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Case professor uncovers secrets of successful university spinoffs

The origins of such giants as Google, Lycos and Genentech began in the labs or minds of university researchers.

Image: Academic Entrepreneurship: University Spinoffs and Wealth CreationThey eventually spun off into venture companies that grew into major businesses. What's the secret? Case Western Reserve University's Scott Shane is close to finding it.

Shane, Case professor of economics at the Weatherhead School of Management, chronicles the rise of university spinoffs in the new book, Academic Entrepreneurship: University Spinoffs and Wealth Creation (from Edward Elgar Publishing's New Horizons in Entrepreneurship series).

Drawing from his seven years of research, Shane—who is also Case's academic director for the Center for Regional Economic Issues, a group that ignites new ideas to boost at economic development—defines the university spinoff as a company founded to exploit the intellectual property created in the academic setting.

As he tracked the rise of these ventures, Shane found that university spinoffs are remarkably high-performing companies. His research shows that a spinoff from a typical university is 108 times as likely to go public as the average new company.

He also uncovered that most university inventions are embryonic stage, or what he describes as two stages before the traditional venture capital seed stage. He found that transforming the invention into a commercial new product or service takes an average of $4 million in investments—and as much as four years of additional development beyond the university findings.

The spawning of these companies has impact on local and national economies, benefits to society and the university's ability to raise income and move forward its teaching and research missions.

"University spinoffs have become an important part of the economic landscape," Shane said.

Academic spinoffs have early roots in the formation of the modern university in Germany during the 18th century as research discoveries began to trickle into the mainstream. Lab findings were more frequently turned into marketable products and services to meet government and industrial needs during World War II and the ensuing Cold War.

But, it wasn't until the passage of the Bayh-Dole Act in 1980—which gave universities the property rights from federally funded research—that a gush of new developments has flooded the market.

Prior to the act's passage, only a handful of new companies formed each year, but in 2000 more than 500 business ventures were launched.

A mix of factors have made some universities more successful than others at turning research discoveries into successful new businesses, according to Shane. These influences range from the cultural climate receptive to spinoffs—that, in turn, generate a cadre of role models of successful entrepreneur—to the skills of personnel at the university's tech transfer offices to general university policies.

Though he describes some of the secrets to successful university spinoffs, Shane's book leaves the reader with questions. Instead of answering all the questions about the impact of spinoffs, he proposes future exploration that will add to an understanding of how these ventures affect universities, why some spinoffs are formed and succeed and what influences the permanent formation of these spinoffs have on the university.

"Our knowledge of spinoffs is still fragmentary and limited," he said.

Shane added that he hopes his book is the first step toward understanding the spawning of spinoffs, and he hopes that others will take up the baton for an in-depth and systematic examination of this phenomenon that is taking hold globally.

 

About Case Western Reserve University

Case is among the nation's leading research institutions. Founded in 1826 and shaped by the unique merger of the Case Institute of Technology and Western Reserve University, Case is distinguished by its strengths in education, research, service, and experiential learning. Located in Cleveland, Case offers nationally recognized programs in the Arts and Sciences, Dental Medicine, Engineering, Law, Management, Medicine, Nursing, and Social Work. http://www.case.edu.