Management of Technology 2006



第 13 章 The Entrepreneurial Environment for Science-Based University Start-Ups in the United States: Comparisons to and Lessons for Japan with Annotated Bibliography on Innovation Policy and Entrepreneurialism with Notes and Commentary by Brian T. Edwards

DePaul University Kathryn Ibata-Arens, Ph.D


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※本章の著作権は,本章の著者に帰属する.本章は「研究開発型ベンチャーと支 援専門家との戦略提携」研究事業の一環として作成したものであり,今後,論文等 で広く公開する方針である.本章は,こうした今後の公開のための中間成果物とし ての位置づけであり,転載・無断引用を禁じる.
IBATA-ARENS Working Paper: METI MOT / NAIST Survey Project Do not cite or quote without express written permission of author


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summary This working paper provides an overview of the national innovation system in

the United States as it relates to providing an environment conducive to R&D type

(science) university-based new business creation. Major factors underlying the United

States capacity for innovative new science and technology based new business

creation include: the nature of the market, scientific seeds, commercialization,

venture capital, policy, patent system, and socio-political climate. Comparisons to

similarities and differences with the entrepreneurial environment for new business in

Japan are highlighted. The paper concludes with comments on current policy

initiatives in Japan and the lessons that can be drawn from the policy history in the

U.S. Supplementary materials include a brief summary (and sample survey) of a 2006

survey to R&D type university start-ups in the U.S., based on a similar survey to

Japanese start-ups in 2005 by METI and an annotated bibliography reviewing the

literature in the United States on innovation policy and university-based

entrepreneurial activity in the United States.


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1 Introduction One way of thinking about the potential and ability of countries, regions and

firms for innovation and new business formation is in terms of “push” (e.g. national

intellectual property, tax policy) “pull” (market), “drag” (hindering progress) and

“jump” (targeted strategies to speed up the trajectory of growth) factors. Table: Life

Science National Innovation Systems in the US and Japan: National Level Push, Pull,

Drag and Jump Factors outlines the components of the national innovation systems in

the United States and Japan for entrepreneurship and new business formation. Life Science National Innovation Systems in the US and Japan: National Level Push, Pull, Drag and Jump Factors FACTORS Market Scientific Seeds Commercialization Venture Capital Policy: Patent System Socio-Political: Culture US Pull Push Push Push Push Push Entrepreneurialism and Jump Religious Lobby and Anti-Stem Cell Drag Religious Bias-Free Policy Climate JAPAN Pull Drag Drag Drag Push Drag Anti-Entrepreneurial Drag


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Among university start-ups, a primary source of new business creation in life

science, the U.S. leads, with over 400 new university start-ups in 2004 alone.

University start-ups have a very high success rate in the United States. To date, over

two-thirds of all university start-ups remain in business. In Japan, the total number of

university start-ups rose from 1132 in 2003 to 1364 in 2004 (232 new) and 1503 in

2004 (239 new).2


Daigakuhatsuvencha, p. 5.


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2 Market The market acts as a pull factor in both economies, the baby boomer

generation in the US and the aging population in Japan have increased demand for

healthcare products and services, biopharmaceuticals and medical devices. Likewise,

the size of the biotech market in terms of sales and employment has been growing at a

rapid pace in both countries.


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3 Scientific Seeds At its core, life science is a scientific enterprise, highly dependent on high

quality research generating patentable science and technology. This research and

development is found primarily in quality graduate level research programs and their

related institutes at research-oriented universities. Private research labs, often

funded by large corporate giants (such as pharmaceutical and chemical firms) as well

as top tier government research labs provide other sources of scientific seeds. The

number of patents and scientific papers generated by universities are indicators of this

scientific potential. For example, Graph: University (Life Science) Scientific

Publications shows the rankings of top scientific article generating universities.

Harvard University and Tokyo University top the list, followed by UCLA, Michigan

and Toronto Universities. The United States dominates 12 of the top 20 spots, with

schools including Stanford University, University of California Berkeley and Johns

Hopkins University. Japan is also represented in the top 20, with Kyoto University

(7th), Osaka University (15th), and Tohoku University (16th).


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図表 1-1 世界の自然科学発表論文数にしめる各国主要大学のシェア Source: Thompson Scientific.

In terms of patents, Tables 3 and 4 show top patent generating universities in

the US and Japan. The University of California system (424), California Tech (135)


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and University of Michigan (132) occupy the top 3 slots in the United States. In Japan,

Osaka University (22) tops the list, followed by Keio University (13) and Tohoku

University (11).

Large firms, especially pharmaceutical and chemical firms also play a role in

generating scientific seeds in the U.S. For example, Monsanto, developer of a wide

variety of bio-agricultural products (its Roundup brand of herbicide holds a virtual

monopoly), has spawned a number of start-ups. While in electronics, Japanese firms

generate as many patents as American firms, in emerging sectors such as bio, they lag

behind. Many of these start-ups are led by former executives and research staff.

American firms generate many more patents than Japanese firms (leading Japanese

critics to observe that the Japanese pharmaceutical industry has a not-invented-here

syndrome). Scientific Seeds: Top US Universities by Patents

Number of Patents in Rank in 2004 2004 U.S. University




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1 2

424 135

University of California California Institute of Technology Massachusetts Institute of

5 14 (4)

3 4 5 6 7 8 9 10

132 101 94 75 67 64 58 52

Technology University of Texas Johns Hopkins University Stanford University University of Michigan University of Wisconsin University of Illinois Columbia University

20 (1) 5 5 9 (8) 13 (5) 2 16 (2) n/a

Source: Compiled from United States Patent and Trademark Office (2004 data) and

the Chronicle of Higher Education’s “Tech Transfer Scorecard”.

Scientific Seeds and Commercialization: Top Japan Universities by Patents and Start-Ups

2004 年国内大学別特許登録 件数/総合ランキング 順 位 1 2 ベンチャー企 出願人 件数 業累積設立 論文被引用数 数 大阪大学 慶應義塾大学 22 13 71 50 10.37 7.39


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3 3 5 6 7 8 8 8 11 20 20

東北大学 東海大学 東京大学 名古屋大学 金沢工業大学 広島大学 新潟大学 東京工業大学 九州大学 早稲田大学 京都大学

11 11 10 8 7 6 6 6 5 3 3




10.49 8.7

7.14 8.49 39 44 75 59 10.21 6.93 7.85



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4 Commercialization TLOs - Having the capacity to generate scientific seeds and subsequently

obtain patents does not automatically translate into new firm start-ups, however.

Universities, for example, a major source of new technology, must have the will and

wherewithal to commercialize science and technology, either through encouraging

faculty new firm start-ups, or via licensing the technology to existing firms. This

function is usually managed by the technology licensing office and/or related

technology licensing organization (TLO). In the United States the quality of TLOs in

terms of commercialization rates (their ability to get university patents licensed,

developed and marketed) varies widely. There are approximately 232 university TLOs

in the United States (AUTM 2004 data).

No national TLO model exists, though several top universities have model

TLOs. The epitome of best practice in this regard is the WARF (Wisconsin Alumni Research Foundation) model of University of Wisconsin, Madison.3 Established and

managed by alumni, WARF was instrumental in licensing the technology to produce

Science and Technology in Congress, September 2001.


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Vitamin D in the 1930s, which in addition to revolutionizing the treatment of rickets

(which caused spinal deformities) in children, netted millions in revenue, much of

which has been donated to the University of Wisconsin system. It should be noted

that WARF was established after university administrators refused to fund the patent

application for the vitamin D technology. The WARF model goes one better than a

standard TLO, through funding frontier research that might have commercial

potential in addition to operating autonomously from the university. More recently,

the isolation of human embryonic stem cells in 1998 by Dr. James A. Thompson at

University of Wisconsin, Madison was also funded in part by WARF.

