because French academics are barred by law from taking an equity stake in start-up companies, which reduces their incentive to form companies.
Moreover university spin-offs are more common in the USA than in most European countries because faculty of European universities cannot easily take leave of absence to found companies to exploit their technologi- cal discoveries. Research shows that leaves of absence are important to facilitating spin-off companies because faculty members do not want to bear the downside risk of giving up secure positions to start companies (Kenney, 1986).
Even within the USA, the data suggest a relationship between leave of absence policies and the formation of spin-off companies. For instance, those institutions which restrict the leave of absence of their faculty members have fewer spin-off companies than those institutions that do not restrict leave of absence (Shane, 2004). Kenney and Goe (2004) show that the state of California policy on leave of absence hinders spin-off company formation out of the computer science department at the University of California at Berkeley and makes it much lower than the rate of spin-off company creation at the comparable department at Stanford University.
Federal and state governments have had a significant effect on the formation and growth of university spin-off companies, both directly and indirectly enhancing economic development through academic entrepre- neurship. Again we lack systematic large-sample evidence for the effects of many government policies, but a review of the literature that does exist (fragmentary as it may be) suggests several ‘best practices’ in which government policies enhance economic development through enhancements to spin-off company creation. First, policies of intensive federal funding of academic research, particularly in the biomedical areas, enhance spin-off company creation because investment in research and development is an important precursor to the development of high-technology companies.
Second, the provision of property rights for federally funded academic inventions with universities, not the inventors themselves, is benefi cial. Such a policy generates an institutional support system for entrepreneurship and permits an entrepreneurial attitude to develop among faculty and university administrators, creates an incentive for universities to market technologies and search out entrepreneur licensees who would commercial- ize their inventions by starting companies, and makes it easier to pool the risks and costs of developing and licensing inventions over a large number of technologies.
Third, the passage of laws like the Bayh–Dole Act, which gives universities the rights to federally funded inventions, enhances economic development through academic entrepreneurship by making exclusive licensing of university inventions – something of great importance to spin-offs – easier to undertake. These laws also enhance academic entrepreneurship by changing attitudes of faculty and administrators on university campuses to make them more supportive of spin-offs.
Fourth, federal and state governments have also encouraged economic development through spin-off company creation through direct mechanisms.
Policies that subsidize the development of new technologies through incubator facilities, procurement, buffer institutions and applied research grants enhance the development of technologies by university spin-off companies. In particular, policies that permit government entities, such as state universities, to take equity in return for making cash payments to help develop spin-off companies are important mechanisms of economic development through entrepreneurship.
Fifth, state and federal government programs to reduce the fi nancing gap in early-stage technological development enhance the growth of university spin-offs and facilitate economic development. Such funding allows companies to develop technology to a point at which it is of interest to private sector investors, provides a subsidy which reduces the cost to
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private sector investors of fi nancing the development of the technology, and reduces the level of risk borne by private investors.
Sixth, government policies that enhance the willingness of academics to participate in the formation of spin-off companies encourage the formation of these companies and their subsequent effects on economic develop- ment. In particular, policies that facilitate leave of absence from academic institutions and permit academics to hold equity in spin-offs based on their own inventions enhance spin-off company creation and the economic development that comes along with it.
In short, while we do not have conclusive evidence of the economic development value of university spin-offs or the government policies that facilitate their development and growth, we do have enough partial evidence to suggest that university spin-offs are important contributors to economic development. Moreover we can identify best practices for policy makers in several areas that can be used to enhance economic development through the creation and development of spin-off companies.
COMMENTARY
Casey Porto
More than 20 years after the passage of the Bayh–Dole Act, the practice of transferring academic research results into the private sector in order to create new products and/or new companies is today recognized as having signifi cant impact not only on the universities engaged in the practice, but also on the US economy. Universities typically engage in technology transfer as a ‘service’ to faculty researchers who desire to see their research outcomes put to use by society. A viable technology transfer program has also become a signifi cant tool for a university’s ability to recruit and retain top faculty in an increasingly competitive landscape. The billions of dollars generated by academic technology transfer activities in the USA have had a profound impact on academic institutions and their local economies, but most universities take the offi cial position that they do not engage in technology transfer for the primary purpose of generating income.
