NOTE
5. Processes at the fi rm level: phases and models of development 1
5.5 TECHNOLOGICAL SECTORS AND DEVELOPMENT
The nature of the development process may be associated with the type of technology involved. Druilhe and Garnsey (2004) distinguish three types of spin-off, each of which they see as evolving through a range of business models. First, development companies are based on some novel scientific breakthrough where resource creation and opportunity recognition are interdependent. Second, product companies involve opportunity recogn- ition that builds directly on the scientist’s knowledge and connections.
Third are software companies which appear distinct as they benefit from lower scale-up costs and the relative ease of switching from service to
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Table 5.2JVSOs versus VC-backed spin-offs and critical junctures Spin-offfirmPartner/investorOpportunity recognitionEntrepreneurialThreshold ofcredibilityThreshold of descriptioncommitmentsustainability TherapeuticsLarge The research group Commercial partners and The academic/CEO wasThrough ensuring a lar To develop international worked on an extensiveindustry were not careful in signalling first round offunding treatments early-stageresearch programme.interested in credibility to investors byfrom experienced for skin venture capitalThe findings led to thecommercializing the hiring headhunters to investors,the team has ailments and firm specializingrecognition that the technology because it was independently recruit aacquired 48 scientists tissuein growing high-results may be too early stagemanagement team and over200 patents,a damage technology applicable to humansThe academic resolved to benchmark existingmanagement team of including based firms inThe scientist knew that set up a spin-offandteam membersseasoned industry e burns and differentpotential commercialcommercialize the He carried out extensive Both investors and the scarringindustriesproducts could result,intellectual propertydue diligence and patentmanagement team [Lead VC150 technology because it solved a himselfprotection over the IPassembled organiza 40% ;co-companiesmajor medical problemThe academic was and secured laboratory structures and routines to investor 15%;currently in its After discussing the supported and facilities on the enable the spin-off universityportfoliodiscovery with encouraged by friends,university science parkmanage rapid growth 20%;Vast internationalphysicians,feedbackfamily,colleagues and The academic/CEOThe VC investors academicnetwork ofindicated that the investors to take the lead turned down seed facilitated introductions 25%]business discovery fulfilled ain starting the venture investment because earlyto partners in specifi contactssizeable unmet need forhimselfwhile retaining investors lacked depth ofmarkets that would millions ofpatientshis post at the universityexperience and knowledgeenable Therapeutics to worldwideHe hoped that raising to add sufficient valueget its products to venture capital wouldsuffering patients allow him to bring in commercial management RF DevicesSmall UK privateThe scientist had been The scientist lacked Taken together,the The entrepreneurial team To design low equity firmworking for nearlybusiness experience andresearch results,marketraised too little seed powerOnly 2 years 10 years on science thatmanagerial expertise to analysis and due diligence finance to support their
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consumptioninvesting did not have an grow a technologywere not enough to growth plans and the micro-experienceobvious marketbusiness.He did not want convince large investorsventure stagnated in a processors in high-tech withapplication.The to give up his research that the entrepreneurs and period when the ventur and license one fund raisedtechnology provided a post at the university their technology hadcapital market for the IP toRF Devices was solution to a market because it provided him the potential to create a high-tech investments manufactur-the fourthneed that the surrogate with the infrastructure to substantial businesshad gone flat ers world-investment.11identified basedcreate new technologiesThe scientist and surrogate Without adequate wide in the technologyon knowledge gained After attending several entrepreneur found it funding,the team could mobile companies in industrynetworking events andchallenging to raise initial not penetrate the telephonecurrently in itsmeetings with business seed funding from market marketportfolioangels,the academic metexperienced investors toSales growth was very [VC 15:Limited network with a surrogate start the venture The VCslow during the first university ofbusinessentrepreneur who wasinvestors that did offer year as product 15%;contacts enthusiastic about startingterms were not development had to be surrogate restricted to the a venture to experienced in buildingdownscaled and entrepreneurUKcommercialize the high-tech ventures and adapted to account f 33%,technologydid not understand the lower than expected academic This allowed the academic technologydemand 37%]to continue with his research Green PowerPowerGen UK isWhile working onThe academic had no The PowerGen brand wasTrading profitably Systemsa part ofTheindustry sponsoredbusiness experience andrecognized by customersAwarded a contract to To design,PowerGen research the academicdid not want to leave his in the sector and supply industry’s leading manufactureGroup Inc basedspotted a need for novel job at the universityGreen Power Systemsmanufacturer and sell in Washington,applications ofthe He decided to take the riskfitted well alongside Planning to expand to products PA,USAtechnology in anfollowing encouragement other portfolio ofoverseas markets and servicesPowerGen UK alternative market from colleagues,friends companies in the Working with industrial to power specializes insectorand family and workPowerGen Grouppartner on developing the providing Further investigationpart-time on the venture.PowerGen had a large new products for other generation services,and discussions withHowever he realized thatnetwork ofcontactsmarkets