Other top universities falter at commercialization due in part to university

administered TLOs and licensing offices prioritizing maximizing (short-term)

university revenue and/or protecting the university from potential liabilities. 4

4 Andrew A. Toole, “Understanding Entrepreneurship in the US Biotechnology Industry: Characteristics, Facilitating Factors, and Policy Changes” in David M. Hart, ed. The Emergence of Entrepreneurship Policy: Governance, Start-ups, and Growth in the U.S. Knowledge Economy, Cambridge University Press, 2003; Lach, Saul and Mark Schankerman. “The Impact of Royalty Sharing Incentives on Technology Licensing in Universities.” (January 4, 2006); Myers, Robert A. “Challenges for Japanese universities’ technology licensing offices: what technology transfer in the United States can tell us”. Center on Japanese Economy and Business Working Paper Series, Columbia University, based on presentation given to the Institute of


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University licensing offices are often controlled by legal staff, and prolonged licensing

deal negotiations often sap the life out of potential private sector deals. In sum,

UW-Madison has a TLO that works, while many other top universities have TLOs

that don’t.

Japan began to acknowledge the role of TLOs in the late 1990s, and by the

early 2000s had established a number of TLOs, though success so far has been spotty.

After government reform to encourage universities to get into the technology

licensing business, for example in reducing patent fees to government “approved”

TLOs, in the late 1990s, the number of TLOs shot up from less than 5 in 1998 to 35

in 2003. 5

University Start-ups - Another way that universities contribute to the growth

of new business in emerging sectors, including life science is by encouraging university

start-ups. University start-ups are defined here as a new business established using
Intellectual Property in Tokyo, Japan (March 10, 2005). Jon Sandelin, “Japan’s Industry-Academic-Government Collaboration and Technology Transfer Practices: A Comparison with United States Practices”, Journal of Industry-Academia-Government Collaboration, No. 3; Yuko Harayama, “Japanese Technology Policy on Technology Transfer: Development of Technology Licensing Organizations and Incubators” Tech Monitor, Mar-Apr 2004.


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science or technology developed at a university.6 A university faculty may also take

an equity stake in the new business, and even be a founder of the new company. In the

US of the total number of start-ups at leading “start-up” universities such as MIT

and Stanford University a growing proportion of all new start-ups in recent years have

been bio. Likewise, in Japan, about 1/3 of all new university start-ups are in bio, with

the number increasing each year. At universities such as Osaka, Tokyo and Kyoto,

more than half of all new start-ups are bio7 Commercialization: Top Ten U.S. Universities by Start-Ups (2004)

Rank 1 2 3 4

U.S. University Massachusetts Institute of Technology University of Illinois Georgia Institute of Technology California Institute of Technology

Start-Ups 20 16 15 14

More than three thousand university start-ups were in existence by 2004, according to the AUTM Survey. AUTM Survey 2004; Djokovic, Djordje and Vangelis Soultaris. “Spinouts from academic institutions: a literature review with suggestions for further research.” Cass Business School (June 2004); Di Gregorio, Dante and Scott Shane. "Why do some universities generate more start-ups than others?" Research Policy (2004).

METI HS 18 Daigaku bencha ni kan suru kiso chosa hokoku sho pp. 10, 18


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5 6 7 8 9 10

University of Michigan Duke University University of Pittsburgh Stanford University University of Colorado University of Florida

13 10 10 9 9 8

Source: AUTM U.S. Licensing Survey, FY 2004 Survey Summary, The Association of University Technology Managers, 2005.

Incubators - Another way that university science and technology is

commercialized is through nurturing new university related businesses within

university-sponsored incubators. Like TLOs, there is wide variation in the quality of

incubator facilities. In the US, incubators are of three kinds: university, private sector

and government. According to the National Business Incubator Association there are

1114 business incubators in the US. Of the 1400 in all of North America (U.S.,

Canada, Mexico), 25% are university sponsored.


It is estimated that between 75% to

90% of incubators in North America are non-profit with an economic development

8 National Business Incubator Association,


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focus. Most American incubators provide a variety of services above and beyond

merely offering firms low cost rental space, including introductions to the local VC

community, service providers such as patent attorneys and accountants (sometimes

on a pro-bono basis), and marketing assistance. Most incubators have a full-time

manager whose job it is to support tenant firms and help them grow and eventually

“graduate” out of the incubator and continue on their own. Leading incubators also

coordinate community building social events as well, adding to the potential for a

creative, innovative milieu within incubators, comprised of member firms and the

service and other networks to which the incubator is connected.9 Studies have found

that these quality value-added services have a positive impact on tenant firm

performance. According to the NBIA, of all start-ups, those that benefit from being in

incubators are most likely to survive (87% of incubator tenants are said to have

survived). The Small Business Administration (SBA) in the United States was

instrumental in encouraging the establishment of incubators in the U.S., which in 1980
Wiggins, Joel and David V. Gibson. "Overview of US incubators and the case of the Austin Technology Incubator". Int. J. Entrepreneurship and Innovation Management (2003) 3, 56-66.


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had only 12 incubators nationwide. Studies have also shown that incubators also contribute to the growth of university research parks.10

In Japan, the number of incubators is smaller, with the bulk of them being

government-sponsored, mostly by city and prefecturial governments. By 2002 the

Japan Association for New Business Incubation Organizations (JANBO) estimated

that there were 325 incubation facilities in Japan. The vast majority of them were

established after 1999, after a variety of incentives (e.g. subsidies) were put in place

by METI and MEXT to encourage incubator formation. According to a survey by

JANBO in 2002 of 113 incubators, nearly 80% of incubators were non-profit. In both

types of incubators, more than a third of tenant firms were software start-ups.11 One

of the major weaknesses in Japanese incubators is the lack of managerial expertise and

other support services provided to tenant firms. In fact, many incubators do not have

full-time managers, or managers at all. According to JANBO, less than 10% of

incubators surveyed offered tenants support services. “Support” in this case was
Link, Albert N. and John T. Scott. "US University Research Parks." J Prod Anal (2006) 25: 43-55. 11 Inkyubeshon shisetsu no jittai chosa 2002 nigatsu.


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usually limited to providing firms with information. The few incubators that have

managers at all tend to be (albeit well-intentioned) career government bureaucrats. In

a 2005 survey by METI to 371 university related start-up firms, few respondents

found incubators to be helpful in any service other than providing the firm space.12

In the US, over 74% of new ventures are formed near the universities where

the technology originates. In recent years, new ventures have become

more-and-more science based. For example, in VC-intensive industries in the United

States, biotechnology has become the leading source of growth in employment, and

second only to software in sales growth. As the American software industry continues

to move offshore, it is expected that the bio industry will become the primary engine

of growth in the future (See Tables: Sales Growth in VC Intensive Industries,

Employment Growth in VC Intensive Industries) In Japan, bio start-ups outpace other

types, comprising nearly 38% of all university start-ups (total 1,112 in 2005), compared to a total of 29.9% in software.13

12 13

METI 2005 Daigaku hatsu bencha chosa, Heisei 17, roku gatsu, Keizaisangyosho. METI Daigaku hatsu bencha ni kan suru kiso chosa hokoku sho Heisei 17 nen 6


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Sales Growth VC Intensive Industries 2001 – 2003 (Top 5)

VC sales growth Computer software 31%

Total sales growth -2%

Biotech Healthcare services

28% 26%

22% 25%



9% 5%

Computer hardware and 12% services

Source: Venture Impact 2004, Global Insight Survey, NVCA.

Employment Growth VC Intensive Industries 2001 – 2003 (Top 5)

VC employment growth Total growth Biotech Computer software Retailing/media 23% 17% 12% 5% -8% -1%


gatsu, zu 2-3: saikin setsuritsu sareta daigakuhatsu vencha no jigyo bunya, p. 9


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Healthcare services


9% -14%

Computer hardware and -1% services

Source: Venture Impact 2004, Global Insight Survey, NVCA.


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5 Venture Capital One of the biggest hurdles for a new business start-up is amassing the capital

to grow and build the business. For science-based start-ups, the initial capital

requirements are often much higher than in other sectors such as software, due to the

need for laboratory and testing equipment, and often wet-lab space.

