Home > Topics > The Public Sector and Entrepreneurship > New Companies to Commercialize IP: Should You Spinout or Start-up? > Editor's Summary, Implications and Best Practices

This chapter addresses the question of what realistic expectations universities and research institutions should have concerning the risks of investing institutional resources in creating and spinning out new technology-based companies. In considering this question, publicly funded institutions should consider how best to achieve their primary missions of delivering social and economic benefits. The chapter also cautions policymakers against exerting too much pressure on their region’s universities to create new companies, because the process is difficult, consumes limited institutional resources, and is risky.

The chapter recommends that universities and research institutions should, as a rule, favor licensing out to existing companies and third-party startup companies, and only get involved in the higher-risk strategy of investing the institution’s own time and resources to create a spinout in those situations when there is a fairly clear disconnect between what the market is willing to take on and what those inside the institution believe to be the potential for a new technology. This is typically the situation when the technology is disruptive or at a very early stage.

The basic message of the chapter concurs with the other chapters in this section of the IP Handbook: that the role of the university is to channel its limited public resources into activities that create new opportunities that can be taken up by the market, but not to intentionally supplant or engage directly in the market in order to maximize revenues. This means leaving venture creation to the market whenever possible. The chapter rightly identifies that most universities do not have sufficient professional resources or experience to manage spinout companies.

This and other chapters explore when and how universities can work with the market to channel investments into in high-risk, high-return opportunities. The idea suggests—but does not explore—a further question: when and how might universities work with other non-profit and philanthropic funding sources to create spin-out product development partnerships (PDPs) around high-risk, high-social-return opportunities. This is a question for further exploration and innovation by leading universities that have already begun to master the process of spinning out successful for-profit companies: spinning out successful non-profit PDPs.

Key Implications and Best Practices

Given that IP management is heavily context specific, these Key Implications and Best Practices are intended as starting points to be adapted to specific needs and circumstances.

For Government Policymakers

• A greater rate of new company creation from universities and research institutions, so as to drive regional economic growth and job creation, will require the investment of certain amount of resources and (more importantly) the development of a critical set of skills and expertise within public sector institutions and a receptive, entrepreneurial environment in the region’s economy.
• Ultimately, public sector entrepreneurship is a question of how to invest public resources in driving new technologies to the market. This involves balancing possible risks against anticipated rewards. Public sector entrepreneurs should seek to avoid, on the one hand, leaving good technologies under-developed and, on the other, pushing poor technical choices too far.
• Promote and support policies that encourage and foster the public sector to realistically manage and balance the risk and rewards involved in commercialization of public sector generated technologies.

For Senior Management (university president, R&D manager, etc)

• It is necessary to strike a balance between reliance on licensing out to existing companies and investing time and resources to create new companies.
• Carefully consider how starting new companies serves your institution’s primary mission of delivering social and economic goods to the public.
• Understand that creating spin-out companies is a high-risk strategy; a return on the investment cannot be assured. There are several critical factors for new companies that should all be in place for new companies to succeed.
• Incubators make sense when they can offer lower-than-market-rates to new companies by providing some scalable or subsidized services, or by pooling the risks among the many hosted companies.
• The economic risk of a portfolio of new technology opportunities can be systematically analyzed and managed. Do not allow political goals or an investor’s desire to make money a chance to override fundamental, commonsense, economic analysis or overwhelm a strict abidance with the institution’s mission.

For Scientists

• There are many factors that determine the feasibility and success of a new spinout company. The technology’s intrinsic value and your commitment to it are only part of the picture. If you can find an existing partner in the market, the chances are greater. If you are still convinced, even after failing several times to find a willing licensee of your technology, then it may be time to consider creating a company. As these matters arise, seek the guidance of your institution’s technology transfer office.

For Technology Transfer Officers

• It is necessary to strike a balance between reliance on licensing out to existing companies and investing time and resources to create new companies.
• Understand that creating spin-out companies is a high-risk strategy; a return on the investment cannot be assured. There are several critical factors for new companies that should all be in place for new companies to succeed.
• When creating spinout companies, always remain focused on your institution’s primary mission, such that the spinout will be consistent with, and also even serve, that mission.