Research investment strategies:
Measurement of Spin-outs from Foundation-Funded Research (Economic Diversification Evaluation Part 1)

Published: 1 Nov 2005 New Zealand Institute for Economic Research, 2005.

Scope:

The principal objectives of this study were to:

• identify, as far as possible, all companies that have spun out from Universities and CRIs in the last 10 years
• determine to what extent these spin-out companies have been seeded or assisted by R&D, particularly Foundation?-funded R&D
• identify the factors that contribute to spin-out company success, and the factors that constrain the achievement of spin-out companies’ goals.

Summary:

Key findings were:

• Between 1995 and July 2005, 83 spin-out companies were formed: 40 from universities and 43 from CRIs. There was a step change in the number of spin-out companies formed per year, from an average of four per year in 1995-2000, to an average of 13 per year in 2001-2005. This results from an increase in both CRI and university spin-outs.
• Compared to international benchmarks, prior to 2001 New Zealand produced fewer spin-outs per research dollar than Australia, the US, Canada and the UK, but from 2001 onwards New Zealand spin-outs per research dollar have approached Australian levels and exceeded US levels, but still fallen short of Canadian and UK levels.
• 41% of companies relied on technology funded in part or in full by the Foundation for their formation, while a further 12% found that Foundation funding assisted company formation, but was not absolutely vital. The other major source of funding for underpinning technology came from internal CRI or university sources (41% of companies), including some dating back to the Department of Scientific and Industrial Research (DSIR).
• Subsequent to spinning out, 73% of companies had made use of Foundation or Technology New Zealand funds.
• In the 2004-05 financial year, mean FTE employment among interviewed firms was 11.0, suggesting that the total contribution of the 83 spin-out companies to employment may be around 900 FTEs. However, employment was highly variable between companies, with 11 reporting zero FTEs and one reporting more than 100. Mean turnover was $1.019M and equivalent to $93K per FTE. Again, this was highly variable across companies and, for small single-product companies, orders won and, consequently, turnover were very erratic across years.
• The major barriers to business growth cited by companies were difficulties in obtaining finance (particularly for companies in the medical and health sector), difficulties in recruiting staff and establishing a global presence, and regulations/red tape in New Zealand.
• Three common success factors were support from shareholders, parent institutions, business angels, and venture capitalists, the quality, skills and commitment of staff, and the quality, novelty or relevance of the science base.

Conclusions

This report presented New Zealand’s first national data on spin-off activity from CRIs and universities. It will provide a baseline for ongoing monitoring of spin-off activity. Spin-off activity is one of a number of possible metrics, used internationally, for R&D commercialisation.

Related work

Start-up and Diversified Companies (Strategic Evaluation – Economic Diversification Part 2).