The term venture capital or “VC” describes funds invested in new, unproven

businesses. An “unproven business” is a new enterprise that has an unproven track

record in sales revenue and profit (in fact, it could merely exist as an idea in the mind

of the founder). Broadly, VC is a type of “private equity” investment in which an

equity stake in a firm is taken in exchange for cash investment. In Europe, VC is often

referred to as private equity.

Most importantly, venture capital involves hands-on venture management on

the part of the venture capitalist. The venture capitalist not only provides money, but

also relevant know-how and expertise (primarily management, but could also be

technical). Venture capitalists also provide new entrepreneurs access to their


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personal networks, which has benefits for new firms including introducing new board of

advisor members and qualified service providers. For this reason, individual venture

capitalists and venture firms tend to invest mainly in firms in their immediate locales

(i.e. they tend to be region-specific). Surveys by the NVCA confirm that VC firms

tend to invest primarily in their immediate locales, and invest in other places as part

of a “syndicate” of investors, where another firm takes the lead investment position

(and therefore the greatest risk).

There are generally six stages in VC investment, from the first idea (scientific,

technological seeds, initial business model concept) to exit (when investors cash out):

pre-seed, seed (or “start-up”), early, expansion, later and exit.

Before a firm becomes a firm, it exists in the minds of the potential

entrepreneur (e.g. through the discovery, invention of scientific or technological

seeds or the development of a new business model). Particularly in high-tech

industries, new entrepreneurs seek financial support to flesh out the idea into a

product prototype design, or to demonstrate that their new product idea has market


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appeal. This pre-seed stage is often described as the one in which the concept for the

new business is validated as a good one, “called the proof-of-concept”.

Once a new entrepreneur has decided (in the best case scenario, after

consulting with qualified experts in the area and evaluating the potential market

impact and competition in that product space) to go ahead and start a business – he

or she starts to put together the people and material resources (infrastructure) of the

new firm. This seed or start-up process usually takes up to 18 months (shorter for

software, longer for bio). In the next, early stage after formation, the firm might be

producing prototypes or beta versions of its product, and introducing its product to

market. The firm is usually 1 – 3 years along since inception. By the expansion stage,

the firm has begun generating sales revenue, though not necessarily profit and also

receiving critical market feedback, helping it to improve its product and expand sales.

By later stages, the firm has been around (on average) for at least 3 years and has

earned a steady stream of revenue. It may even be profitable. Once a venture firm has

entered the later stage of its development, its investors often seek an exit – cashing


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out on their investment. This happens through initial public offering (IPO), an

acquisition of the firm by another firm, re-sale of firm stock to a third party, or

buy-back of equity by the firm’s principals. In most cases, the exit stage (particularly

if the firm is going public) requires a cash infusion, for example for the services of

lawyers and auditors.

Venture capital has played a major role in the United States in supporting new

business creation and growth. In life science, VC has fueled rapid growth in some of

the nations stellar start-ups including Genentech. However, a common misperception

of the role of VC in the US attributes the greatest credit to venture capital firms, also

referred to as “classic VC”. This is a misnomer really, since the bulk of venture

capital for new firm start-ups is actually of the “angel” variety. That is, most seed to

early stage venture funding comes from high net-worth individuals, often successful

entrepreneurs themselves. Further, after the collapse of the tech bubble in 2000,

classic VC in the US became risk averse. That is, while in biotech the amount of funds

per investment has risen dramatically, the number of deals has dropped considerably.


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For example, in 2006, the majority of “classic” or institutional VC went to

expansion or later stage firms. At the peak of the VC boom (1999-2000) in the United

States, nearly $95 billion dollars was invested in over 6000 investments (or “deals”).

After the tech collapse of the “dot.coms” in the U.S., investments were down to $22

billion by 2002 and the number of investments also experienced a precipitous decline

– to just over 2300 deals. 2006 has shown some recovery, but the United States has

yet to return to the 2000 peak levels.14

This description of the activities of venture capital firms only paints a very

small part of the picture of the process of getting a new business from

concept-to-market-to-profit. In reality, so-called classic VC, that provided by VC

firms, represents a tiny proportion of the funds that it takes to get a firm up and

running. According to the Global Entrepreneurship Monitor (2005 Executive GEM

Report), classic VC represents only an average of 13.4% of classic and informal VC

put together in 25 GEM countries. In other words, the bulk of start-up capital for new


2006 Venture Capital Industry Report, Dow Jones Venture Source.


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firms comes from informal sources, including the traditional “4 Fs”: Founders,

Friends, Family and Fools (or foolhardy strangers).

Angels vs “classic” VC - It is estimated (since angel finance is often informal,

i.e. non-contractual, in nature) that the 250,000 angels in the U.S. invest in 90% of

new firms at their earliest stages of conception. The amounts are not huge – $2 million

or less per investment – but the number of firms impacted by angel investors is

significant – upwards of 30,000 – 50,000 per year.

In contrast, the 1417 “active” (measured by Dow Jones as the number of firms with at

least one investment between 2000 and 2006, See 2006 VC Industry Report), the

bulk of which (942, or 66%) invested in 4 or fewer firms. In 2005, there were a total of

only 2239 “deals” or investments. Further, the angel market is estimated at twice the

size of the classic VC market, $100 billion (angel) versus less than $50 billion

(classic).15 Table: Angels vs. Classic VC provides an overview: Table: Angels v. Classic VC

William F. Payne, “Angels Shine Brightly for Start-up Entrepreneurs”, Kauffman Thoughtbook 2004, Kauffman Foundation; Andrew Young, “Angel Finance: the Other Venture Capital” January 2002, Paper University of Chicago Graduate School of Business.


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# of Firms invested year Angels 250,000 (SBA) Venture Capital 3K 1417* 30 – 50 K per

Amount per dealStage

Market size

$2 less


or 90%

of $100 bil. bil.

seed/start-ups ($30 annually)

Up to 100s of Expansion/ millions later

$48.3 bill ($ 22 bil.


Compiled from NVCA, SBA and Kauffman Foundation data.

Some alarming differences can be seen when comparing the state of VC in the

U.S. to other industrial centers, particularly Japan. Cumulative VC in the United

States, that is venture capital investment that has yet to exit, remains the worlds top,

closely followed by cumulative investments in Europe. Far behind are cumulative VC

investments in Japan. See Graphs: Cumulative VC Investment in Europe, Japan and

the United States and Trends in VC Investment in Europe, Japan and the United



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Cumulative VC Investment in Europe, Japan and the United States


日米 欧VC 投資残高の推移
2,692 2,387 2,729 2,747 2,789


2,500 2,170 2,000 1,719 1,500 1,485 1,307 1,932


500 82 2000 2001 2002 2003 2004 102 100 97 88




Source: 平成 17 年度ベンチャーキャピタル等投資動向調査報告、Venture

Enterprise Center,


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Trends in VC Investment in Europe, Japan and the United States


日米欧 VC 投資額の推移



800 653 600 486 400 231 200 23 2000 2001 2002 2003 2004 2005
(資料)(財)ベンチャーエンタープライズセンター 平成17年度ベンチャーキャピタル等投資動向調査報告 および 2005年の米国はNVCA Money Tree (1$=107円換算)、2005年の欧州はEVCA Final Activity Figures 2005 (1ユーロ=139円換算)による。

513 438 338 384 202 17 16 404









Japan remains at the lowest rankings of all the 27 OECD countries plus the European Union, behind Hungary and above only the Slovak Republic.16

See Figure 1, “Venture Capital Investment by stages as a share of GDP, 1999-2002, Science Technology Industry, Venture Capital: Trends and Policy Recommendations, undated report, OECD.