Nevertheless the billions of dollars generated by academic technology transfer, especially through the creation of spin-off companies, have under- standably gained the attention of state and federal policy makers. Scott Shane’s chapter provides a framework for understanding and assessing policies which have enhanced university spin-off activity. His review provides a well-grounded perspective, and should be required reading for policy makers who are charged with enhancing economic development through the encouragement and support of spin-offs and commercialization of technology.
I would like to expand on two of the central points made by Shane in his review of government policies and their effect on the formation of university spin-off companies. The fi rst of the policies reviewed by Shane is the intensive funding of academic research by federal agencies. The funding of academic basic research occurs so early in the chain of events which leads to spin-off companies that most people outside the technology transfer profession do not even grasp the connection, let alone the importance. In diffi cult economic times, federal, state and local governments look for the
‘quick fi x’, and often the funding of academic basic research seems to be an unaffordable ‘luxury’ compared to other mechanisms which are perceived as having a more direct impact on economic health and the creation of jobs. Yet the areas of the country where spin-off creation and the birth of new industry clusters has been most prevalent are those areas which have the longest history of the deepest government funding of basic research.
Academic technology transfer professionals operate at the narrow end of the funnel; the wide end of the funnel is basic research funding, which results
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in some number of inventions, a subset of which can be commercialized, and an even smaller subset of which can be the basis of a new company.
The wider the funnel of research funding, the more possibilities for new spin-off companies.
The second policy reviewed by Shane is the provision of property rights for federally funded academic inventions to universities – not to the inventors themselves or some third party. Although seemingly simplistic in approach, this provision is quite profound, and in fact is often overlooked and undervalued by those outside the technology transfer profession. The investment by US universities in their technology transfer operations has been enormous.
The practice of technology transfer is often viewed by outsiders as an administrative function, requiring the simple patenting of inventions which result from funded projects. In fact the most successful technology transfer offi ces are complex and expensive operations, providing a wide variety of services by highly educated and experienced professionals. For instance, in order to interact effectively with a wide variety of scientists in a wide range of disciplines, technology transfer offi ces must be staffed by professionals who have at least a master’s level education in a science/technology fi eld, and the ability to understand new concepts and ideas across a number of fi elds.
The same technology transfer professional must also have experience in sales and marketing, in order to be able to identify appropriate markets and best candidates for licensing new discoveries, and to approach these companies with an appropriate amount of technical and business information in order to garner their interest. The technology transfer professional must also have sound business sense and a deep understanding of contract law in order to conduct a businesslike negotiation with the candidate licensee while complying with all legal restrictions imposed by non-profi t law and federal/state regulations. In addition to having in-depth scientifi c education, sales/marketing experience, a deep understanding of contract law, non-profi t law and federal/state regulations, the technology transfer professional must also be knowledgeable in patent law in order to deal with many patent lawyers on many different patent matters, and, of course, be very good with people.
In support of the licensing professionals, the technology transfer offi ce must also provide fi nancial services for invoicing licensees and distributing royalties to inventors, paralegal services for corresponding with dozens of patent attorneys and tracking all patent matters, communications services for interacting with community groups, venture capitalists, faculty researchers and potential licensees, and of course a support infrastructure of administrative and database services.
In short, universities make quite signifi cant investments in technology transfer infrastructure, with widely varying results. A few US universities generate hundreds of millions of dollars in revenue thanks to successful spin-offs or successful pharmaceutical products. The vast majority of US universities do not even come close to covering costs for technology transfer. If the property rights for inventions resulting from federally funded projects were put into the hands of individual inventors or third party interests, would hundreds of millions of dollars be invested in the technology transfer process?
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