Effect of Venture Capital on the Growth of Information and Communication Technology University Spin-Offs: Venture Capital Effect on the Growth of ICT-USOs

Effect of Venture Capital on the Growth of Information and Communication Technology University Spin-Offs: Venture Capital Effect on the Growth of ICT-USOs

María Jesús Rodríguez-Gulías, Sara Fernández-López, David Rodeiro-Pazos, Ana Paula Faria, Natalia Barbosa
Copyright: © 2020 |Pages: 24
DOI: 10.4018/978-1-7998-2440-4.ch004
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The creation of university spin-off firms (USOs) to commercialize the academic research outputs contributes to the economic development of the regions. These firms are often resource-constrained, which may hamper their growth. However, the involvement of venture capital (VC) partners in their management can partly counterbalance their traditional lack of resources. Within the USOs created in Portugal and Spain, around one-third operate in the information and communication technology industry (ICT-USOs). This chapter aims to explore the effect of VC partners on the ICT-USOs' growth by using a sample of 127 Spanish and 176 Portuguese ICT-USOs over the period 2007–2013. The results show that the effect of VC on the ICT-USOs' growth depends not only on the country, but also on how firm growth is measured; whereas a weak positive effect on the sales growth is found, a negative one is obtained in the case of the employment growth.
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In recent decades, the creation of university spin-off firms (USOs) is one of mechanisms used by universities to transfer technology to society and contribute to the regions’ economic development. The USO concept does not have a single and consensually accepted definition (Pirnay et al., 2003), but rather several proposals that are not always convergent. In a literature survey, Djokovic and Souitaris (2008) indicate that definition must contain two main issues: the agents involved and the elements to be transferred. Regarding the first one, the parent organization has to be a university or academic institution but there is no consensus on the need for participation of a university member in the company.

Regarding the second one, the new entity has to exploit knowledge produced from academic activities or academic pursuits. In this respect, whereas some authors use a very narrow definition, requiring that the rights transferred being of an exclusively technological nature (O'Shea et al., 2008), other ones argue that these rights may include both codified knowledge (for example, in the form of patents or copyrights) and tacit knowledge (technical know-how) (Hindle & Yencken, 2004). The output of these combinations has to be a separate legal entity to be considered a university spin-off.

In this paper, we follow the definition by Red OTRI, which considers USOs as start-ups exploiting university knowledge but not necessarily founded by university staff (Red OTRI, 2011). This definition of USO also appears to be one of the most widely employed among researchers (Zhang, 2009). Using this definition in the Spanish and Portuguese academic entrepreneurship contexts means to consider a mix of both technology and service-based spin-offs.

USOs are an important mechanism of transferring knowledge from Universities to society. In so doing, USOs contribute to create new high quality employment and accelerate the productivity of regional economies (Hayter, 2016; Shane, 2004). Therefore, policy-makers are increasingly investing in universities to foster the creation of innovative start-ups (Autio et al., 2014). However, several studies have suggested that USOs are not the best way to transfer knowledge from universities to industry as these firms tend to remain relatively small (Zhang, 2009).

USOs usually face certain problems, namely financial constraints and founder teams lacked of basic managerial skills. In this respect, the presence of venture capital (VC) partners may help USOs to gain access to the lacking resources, exerting a positive impact on their performance. Venture capitalists are a type of financial intermediary with three main functions (Metrick & Yasuda, 2010, p. 19); “screening potential investments and deciding on companies to invest in, monitoring these companies and providing value-added services for them, and exiting their investments in these companies by selling their stake to public markets or to another buyer”. The object of VC capital investors is to contribute to the expansion and development of the company and, therefore, increases their value. Later, when the company has generated the expected value it is listed to be reversed, and, therefore shareholders, including venture capitalists, can obtain a recompense on the capital invested. The injection of VC funds is complemented by an added value with services like: advice, credibility with third parties, professionalization of management teams, openness to new business approaches, experience in other sectors or markets, etc.

Key Terms in this Chapter

Start-Up: A new and independent company or project initiated by an entrepreneur to develop a scalable business model.

Information and Communication Technology (ICT) Industry or Sector: Combination of manufacturing and services industries that capture, transmit and display data and information electronically (OECD, 2003). ICT sector refers to equipment and services related to broadcasting, computing and telecommunications, all of which capture and display information electronically (United Nations, 2004).

University Spinoff: Start-ups exploiting university knowledge but not necessarily founded by university staff (Red OTRI 2011 AU53: The in-text citation "Red OTRI 2011" is not in the reference list. Please correct the citation, add the reference to the list, or delete the citation. ).

Information and Communication Technologies (ICT): Technologies that provide access to information through telecommunications, including Internet, wireless networks, cell phones, and other communication mediums.

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