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6 Policy National level policies supporting new business creation in emerging sectors

have played an important role in facilitating growth in new industries. Apart from

signaling national-level support for new businesses in frontier sectors, specific

measures have provided incentives and impetus for new business formation. In the

United States, for example, the role of SBIRs and STTRs in the earliest stages of

growth in high technology and science-based new firm start-ups has been critical in supporting new businesses.17 Other key policies have included Bayh-Dole (1980), the

Small Business Innovation Development Act (1982) (SBIRs), Orphan Drug Act (1983),

the Small Business Tech Transfer Act (1992) (STTRs), and the FDA Critical Path

Initiative (2004).

Bayh-Dole (1980) – The intent of Bayh-Dole was to establish patent policy

that would encourage patent holders to collaborate with the private sector.

Specifically, the intellectual property rights of inventions resulting from Federal

The Advanced Technology Program (ATP), created in 1990, has also had a positive impact on technology commercialization. Fogarty, Michael S., Amit K. Sinha and Adam B. Jaffe. “ATP and the Innovation System. A Methodology for Identifying Enabling R&D Spillover Networks.” National Institute of Standards and Technology (October 2006) GCR 06-895.


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funding would remain with the inventor under certain conditions. The conditions

included prioritizing small business in the granting of licensing rights to commercialize

technology. The institutions targeted by Bayh-Dole were primarily federally-funded

research institutes, and secondarily universities.

Since Bayh-Dole was enacted, university patents and start-ups have both

increased significantly.18 Universities have also increased their licensing revenue,

over the long term. For example, Stanford University’s $400 million in royalty income

between 1991 and 2000 (compared to $4 million for the period 1981 - 1990) can be

traced to disclosures made back in the 1970s.19

Lita Nelson, “The Rise of Intellectual Property Protection in the American University,” Science, March 6, 1998, Vol. 279, Issue 5356; Sampat, Bhaven N. “Private Parts: Patents and Academic Knowledge in the Twentieth Century” Working Paper. 19 Sandelin, undated. Some have cast doubt regarding the true impact of Bayh-Dole, for example by arguing that while the number of patents increased after Bayh-Dole, the quality of patents declined. Sampat et. al. re-examine this thesis using longer-term patent data in Bhaven N. Sampat, David C. Mowery and Arvids A. Ziedonis, “ Changes in university patent quality after the Bayh-Dole act: a re-exmination,” International Journal of Industrial Organization, 21 (2003) 1371-1390, Elsvier. See also David C. Mowery, Richard R. Nelson, Bhaven N. Sampat and Arvids A. Ziedonis, “The growth of patenting and licensing by U.S. universities: an assessment of the effects of the Bayh-Dole act of 1980”, Research Policy 30 2001 99-119; David C. Mowery and Bhaven N. Sampat, “Universities in national innovation systems” chapter draft;


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University Licensing Activity
14,000.00 12,000.00 10,000.00 8,000.00 6,000.00 4,000.00 2,000.00 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Invention disclosures received New U.S. patent applications U.S. patents granted Startup companies formed Revenue-generating licenses New licenses executed

Time Series
Source: Figure 1: National Science Foundation, Division of Science Resource

Statistics 2006,

SBIRs (1982) –

The Small Business Innovation Research Program (SBIR) was

established in 1982 in order to stimulate public-private sector innovation by requiring

eleven major federal departments and agencies to allocate a small percentage of their

budgets to award to American-owned small business.20 The largest SBIR granting

Scott J. Wallsten, “The effects of Government-Industry R&D Programs on Private R&D: the Case of the Small Business Innovation Research Program”, The RAND Journal of Economics, Vol. 31, No. 1 (Spring 2000), pp. 82-100; Joshua S. Gans and Scott Stern, “When Does Funding Research by Smaller Firms Bear Fruite?: Evidence from the SBIR Program” Economic Innovation and New Technology, 2003, Vol. 12(4), pp. 361-384; Audretsch, David B., Albert N. Link and John T. Scott. “Public/Private Technology Partnerships: Evaluating SBIR-Support Research.” Research Policy


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agencies include the Department of Defense (DoD), the National Science Foundation

(NSF) and the Department of Health and Human Services (DHHS, within which the

National Institutes of Health, NIH, resides). Awards are granted in two phases:

start-up (up to USD 100,000) and phase two (up to USD 750,000). In 2005, for

example, the Department of Defense provided over USD 1 billion to small businesses

through SBIR grants.21

Phase one corresponds to the VC proof-of-concept, whereby funds are

granted for about 6 months to test the merit or feasibility of the technology. Phase

two awards support further R&D and testing, at this stage aiming for

commercialization. Curiously, long-term studies of SBIR recipients have found that

firms receiving only phase one support have been more successful in

(January 2001); Toole, Andrew A. and Dirk Czarnitzki. “Biomedical Academic Entrepreneurship Through the SBIR Program.” (June 2005); Toole, Andrew and Calum Turvey. “The relationship between public and private investment in early-stage biotechnology firms: Is there a certification effect?” Prepared for presentation at the International Conference on Agricultural Biotechnology, Ravello, Italy (July 6-10 2005); Cooper, Ronald S. “Purpose and Performance of the Small Business Innovation Research (SBIR) Program.” Small Business Economics (2003) 20: 137-151; Siegel, Donald S, Charles Wessner, Martin Binks & Andy Lockett. “Policies Promoting Innovation in Small Firms: Evidence from the US and UK” Small Business Economics (2003) 20: 121-127. 21


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commercialization than those seeking and obtaining phase two awards. One might

interpret this as the government supporting firms in later stages that do not otherwise

have market viability.

STTRs (1992) – The Small Business Technology Transfer (STTR) program is

similar to the SBIR program in that the goal has been to promote the

commercialization of technology that has been developed with federal funds.22 The

main differences are twofold. First, unlike the SBIR, scientists and faculty

employed-full time at a university and/or research institution are allowed to apply.

Secondly, the phase two awards under STTR are currently capped at a lower amount:

USD 500,000. Also, the number of granting agencies are fewer (only five):

Department of Defense (DoD), Department of Energy (DoE), Department of Health

and Human Services (DHHS), National Aeronautics and Space Agency (NASA), and

the National Science Foundation (NSF). The NSF tracks public investment in the

national scientific infrastructure, including the SBIRs. See Graph below:

Jonathon Baron, “The Small Business Technology Transfer (STTR) program: converting research into economic strength, Economic Development Review, 11 No. 4 (Fall 1993).


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Orphan Drug Act (1983) – The Orphan Drug Act when first enacted, put the

onus on firms to demonstrate how prohibitive the R&D costs of developing drugs that

could only be marketed to those with rare diseases would be.23 Start-up firms,

however, lack the resources to prepare such time-intensive paperwork and not

surprisingly, few firms applied for orphan drug status. It was not until the Act was

revised to allow firms “orphan drug” status if they could demonstrate that they were

developing a drug for ailments that affected less than 200,000 Americans. While


Rohde, David Duffield. “The Orphan Drug Act: An Engine of Innovation? At What Cost?” Food and Drug Law Journal 55 (2000) 125-148.


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“orphan drug” status does not grant developing firms a patent, it does allow them a

seven year monopoly on the sales of the product. Since its enactment in 1983, a

number of drugs have been developed to treat ailments such as tuberculosis. Further,

a report by the Department of Health and Human Services noted that orphan drug

approval has been helpful in stimulating the development of the biotechnology

industry, for example, in attracting venture financing to biotech companies developing

orphan drugs.24

FDA Critical Path Initiative (2004) – In response to the slowdown in the early

2000s of new submissions to the FDA for drugs, therapies and medical device

approvals, the FDA published a white paper in 2004 outlining a national strategy to

speed-up and improve the quality of evaluations of new technologies in the approval

pipeline. To date, there is a high failure rate among new potential products while at

the same time the cost of developing new prescription drugs in particular has risen

dramatically – to more than USD 800 million by 2000. Further, more potential new


The Orphan Drug Act: Implementation and Impact, Department of Health and Human Services, Office of Inspector General, May 2001, OEI-09-00-00380.


