science, Technology Transfer and Economic Outreach
University at Buffalo, 1576 Sweet Home Rd., Amherst, NY 14228



Contact us at dloague@cfi-institute.org

©2010 CFI
All information herein provided as a public service.
Privacy Policy
CFI does not collect any personal information about visitors to www.cfi-institute.org.  However, CFI may ask for a limited amount of personal information that helps us respond to your specific requests.  These include regular mailings of announcements about articles, audio programs and new publications, participation in CFI's online and teleconference events, or  purchasing items from the CFI Bookstore.  CFI never shares personal information with third parties.  At any time, you can "opt-out" of receiving CFI's direct mail and marketing material by either contacting dloague@cfi-institute.org or by following "unsubscribe" instructions in any communication.