Financial Performance Studies of University Spin-Off Companies (Usos) in the West Midlands
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ORBIT-OnlineRepository ofBirkbeckInstitutionalTheses Enabling Open Access to Birkbeck’s Research Degree output Financial performance studies of University Spin-Off companies (USOs) in the West Midlands https://eprints.bbk.ac.uk/id/eprint/40454/ Version: Full Version Citation: Jelfs, Peter (2019) Financial performance studies of Univer- sity Spin-Off companies (USOs) in the West Midlands. [Thesis] (Un- published) c 2020 The Author(s) All material available through ORBIT is protected by intellectual property law, including copy- right law. Any use made of the contents should comply with the relevant law. Deposit Guide Contact: email Financial performance studies of University Spin-Off Companies (USOs) in the West Midlands Peter David Jelfs Thesis submitted for the degree of PhD Birkbeck, University of London 1 Abstract Doubts remain over the true success of USOs in the UK, particularly those created outside the elite research universities. This thesis examines the financial performance of USOs generated from universities with a range of research intensities from a single region, the West Midlands, and considers whether observations can be rationalised using the frameworks of signalling and agency theories. While some results are in line with the expectations of the frameworks, others are not and demonstrate the complexity in attempting to explain the data, and the need to consider wider data sets and more explanatory factors. Universities with a strong research pedigree generated the most USOs in line with the theoretical frameworks, with the Russell Group universities dominant in the region. The data relating to survival of USOs is more difficult to rationalise and leads to a tentative conclusion that this is not a useful performance metric. External funding appears to be in line with prior studies e.g. Shane (2004) and the theoretical frameworks in that the total funding obtained by a university is positively correlated to its research strength, although the Russell Group member Warwick shows an exceptionally high level of funding obtained. Finally, the data on exits demonstrates the inability of all universities across the region to generate financially successful exits. In fact, the only financially successful exit was by a USO that had no external funding, demonstrating a lack of commercialisable technology created across the region. 2 Financial performance studies of University Spin-Off Companies (USOs) in the West Midlands Peter David Jelfs Thesis submitted for the degree of PhD Birkbeck, University of London I confirm that the work presented in this thesis is my own. Peter Jelfs, 31 October 2018 3 Dedicated to: Allison Jelfs Ivan Jelfs 4 Table of Contents Chapter 1: Introduction 1.1 Background and importance of USOs in the UK 14 1.2 Motivation and contribution to the literature 16 1.2.1 Unit of Analysis 19 1.3 Research questions 19 1.4 Thesis structure 20 Chapter 2: Literature Review 2.1 Introduction 22 2.2. Universities and entrepreneurship 22 2.3 Government policies on supporting USOs 24 2.3.1 US policies 25 2.3.2 UK policies 26 2.4 Definition of USOs 28 2.5 Heterogeneity and Typologies of USOs 32 2.6 Regional and institutional aspects 34 2.6.1 Regional aspects 34 2.6.2 Institutional aspects 36 2.7 Conclusion 38 Chapter 3: Theoretical frameworks and performance metrics 3.1 Performance metrics - background and importance 40 3.1.1 Views of university stakeholders on performance metrics 40 3.1.2 Wider USO performance metrics - literature review 42 3.2 Difficulties in measuring financial performance of USOs 45 3.3 Classification of USO financial performance measures 46 3.3.1 Descriptive performance measures 46 3.3.2 Growth-based performance measures 47 5 3.3.3 Survival measurements 48 3.3.4 Valuation and external investment measurements 49 3.3.5 Metrics chosen for this study 50 3.4 Literature review of USO financial performance studies – introduction 52 3.4.1 Summary of existing studies 52 3.4.2 Results from existing studies 54 3.4.2.1 Survival 54 3.4.2.2 External investment and IPO 55 3.5 Impact of finance on USO performance 58 3.5.1. Importance of capital acquisition 58 3.5.2 Public sector and the financing gap 59 3.5.3 Uncertainty and information asymmetry 59 3.5.4 Sources of capital 59 3.6 USO funding and performance 60 3.7 Theoretical frameworks 62 3.8 Signalling theory 65 3.8.1 Signaller 66 3.8.2 Signal 66 3.8.3 Receiver 66 3.8.4 Relevance of signalling theory for USOs 66 3.9 Agency theory – introduction 67 3.9.1 Agency theory in VC literature 68 3.9.2 Boundaries of agency theory 69 3.9.3 Potential