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Table 5.2(continued) Spin-offfirmPartner/investorOpportunity recognitionEntrepreneurialThreshold ofcredibilityThreshold of descriptioncommitmentsustainability sector toproducts andPowerGen revealed thatthis approach wouldin the industry giving Looking to hire 5 ne improve technologies the same engineeringtake years to develop intorelatively easy accessengineers to support efficiency which improve principles applied a profitable businessto customers,suppliers expansion and reduce and enhance theacross a number ofWith the support ofthe and intermediaries harmful performance ofindustry sectors and UTTO,an industrythrough introductions emissionstheir customers’that the technology partner was identified PowerGen contributed PowerGen power plants could be adaptedthat had the markethuman resources, (Industryand equipmenteasily in most cases to experience and premises and equipment Partner):40-year history solve customer’s capabilities to help create to get the business 42%ofsupplyingproblemsa substantial business operational quickly University:products and venture A prototype was installed 17%services Working with PowerGen and tested at a client site Academic including theallows the academic to to validate the product entrepre-design,continue with his research and demonstrate value to neur:28%manufacture,at the university and other customers Management supply and retain equity in the team:Shareinstallation forjoint venture of13%heavy industrial applications TelecomBroadband is a The academicsThe senior academics onBroadband and Telecom Awarded several ne To design,UK-basedrecognized potentialthe research team didcombined managerial and contracts by US and and telecoms firmopportunitiesnot want to leave theirscientific expertise to formCanadian customers manufacture with sales officesfor the commercializa-posts.a strong team to develop and is now trading specializedin Europe,tion oftheir researchAn enthusiastic post-the joint venture.profitably fibre optic North America discoveries while doctoral student wasBroadband had proven Successfully raised
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componentsand Asia.attending an industrystrongly committed to commercial capabilities,$6 million first-round for use inBroadband trade show in the USleading the commercializ-an established brand and venture capital to telecomm-specializes in theThey got ideas from ation ofthe technology,a large network ofaccelerate growth and unicationdesign,manufac-other start-ups and and had the support ofcontacts with which tomarket the technolo networks to ture and spin-offcompanies werethe research teamgain access to marketworldwide be solddistribution ofexhibiting new Through the Head ofTelecom operated from Relocated to own worldwide technologyproducts,technologies School’s network,theBroadband’s offices in a premises on science par to devicesolutions that and devices targeting post-doc student was prime location yet closeSecond new product manufac-satisfy customerthe telecommunicationsintroduced to Broadband to the universityreleased in spring 2003 turesrequirements in sectorwho agreed to collaborate 20 new employees Broadband the communica-Early meetings withand take the technologyrecruited (Industrytions sectorBroadband lead to to marketSponsoring more Partner):Broadband has arecognition ofwhatuniversity research to 40%large globalproblem the technology supply future University:network ofcould solve for innovations 12%customers andcustomers ifit was Academic suppliers and an applied in the right way entrepren-industry eurs:respected brand 21% shared name between 3 scientists Management team:Share of27% Note:Company names are pseudonyms to protect anonymity.
product business models. Druilhe and Garnsey use longitudinal case studies to show how the business models of new ventures are modified as entrepreneurs improve their knowledge of resources and opportunities.
This modification may imply that the ventures shift from a research con- tract company to a licensing company, or that the entrepreneurs reconsider starting a product company and develop a technical consultancy instead.
Through engagement with others and involvement in entrepreneurial activ- ities, academic entrepreneurs develop relevant knowledge and experience.
This allows them to improve their perception of opportunities, while gaining a better understanding of the resource configurations required to pursue the refined or newly perceived opportunities. Development com- panies may initially be set up to commercialize a technology for licensing but may later aim at downstream services and production. A reverse muta- tion may occur as the objectives of the business model change from pro- duction to licensing, thereby offering a plausible alternative to the transitional type identified in the previous chapter. Academics who provide research-orientated services benefit from a ready-made productive base from which to operate and can secure returns more easily than those with generic technologies far from market. Academic entrepreneurs who are sufficiently motivated, skilled and market focused can create a productive base in-house that delivers products of high value to customers and secures them a very high level of returns.