Technology Transfer Through Spinoff Companies: CSIRO – 1985 to 1995
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l l l CONTENTS l Forward 3 l Executive surrunary 4 l Study report 5 Introduction 5 l Methodology 7 l Results 9 l Discussion 15 Future Directions 16 I References 18 Case study Preschem 20 J Case study Castec 2 1 J Case Study : ActionLaser 22 J J The Author This study was conducted while Lyndal Thorburn was Manager ( Policy and Liaison) J of the CS/RO Institute of Information Science and Engineering. She is now Director of Advance Consulting & Evaluation Pty Ltd. J J Acknowledgement The author acknowledges the constructive comments made on earlier drafts of this J paper by Brad Collis, Judy Marcure, David Symington and Garrett Upstill. J 2 J I l l l Foreword l ·1 CSIRO has an important role in transferring the benefits of its research to assist Australian l industry. It does this in a number of ways including collaborative and contract research and licensing technologies. The subject of this working paper, the generation of spin-off companies, is another way technology may be transferred from research organisations and l academic institutions but one which has received little study in Australia to date. This paper has been commissioned to better understand the creation of spin-offs from l CSIRO, and the Organisation's record relative to comparable institutions overseas. A better understanding of the recent experience of these companies will assist future policy l development in relation to spin-offs. It reveals a significant number of companies that have been established by CSIRO staff who I have based their enterprise primarily on knowledge developed within CSIRO projects. Further, these companies have been more successful than might be expected from general } patterns here and overseas. This study provides insights to enable the Organisation to reflect on, and to review, both its policy and practice in ways that will increasingly facilitate this form of technology transfer. J In addition, I believe that the study has broader implications of relevance to a number of J other organisations. J J .J CM Adam Deputy Chief Executive, CSIRO J J J 3 j I 1 l Technology Transfer Through Spinoff Companies: l CSIRO - 1985 to 1995 l Executive summary In some countries, notably the US and the UK, considerable attention is focussed on new 1 companies founded by individuals who leave universities or other research institutions to commercialise research done in those organisations. Such companies are labelled "spinoff companies". Much of the overseas research focuses on claims of benefits flowing from the l formation of spinoff comparues, including net economic impact and employment generation. By contrast, there has been little information published regarding the number and health of such companies in Australia, or to the factors and processes involved in their development. This paper reports research designed to address this deficit. It documents a study of spinoff companies formed from CSIRO between 1985 and 1995. This period was chosen primarily because of the reliability of data available. Forty two spinoff companies were identified from internal data. The following information l was gathered for this set of companies: • the scope of the research program which led to the spin off; • the commercialisation process and rationale for choosing a spinoff company as the most l appropriate technology transfer mechanism; • the chronology of events leading to the company's formation; • the personnel and intellectual property arrangements on establishment; J • any additional assistance (eg. laboratory or office space, or research assistance) provided by CSIRO; J • indications of any continuing interaction between CSIRO and the company; • current turnover and staff (where available). This report summarises the findings, draws some conclusions, and provides brief case J studies of some successful spinoffs. The study revealed that CSIRO has produced 42 spinoff companies since 1985, an average of 1.3 per year for every US$1 OOm of R&D funding J provided to CSIRO by the Government (appropriation funding). This rate of new company formation compares favourably with that of the larger US institutions which are well-known for spinoff creation. The typical CSIRO spinoff company is relatively small, is in the J manufacturing sector (although not all are manufacturers), and is in Sydney or Melbourne. This is in line with European experience - small, solid companies which enable technology to move into industry, but which rarely develop into global high fliers. Sometimes, J however, the spinoff companies have developed links into other sectors of the Australian economy and may be providing support to some very large companies. This could be fruitfully analysed in further research on these linkages, and the contribution of CSIRO's J spinoffs to business enterprise R&D in Australia. J 4 I 1 Technology Transfer Through Spinoff Companies: 1 CSIRO - 1985 to 1995 l Introduction 1 The formation of spinoff companies from universities and research institutions in Australia has received only passing attention as a mechanism of technology transfer. By contrast, in the US, Sweden and the UK there have been several studies of such companies' contribution ·1 to technology transfer, local and regional economic growth, and employment. Many of these studies concern universities, which have missions and operating constraints very different from those found in research institutions, particularly government funded research 1 laboratories. Nevertheless, for the purpose of this study it was felt that the process of commercialising research and technology is sufficiently similar to make comparisons useful. "Spinoff companies", in this context, are those formed by personnel who leave their university or research institution to set up an independent company which will commercialise some aspects of the institution's research. Definitions of spinoff companies vary, but for this study a company was included only if a researcher left CSIRO and there was formal technology transfer from CSIRO to the new company. Spinoffs therefore start small and are based upon ownership of some piece of intellectual property. In most overseas cases studied, the source institution also takes equity in the company, as a way of providing I input into the technology development. Claimed benefits ofspinoff companies J Studies of spinoffs from the US university, Massachusetts Institute of Technology (MIT), suggest that spinoffs contributed US$ I Ob annually and 300,000 jobs to the Massachusetts economy (Roberts & Malone, 1996), while spinoffs from the University of Cambridge are J claimed to contribute over 14,000 jobs and £890m per annum to the local economy (Segal, Quince & Partners, 1985). These figures, however, include "spinoffs of spinoffs" (ie. subsidiaries) which in the Cambridge case inflates the spinoff rate by a factor of five. The J US study also includes the vast network of suppliers of goods and services to these high technology companies. The direct impact of the spinoffs themselves in job creation is not clear but is certainly far less, though there have been some well known instances, such as 1 Digital Equipment Corporation (Etzkowitz, 1993) and Dell Computers (Kilcrease, 1995), in J which the spinoff companies have become multinationals with significant economic impact. The rationale for the formation of spinoff companies J There appear to be three main rationales identified in the literature for the formation of spinoffs (Stankiewicz, 1994). These are: J • the technology rationale, where start-ups are a means of transferring technology into the marketplace, often when an appropriate, established licensee cannot be found (Etzkowitz, J 1993); J 5 J t 1 • the institutional rationale, where start-ups are a means of resolving the tensions between academia and an individual who wishes to operate in a more commercial fashion 1 (Stankiewicz, 1994, Samson and Gurdon, 1993; Giannisis et al, 1991 ); • the profit rationale, where universities start fully or partly-owned companies to retain for the institution the financial rewards from commercialising their technology and control of where and how the technology is applied (Brown, 1985; Robe1ts and Malone, 1996; Smiler et al, 1990). Despite benefits from spinoff creation enumerated in the literature there is some question as l to whether spinoffs are as effective a method of technology transfer for R&D institutions or universities as other methods of transfer, eg. licensing of technology to an established industrial partner (Stankiewicz, 1994 ). Scientists who start spinoff companies, while being l well placed to develop technologies, may not understand aspects of consumer product development and marketing which are critical to successful commercialisation. Further, when transferred into a spinoff company the intellectual prope1ty may not be sufficiently developed to result in a product, process or service which can be taken to the market quickly. In some instances the intellectual property may address a general research problem rather than result in a specific product or technology. These are issues scientific research staff may not have the expertise to address. Promoting spin off companies The success of spinoffs overseas appears to be associated with individual institutional policies, rather than an overall governn1ent position. Even within any one country there may be significant differences in attitudes to spinoffs, even amongst prominent universities. For example, Stanford University and MIT in the USA and the University of Cambridge in the UK