limitations of agency theory 71 3.9.4 Agency theory – relevance to USOs 71 3.10 Conclusions 72 6 Chapter 4: Research Paradigm, Methodology and Design 4.1 Introduction 73 4.2 Research Paradigms and Methodology 73 4.3 Research Paradigm and Methodology for the Current Work 74 4.4 Methodology reviews of comparable studies 75 4.5 Research Design of the Current Study 75 4.6 Further research questions 76 4.7 Data sources 77 4.7.1 The university’s published accounts 78 4.7.2 The university’s technology transfer office (TTO) 78 4.7.3 Commercial databases 79 4.7.4 Specialist databases 79 4.8 Finalising and refining the USO database 80 4.9 Collection of performance data 80 4.10 Case Study 80 4.11 Analysis of data 81 4.12 Summary 82 5. Financial Performance Analysis of USOs: A Case Study of the University of Birmingham 5.1 Background 83 5.2 Introduction to UoB 83 5.3 Constructing the USO database 84 5.3.1 Introduction 84 5.3.2 Sources of data 86 5.3.3 Refining the database 89 5.3.4 Independent source validation 90 5.3.5 Financial performance data 90 5.4 Results 91 5.4.1 Survival measurements 92 5.4.1.2 ‘Twilight’ USOs 95 5.4.1.3. Analysis of survival data 95 7 5.4.2 Third party investment results 98 5.4.3 USOs achieving an exit 102 5.4.3.1 Mermaid Diagnostics Limited 102 5.4.3.2 Entice Technology Limited 102 5.5 Discussion of the performance data 103 5.5.1 Survival results 103 5.5.2 External investment results 104 5.5.3 Exit results 104 5.6 Conclusion 104 6. Financial Performance Data from Spin Off Companies from other West Midlands universities 6.1 Background 106 6.2 Plate Glass universities - Aston and Keele 107 6.2.1 Constructing and refining the USO database 108 6.2.2 Results 111 6.2.3 Survival measurements 113 6.2.4 Third party investment results 115 6.2.5 USOs achieving an exit 117 6.2.5.1 Aston Molecules Limited 117 6.2.5.2 Aston Photonic Technologies Limited 118 6.2.5.3 Summary – Plate Glass universities 118 6.3 Post-92 Universities - Coventry University and Staffordshire University 119 6.3.1 Constructing and refining the USO database 119 6.3.2 Results 123 6.3.3 Survival measurements 125 6.3.4 Third party investment results 126 6.3.5 USOs achieving an exit 128 6.3.6 Summary 128 8 6.4 University of Warwick 128 6.4.1 Constructing and refining the USO database 129 6.4.2 Results 132 6.4.3 Survival measurements 134 6.4.4 Third party investment results 137 6.4.5 USOs achieving an exit 140 6.4.5.1 Neurosolutions Limited 140 6.4.5.2 Warwick Effect Polymers Limited 141 6.5 Summary 141 Chapter 7: Analysis of Results within the West Midlands region 7.1 Classification data 144 7.1.1 Number of USOs 144 7.1.2 USO formation by year 145 7.1.3 USO Principal Activity 148 7.1.4 Number of USOs by research strength of university 149 7.2 USO Survival 150 7.2.1 Aggregate Failure Rate 151 7.2.2 Timed failure rate 152 7.2.3 Range of times to failure 154 7.2.4 Failures per year 155 7.2.5 Aggregate Rate – Twilight USOs 156 7.2.6 Aggregate Rate – twilight and dissolved USOs 157 7.2.7 Externally-funded failures 158 7.2.8. Survival time compared to funding 159 7.3. External Investment into USOs 160 7.3.1 Rate of attracting funding 161 7.3.2 Amounts of Funding raised 162 7.3.3 Funding obtained per USO funded 163 7.3.4 Funding obtained per USO 164 9 7.3.5 Types of investor 165 7.3.6 Funding by research strength of university 167 7.4 Number of exits 168 7.4.1 Financial benefit to universities 169 7.4.2. Percentage of successful exits 170 7.4.3. Cash returns to university compared to funding 171 7.5 Conclusion – West Midlands region 172 8. Comparison of results with existing studies 8.1 Introduction 174 8.2 USO survival studies 175 8.3 External investment and exit 177 8.4 Conclusion 184 9. Conclusions and final discussions 9.1 Summary of key findings 185 9.2 Research question a) 185 9.3 Research question b) 186 9.4 Research question c) 187 9.5 Research question d) 187 9.6 Research question e) 187 9.7 Research question f) 187 9.8 Research question g) 188 9.9 Research question h ) 189 9.10 Contribution to theory 189 9.11 Additional contributions to the literature 191 9.12 Implications for USO stakeholders 192 9.12.1 USO management 192 9.12.2 Governments and other policy makers 192 9.12.3 External investors 193 10 9.12.4 Universities 194 9.13 Limitations and suggested further work 194 11 List of illustrations Table 1.1 Range of university support for USOs (author-generated) 19 Table 2.1 Main UK government initiatives to encourage university entrepreneurship 23 Table 2.2 Definitions of USOs in the literature 26 Table 2.3 USO typology analysis 30 Table 3.1 Stakeholder views on performance metrics 41 Table 3.2 Measures suggested by TTO personnel 41 Table 3.3 Performance metrics taken from Rasmussen et al.