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products fail in the 2000s than failed in the 1980s, despite major advances in basic

science such as in genomics. The Initiative includes measures to improve the

evaluation process in terms of the ability to better gage the likelihood of success in a

potential new product. Specifically, measures are underway to better utilize bioinformatics, biomarkers and disease models in evaluating new technologies.25

Comparison: Review of Recent Policy Initiatives in Japan

Japan has emulated several of the aforementioned policies in recent years

through its own Bayh-Dole-esque university reform. For example, national

universities after 2000 are expected to fund a significant portion of their own budgets

with the intent of having universities act more independently of government, and

ideally more innovative. The result has been to encourage more private sector

initiatives to capitalize on university technology, including supporting the

development of technology licensing and university start-ups. In Japan, the most

significant national policy initiative to-date - apart from a reform of SME policy in
Challenge and Opportunity on the Critical Path to New Medical Products: Innovation or Stagnation? White Paper, Department of Health and Human Services,

U.S. Food and Drug Administration, March 2004.


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general - has been the Innovation Cluster Initiative.26

As I have written in my 2005 Innovation and Entrepreneurship in Japan, METI

(Ministry of Economy Trade and Industry) launched its “Cluster Initiative” and

“Cluster Plan” in 2000 and 2001 respectively. The Plan intends to promote

innovation and new business creation, particularly in high technology industries.

Related policies by MEXT (Ministry of Education, Culture, Science, Sports and

Technology) are aimed at encouraging more science and technology-based university

start-ups via two main measures: establishing TLOs and expanding graduate MBA

programs. Within the Cluster Initiative is an emphasis on promoting the biotech

industry, particularly in the Kinki and Hokkaido regions. By fiscal year 2002, the

national life science budget had grown to 440 billion yen. Other initiatives include the

establishment of and SBIR program, modeled on the SBIR program in the U.S., as well

as measures targeting the jinzai (personnel skills) problem such as the NEDO Fellow

program that places young scientists and other professionals in small businesses,

See Ibata-Arens, Innovation and Entrepreneurship: Politics, Organizations and High Technology Firms, Cambridge University Press, 2005, chapter 4 “Japan’s Quest for Entrepreneurialism”.


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whose salaries are paid for a time by the Japanese government.


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7 Patent System Though reforms began in late 1990s, essentially the Japanese patent system

was designed to diffuse foreign technologies into large Japanese corporations. Until

the 2000s, the Japanese patent system was geared toward technology diffusion as

opposed to the protection of intellectual property. This is evidenced in the policy of

“laying open” the details of all patent applications after filing – a patent yet-to-be

granted. This has generally resulted in large firms, with the financial and legal

resources, to routinely engage in “patent flooding” of small firms patents-in-progress.

In Japan’s “first-to-file” model, a shuuhen strategy is used, whereby the larger firm

obtains patents on all potential permutations/expansions on the core technology of

the original patent. This is in marked contrast to the patent system in the US, which

is based on a “first-to-invent” philosophy. In the latter model, the intellectual

property of the inventor has precedence over any later attempts to exploit the invention.27


Ibata-Arens “The Business of Survival” Special Issue on Dysfunctional Japan At Home

and in the World, Asian Perspective, Vol. 24, No. 4, 2000.


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8 Socio-Political Culture Debates over the use of stem cells, fueled by religious concerns over the use

of embryonic stem cells in particular have put a drag on growth in life science capacity

in the United States.28 For example, responding to pressures by Christian lobby

groups, the Bush administration imposed national restrictions on federal funding for

stem cell research in 2001, limiting federal funds to existing cell lines, meaning those

cells that had already been isolated. Further, emboldened by these national signals,

local Christian groups have targeted particular states as test cases, aiming for a

constitutional amendment forbidding stem cell research. One of these test states is

Missouri, home to the emerging St. Louis life science cluster.

After a 30 million dollar PR campaign, the stem cell initiative (protecting

researchers’ rights to use stem cells) was narrowly passed via state-wide referendum

in November 2006. 29 million dollars of the 30 was funded by the Stowers, two cancer

survivors who established the Stowers Institute in Kansas City, Missouri. It has been


Stem cells are of two types: adult and embryonic. The debate over stem cell research is over the use of embryonic though in public discourse the two have often been conflated.


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estimated that several hundred million dollars in research dollars has been lost to

other states, notably to researchers at Massachusetts’ Harvard University - funds

that could have been invested in the local economy of Kansas City. Worse,

neighboring states have tried to capitalize on the troubles of Missouri. In 2005, the

governor of Illinois sent a personalized letter to the top 100 or so scientists in

Missouri, inviting them to “come on over”. Rod Blagojevich backed this offer with a

state-sponsored initiative of $10 million dollars to support stem cell research.

California, already the nation’s leading high tech state, announced a USD 10 billion

stem cell initiative, to be invested over the next ten years. Competition has come

from farther afield as well.

A 2007 Business Week article chronicled the rising incidence of Americans

traveling to China to obtain stem-cell based treatments for spinal cord injuries.

Clinical developments in China are progressing at a rapid pace, and Chinese

biotechnology companies are reportedly forging ties with forward thinking others


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around the world.29 What we have in the US in the early 2000s is a mixed message

from the national government, signaling on the one-hand support for fast tracking of

new drug discoveries, but on the other, indicating that new developments in stem cell

therapies should be governed in part by ethical considerations. Japan’s religious-bias

free scientific environment might prove a boon in this regard.


“Stem-Cell Refugees: Yanks are flocking to China for therapy”, Business Week, February 12, 2007.


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Supplementary Materials 1) US Venture Survey: Brief Summary and Project Overview

2) Annotated Bibliography on Literature on Innovation Policy and

University-Based Entrepreneurialism in the United States by Brian



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(1) US Venture Survey: Brief Summary In November 2006, a mailing was sent to 1000 start-up venture businesses across the United States. The mailing included a cover letter requesting participation in the survey and promising complete anonymity and confidentiality to the respondents, as well as a complimentary copy of the Comparative Survey Report outlining the results in the previous surveys in the UK and Japan (2005). Whenever possible, the letter was personalized, meaning it was addressed to the personal name of the president/CEO. The mailing included a project overview (attached), a 25 question four page survey and a pre-addressed, stamped return envelope, requesting a reply by November 30, 2006. By the end of December, we received 117 responses (response rate 11.7%) representing all regions of the U.S., including Hawaii.

We are currently in the process of interpreting the survey results. However, several preliminary comparisons are worth noting:

1) U.S. new business start-ups are aiming, in terms of exit, for merger and acquisition – to a much higher degree than seeking IPO. This tracks with the reality of exits for start-ups. That is, globally, about 80% of all exits are non-IPO. Japanese start-ups, on the other hand, seem to be aiming for IPO to a much higher degree than American start-ups, for whatever reason.

2) A greater number of respondents to the US survey (57.1%), than the either the UK (39.6%) or Japan (37.1%) were life science type start-ups (bio, medical or healthcare), which might be reflective of the shift in the U.S. out of its earlier high growth in software start-ups, into the emerging global life science sector.

3) US start-ups have a strong R&D basis, either through developing in-house patented technologies or via license arrangements with universities.


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4) To obtain customers, US start-ups make better use, and to a higher degree of a variety of networks/resources (introductions from previous employer’s colleagues, Internet, trade shows, direct sales, R&D collaborators, incubators, university professors, shareholders, etc.).

5) Confirming common perceptions of the biggest challenges for new start-ups, like their contemporaries in the UK and Japan, US start-ups struggle to raise start-up finance.

6) In all three countries, company founders make use of their personal networks for many business-related goals. This indicates the importance of social capital in new business start-ups.

7) UK firms appear to be more reliant on government agencies and consulting services than their counterparts in the US and Japan, while Japanese start-ups are more reliant on government subsidies.

8) VC firms in the US provide a variety of extra services to start-ups, beyond monetary investments. These services include assistance with business plans, personnel recruitment and financial management.

9) Angel investors in the US play similar roles, and are even more hands-on than VCs in this regard. Stimulating an angel investment community in Japan might therefore have a positive impact on new business formation and start-up success.


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Scope of Survey

Our survey research project compares the entrepreneurial environments in the US, UK and Japan, analyzing how – to help their firms grow and prosper – entrepreneurs make use of various support resources including university technologies and venture capital. Findings will be used to compare and make recommendations regarding best practices in local, regional and national level entrepreneurship strategy and policy. The Survey has already been implemented in the United Kingdom and Japan (2005). Results from the current survey will be compared to best practices in the UK and Japan.

Participants The Survey is being sent to a total of 1000 U.S. companies, which the organizers have selected from state, university and local incubator/business development sources. These companies are mainly in high-growth fields, developing new technologies, or providing high-value services. Most are less than 10 years old.

Research Team Kathryn Ibata-Arens, PhD Northwestern University, is assistant professor in the department of political science at DePaul University in Chicago. Her research interests are in innovation and technology policy, particularly in the United States and Japan. Ibata-Arens’ current research examines emerging life science (biotechnology and medical device) regions in Japan and the United States. In 2005 and 2006, she


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was a CGP/Abe Research Fellow, Faculty of Commerce, Doshisha University, Kyoto. Her work has appeared in publications including the Asian Wall Street Journal and

Review of International Political Economy. Ibata-Arens’ book, Innovation and Entrepreneurship in Japan: Politics, Organizations and High Technology Firms,
Cambridge University Press (2005) examines firm and region level strategies of innovation and includes comparisons to regions in the American Midwest. Ibata-Arens’ lead research assistant for this project, Brian Edwards, is a political science major with a concentration in political economy and international business. His interests are in high tech global market research, especially China, and becoming an entrepreneur.

Tetsuya Kirihata, MS in economics, Kyoto University, is associate professor in the Research Center for Advanced Science and Technology at Nara Institute of Science and Technology. His research interests are in venture capital, high-tech ventures and commercialization of science and technology in Japan. Kirihata’s current research examines the support needs of new technology based firms and the post-investment activities of venture capital firms in Japan. His work has appeared in leading Japanese business journals including Venture Business Japan. In his book How to Win in the

Nanotechnology Revolution (Japanese) Kodansha (2005), Kirihata analyzes trends
and new business strategy in the global nanotech industry. Kirihata’s lead research assistant for this project, Hiro Yamagata, is a graduate student in Business, Doshisha University, Kyoto. His interests are in international logistics and business translation (English-Japanese). He plans to become a university professor.

DePaul University Founded in 1898 and located in the heart of Chicago, DePaul University has grown to become America’s largest Catholic university. DePaul has a number of award winning programs in business and technology. Its part-time MBA Program ranks in the top 10 nationally.


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Nara Institute of Science and Technology (NAIST) NAIST is a graduate science and technology university, and is one of only two in Japan focusing exclusively on technology. The University has three schools: Information Science, Biological Sciences and Materials Science. NAIST is located in a research triangle known as Keihanna (Kansai Science City) which links the cities of Nara, Kyoto and Osaka. The Keihanna area is one of the most technology-rich areas of Japan, with a strong venture business tradition. It has a population of around 16 million people and a GDP equivalent in size to that of Canada.

Research Support The survey research project is supported by DePaul University’s University Research Council (URC) and Political Science Department, NAIST’s Research Center for Advanced Science and Technology and with grant monies from Japan’s Ministry of Economy, Trade and Industry (METI), Management of Technology Program (MOT). METI’s MOT Program seeks to stimulate new business ventures in Japan, particularly those emerging out of the science and technology of Japanese universities (

Copies of Survey Report For a complimentary copy of the Survey Report: Venture Business in the UK, US and

Japan (to be released in February 2007) send a request to Ibata-Arens via email,
telephone or fax.

Contact Information Kathryn C. Ibata-Arens, Assistant Professor Department of Political Science, DePaul University 990 W. Fullerton Ave., Suite 2200, Chicago, IL 60614, Phone: 773-325-4716 (direct)


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Tetsuya Kirihata, Associate Professor Research Center for Advanced Science and Technology Nara Institute of Science and Technology (NAIST) Takayama, 8916-5, Ikoma, NARA, JAPAN, 630-0192 Phone: 81-743-72-5600 Fax: 81-743-72-5609


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(2) Annotated Bibliography on Innovation Policy and Entrepreneurialism with Notes and Commentary

Annotated Bibliography on Innovation Policy and Entrepreneurialism with Notes and Commentary Brian T. Edwards

National Policy

The federal government has enacted several policies in the last quarter-century with the expressed intention of providing incentives and resources to US business to undertake research on projects that the constraints of the market would have otherwise made impractical. Beginning with the Bayh-Dole Act of 1980, and culminating with the Advanced Technology Program of 1990, several policy measures were adopted to streamline the process through which universities could patent and subsequently license intellectual property created by their research professors. This paper is provides a brief review of the prevailing literature on the subjects of national innovation policy, academic entrepreneurialism, business incubation and research parks, and technology licensing in US universities.

SBIR Policy (


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The Small Business Innovation Research Program (SBIR) program is the largest government partnership program with industry, and it is thought by many researchers, economists, and of course politicians, to be the most successful innovation policy enacted anywhere in the world. Enacted in 1982 with the passage of the Small Business Innovation Development Act (SBIR), the SBIR program was intended to fill the gap left by disincentives, which prevented private industry from sufficiently funding the development of an innovative small business environment. Initially, the Act mandated that each federal agency with a budget in excess of $1 billion reserve a fixed percentage for small business.

In 2000, the Congress passed the Small Business Innovation Research Program Reauthorization Act (Public Law 106-554), which amended the original provisions for the second time since they were first signed into law. Among the more significant specifications put forth in the amendments were a requirement that the SBA create a database of all SBIR award research which would be publicly searchable and clarify data rights for achievements during all three phases of the program, mandates that candidate firms completing Phase II submit a detailed commercialization plan before graduating to Phase III or in the case of non-viability an assessment of reasons for failure must be


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completed. Additionally, the Reauthorization Act established the Federal and State Technology Partnership Program (FAST) to strengthen the competitiveness of small businesses throughout the country.

Awards are administered in three phases. Phase I is the startup phase, which is a six month period of heavy research on technology feasibility and potential, with awards not in the excess of $100,000. Phase II is a two year investment of $750,000. During this time the technology is evaluated

through R&D and the commercial potential of the venture is assessed. Phase III is non-funded and is entirely focused on determining the commercial viability of the technology developed. Firms that have succeeded in passing the first two Phases are left to the mercy of the market, but participation alone in the SBIR program is generally viewed by researchers as a commercially beneficial characteristic from the point of view of venture capitalists.

Audretsch, David B., Albert N. Link and John T. Scott. “Public/Private Technology Partnerships: Evaluating SBIR-Support Research.” Research





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Keywords: Department of Defense; Basic Research; SBIR

This essay evaluates public support of private-sector research and development through the Defense Department SBIR program. It uses as it basic premise the argument put forward by Baron (1998) that, "the rational for SBIR is the same as the general argument for government R&D- positive externalities, social benefits exceeding private ones." The paper does not debate the appropriateness of the SBIR program generally, taken that as an established given, but instead focuses on evaluating its effectiveness.

The methodology employed includes three elements; (1) a broad-based statistical analysis of SBIR recipients; (2) a case-based investigation of recipients regarding the impacts associated with SBIR awards, and; (3) a case-based investigation of the social rate of return from SBIR-funded research. First they try to determine whether SBIR recipients are achieving innovation and commercialization of their research. The authors conclude that the DoD's SBIR program is encouraging commercialization from research (with 1/3 of recipients succeeding at great profit) that would not have been undertaken without SBIR support; and, moreover, it is overcoming reasons for market failure that cause the private sector to under-invest in R&D. Additionally, based on the case studies done, the authors conclude


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that most of the companies that relied on SBIR funding to further their basic research to the Phase II level would not have undertaken such research without public funding, which is a stated goal of the SBIR program.

The second question to which the authors hope to unlock the answers is whether or not the SBIR program changes the behavior of knowledge-workers and thereby helps create a science-based entrepreneurial economy. They conclude that the program has an overwhelmingly stimulating effect on scientists and engineers, which also has a spillover effect on the greater scientific community with academic entrepreneurs inspiring their colleagues to undertake similar ventures.

Toole, Andrew A. and Dirk Czarnitzki. “Biomedical Academic Entrepreneurship Through the SBIR Program.” (June 2005) 547.pdf.

Keywords: Academic Entrepreneurship; SBIR Program; University R&D

Paper considers the effectiveness of the SBIR program as a policy fostering academic entrepreneurship. Toole is unquestionably one of the international leading scholars tracking SBIR policy, and this is one of several studies that


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are widely cited throughout all the scholarship focused on SBIR policy. There are two main characteristics of the program that make it effective at spawning academic entrepreneurship; (1) the SBIR program will fund promising but unproven technologies earlier than private investors, which creates an incentive to pursue commercialization; (2) the SBIR program requires academic entrepreneurs to commit "full-time" to the

commercialization process throughout the duration of the project, though it does not require them to leave their position at the research institution.

In the biotech sector in particular, there is mounting evidence that faculty involvement in the commercialization of university-based technologies is important for success. This study also focuses on tracking so called "star scientists”, otherwise known as principal investigators (PI), and it is hypothesized that these individuals possess valuable specialized knowledge, network contacts, or reputations. The authors hypothesize that because of these specialized capabilities or advantages, SBIR firms "linked" to an academic entrepreneur should be more successful than similar "non-linked" SBIR firms.

The papers findings determine first that the SBIR program is effective at promoting academic entrepreneurialism, and the firms that are associated with


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these scientists perform significantly better than other non-linked firms in terms of follow-on VC funding, SBIR program completion, and patenting.

Toole, Andrew and Calum Turvey. “The relationship between public and private investment in early-stage biotechnology firms: Is there a certification effect?” Prepared for presentation at the International Conference on Agricultural Biotechnology, Ravello, Italy (July 6-10 2005). r.pdf.

Keywords: SBIR Program; Certification Effect; Biotechnology

Toole and Turvey attempt in this study to further understanding how small business financing programs in the US and EU interact with alternative sources of private funding like venture capital. The most interesting concept seized upon by the authors was whether or not a firm experiences a “certification” effect once it has proven that its technology is sufficient to earn acceptance for Phase II SBIR funding. The basic premise underlying the certification effect is that venture capital firms use SBIR and other programs that fund small biotechnology ventures as a sort of litmus test, providing them with a risk adverse investment opportunity. The study concludes that it is


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indeed beneficial for firms to have received Phase I approval in order to earn the investment of a major VC firm. Additionally, the data show there to be an unmistakably positive correlation between the firms that have a full-time academic researcher, and those that do not. However, beyond the basic certification effect, there is no evidence that public investment in product development is enhanced by the presence of a former university scientist.

Cooper, Ronald S. “Purpose and Performance of the Small Business Innovation Research (SBIR) Program.” Small Business Economics (2003) 20: 137-151.

Keywords: SBIR Program; Certification Effect; Innovation Policy

This paper clarifies the needs and rationale for the SBIR program and reviews the recent findings regarding the programs impact. Another identifies five dimensions of the innovation capital gap and outlines a possible extension of the program to better address this finance gap. Originally chartered to bring small businesses into the federally funded R&D process and foster innovative solutions at all levels of the US business community. Evidence has


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shown that while the program has succeeded in providing high quality research meeting agency requirements, the small business share of federally funded R&D remains small. In 1999, only 17% (3,334 of 19,000) of applicants received funding.

A survey done in that same year of DoD SBIR found that average quality of SBIR research was the same as that of other federally funded research. SBIR recipients are viewed by financial markets and potential investors as practitioners of high-quality research and are considered to be more viable investments. This is known as the certification effect. Reviews of commercialization of SBIR funded research generally conclude a “significant and positive” impact on growth of firms. Sales and employment have been found to increase at a substantially higher rate in firms that receive SBIR funding versus those that do not. SBIR program also has positive effect on start-up rates and focus on commercialization by inventors who otherwise may not have brought product to the market. Finally, SBIR grants support innovation by addressing a gap in early-stage financing.

Siegel, Donald S, Charles Wessner, Martin Binks & Andy Lockett. “Policies Promoting Innovation in Small Firms: Evidence from the US and UK”








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Keywords: New-Technology Based Firms; SBIR; ATP

This essay on the comparative innovation policies of the US and UK was the first in a series published out of Nottingham University in London, which held a simultaneous conference at which all of the authors listed presented their findings in more detail, so this was more of a summation. The focal point of all research is on new-technology based firms (NTBFs).

The authors approach their analysis making a few assumptions, primarily, that public funding for NTBFs is absolutely necessary, as policymakers generally agree that a non-negligible percentage of NTFBs would fail without some sort of public assistance in the early stages of business development. The findings of the four economists reached three primary conclusions; (1) program evaluation is much more prevalent in the US than in the UK; (2) the US Advanced Technology Program (ATP) and Small Business Innovation Research (SBIR) program have been successful; (3) shared costs between government and industry and frequent assessment are the keys to ensuring that such programs are successful.

Bayh-Dole Act of 1980 (


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Sampat, Bhaven N. “Private Parts: Patents and Academic Knowledge in the Twentieth Century”, Keywords: Bayh-Dole; Innovation Policy; University Research The Bayh-Dole Act was first proposed when it became apparent to legislators and bureaucrats at the federal level of government that the system for determining patent and licensing rights for inventions derived from publicly funded research was unnecessarily cumbersome and counter-intuitive. Critics of the Bayh-Dole Act assert that it is basically a tax on academic innovation, and it impedes upon the traditional academic tradition of collaboration through open publishing in peer-reviewed journals by encouraging researchers to withhold their discoveries from the public sphere until they have filed all necessary paperwork for patent. Statistics on invention disclosure, patent application and technology

licensing, which have only been tracked nationally the early 1990’s, show that each has increased dramatically since the ratification of the Bayh-Dole Act. According to data collected by the Association of Technology Managers (AUTM), over the ten-year period from 1991-2000, invention disclosures grew 80% while licenses executed grew 160%. Patents granted from 1993, the first year such stats were recorded, grew by 137% in the seven years until the end of the decade. These statistics show that there is an undeniable trend toward entrepreneurial activity


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amongst university researchers, but more strikingly, the aggregate increase in invention disclosure to licenses executed was nearly two to one. This indicates that reorientation of national policy to encourage university faculty to be more entrepreneurial has achieved its goal, but it also suggests that they have been less successful at actually licensing those technologies to industry.

Advanced Technology Program (ATP) (

Fogarty, Michael S., Amit K. Sinha and Adam B. Jaffe. “ATP and the Innovation System. A Methodology for Identifying Enabling R&D Spillover Networks.” National Institute of Standards and Technology (October 2006) GCR 06-895.

Keywords: Advanced Technology Program; Innovation Policy; Knowledge Spillovers

In 1990 the federal government passed the Advanced Technology Program (ATP) as a means of establishing partnerships with industry to conduct high-risk research in nascent technologies that have significant long-term commercial potential and could have a dramatic impact on the national economy. The success of the program is determined through the program’s


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Economic Assessment Office (EAO), which conducts multifaceted evaluations of the impact of the program on the national economic landscape and the benefits derived by the taxpayers who are the shareholders in any government investment in industry. Using statistical analysis and other methodological approaches, the EAO measures the programs effectiveness in terms of (1) inputs, (2) outputs, (3) outcomes, and (4) impacts.

As of the EAO’s most recent comprehensive evaluation, it has been established that the program has been a resounding success, with 9 out of 10 organizations reporting that ATP funding has accelerated their R&D cycle. ATP participation in a firm’s R&D is also found to have a “Halo effect” or “certification effect” in the eyes of private investors. Additionally, because the ATP stresses the importance of collaboration and partnership during the R&D process, 85% of firms that receive ATP funding report establishing industry partnerships in the course of conducting their research. These three findings together indicate that the program is effective in facilitating knowledge spillovers, which in turn has a significant impact on the state of the national economy generally, and thus taxpayers are realizing the benefits of their investment in their daily lives.








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The Small Business Technology Transfer Program (STTR) is a federally mandated public/private partnership between the government and small businesses and non-profit research organizations. The programs central objective is to foster the innovation necessary to meet the scientific and technological challenges of the 21st century. History has proven that the innovation and innovators thrive in a small business environment, but too often the risks and costs of R&D are beyond the means of these organizations and the innovative capacity is left untapped. Conversely, non-profit

research institutes (i.e. incubators) have been an indispensable facet of America’s prowess as a bastion of high-tech achievement and discovery. However, these advancements are often confined to the theoretical, not the practical because of disincentives inherent in pursuing any technological advancement that is without precedent. STTR serves as the arbiter and matchmaker, bringing these two entities into partnership by joining the entrepreneurial instincts of small businesses with the high-tech research capabilities of research institutions. The fruits of these partnerships in the form of technologies and products are transferred on to the individual consumer through the normal channels well established in the American


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marketplace, with the small business reaping the profits of this commercialization, which, in turn, stimulates the economy.

Small businesses must meet certain criteria to be considered for STTR participation. It is essential that the firm be an American-owned and independently operated, for-profit organization of fewer than 500 employees, and the principal researcher need not be employed by the small business under consideration. Conversely, there is no size limitation placed upon non-profit research organizations, but they too must be located in the US, and must fall under one of three definitions established by the USSBA; (1) nonprofit college or university; (2) domestic nonprofit research organization; (3) federally funded R&D center (FFRDC).

Five US federal agencies are required under STTR to reserve a portion of their R&D funding for awards to small business and nonprofit research organizations, under the guidelines stated above for consideration. These agencies are the Department of Defense (DoD), Department of Energy (DoE), Department of Health and Human Services (DHHS), National Aeronautics and Space Agency (NASA), and the National Science Foundation (NSF). Each agency is responsible for designating research topics and vetting proposals submitted by small business applicants. Agencies award STTR


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funding based upon small business/research institution qualification, degree of innovation, and future market potential.

Once award recipients are chosen they begin a three-phase program. Phase I is known as the “start-up” phase and it involves the allocation of $100,000 over one-year which is used to fund the exploration of the scientific, technical and commercial feasibility of the firms idea or technology. Upon ending this one-year feasibility study, companies that have shown their technologies to be both viable and practical are graduated to Phase II. Phase II awards up to $750,000, for as long as two years, to expand upon the basic research done during Phase I. This is the most R&D intensive phase of the STTR program and upon its completion the commercial potential of the technology should be apparent. If this research is deemed to be fruitful, the firm then enters Phase III, which does not involve any further STTR financing, but rather demands that the business establish alternative sources of funding from either the private sector or another federal agency as they bring their innovation to the marketplace.

The Orphan Drug Act of 1983 (


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Rohde, David Duffield. “The Orphan Drug Act: An Engine of Innovation? At What Cost?” Food and Drug Law Journal (2000) 55: 125-148.

Keywords: Orphan Drug Act; Innovation; Pharmaceuticals

At the beginning of the 20th century the pharmaceutical industry was in its nascent stage and new therapeutic treatments for many diseases were developed in federally funded and managed laboratories, non-profit medical research facilities and less significantly in the pharmaceutical industry itself. However, by mid-century nearly all chemical discoveries and new drugs were produced and tested by for-profit, private pharmaceutical companies. At this time, the federal government let the market forces take control and refocused its efforts and finances toward basic research and clinical studies. Early pharmaceutical firms were guided by the supply and demand inherent in a diverse market, which was almost universally afflicted in some way or another.

In these early years of the pharmaceutical industry companies had to focus their R&D efforts on producing drugs that were in high demand and provided little liability risk. However, individuals that were afflicted with a ‘rare’


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ailment were left at the mercy of the ‘invisible hand’ of the market and because they were viewed as not worth the investment in R&D on the part of the private entity because they failed to present sufficient incentive to executives more concerned with the bottom line than the bottom feeders.

Congress recognized this market failure early in the development of the now entrenched pharmaceutical industry and took significant steps to address the marginalization of those who were without option when deciding how to treat their rare disease. Congress was faced with the challenge of

establishing an incentive package that would provide firms with the motivation to undertake research, development and marketing of “orphan drugs” for the treatment of rare diseases. First it was determined that to qualify as an orphan drug it must be marketed as treatment for an ailment that afflicts a segment of the population small enough that it could be presumed that the company will not recover the costs incurred during development, clinical testing, FDA approval process and marketing of the product. Once a drug is determined to meet the requirements of an orphan drug, the firm responsible for its development and testing was eligible for the three primary incentives outlined in The Orphan Drug Act of 1983; (1) federal funding of grants and contracts for clinical trials or orphan products; (2) tax credit of fifty percent of


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clinical testing costs; (3) grant of an exclusive right to market the orphan drug for seven years from the date of FDA market approval.

It became immediately apparent that the burden placed upon firms to prove that a drug was a drag on their value and ultimately a money pit was excessively difficult to substantiate, which only further delayed the intended benefits of the Act from reaching the patients it was designed to help. The Act was subsequently amended to define a ‘rare disease’ as that which inflicts no more than 200,000 Americans. This adjustment reassured the corporations that there was adequate consideration given to the risk they take on when undertaking the development of an orphan drug, and in the next two decades more than 100 new products have been developed and granted FDA approval under the Orphan Drug Act, and they have been used to treat rare diseases such as tuberculosis, neonatal respiratory distress syndrome and cystic fibrosis. Given the costs associated with the typical

mind-to-market pipeline through which all drugs labor for years, incurring costs upon the firm with no guarantee of returning a profit, it can be virtually assured that few, if any of these treatments would have ever been explored without the incentives of the Act. Only three out of ten FDA approved drugs recover their R&D costs, and it is the returns from this thirty-percent


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of products that firms use to fund any future research.

Despite the obvious benefits derived from this innovative policy, there are still many concerns with the ambiguity of the current statute that counteract the incentives and serve as a disincentive to firms that not among the giant MNCs like Pfizer, Baxter or Abbott. First, orphan drugs are not patentable, so even though the developing firm is granted a Congressionally mandated monopoly on all marketing of the orphan drug for seven years from the day of its final FDA approval, other firms can simply bring the same drug to market by slightly altering in chemical composition while not effecting its effect on patients. In response to concerns expressed by the industry, the FDA declared that the burden of proving ‘clinical superiority’ lie with the second applicant for orphan drug status.

Supplemental research on the phenomenon of academic entrepreneurialism

Meyer, Martin. “Academic entrepreneurs or entrepreneurial academics? Research-based ventures and public support mechanisms.” 33,





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Keywords: Triple-Helix; Entrepreneurial Academics; Innovation Policy

In this study Professor Meyer examines the phenomenon of academic entrepreneurship in the context of public support mechanisms and incentive structures. He premises his study on the on the emergence of a "triple-helix" in university-industry-government interaction in the making and implementation of innovation policy. This new policy-making dynamic, along with the emergence of the 'entrepreneurial academic'- scientists in public sector organizations who are not necessarily interested in setting up a fast-growing company but looking for other avenues in which they can pursue their research interests- points to the increased importance of publicly-funded research in driving economic growth. Meyer gives particular attention to the increasing importance of academic entrepreneurs, which is becoming an increasingly popular method for commercializing research at these public institutions, and they have fundamentally different aims from those of more traditional start-up entrepreneurs.

This study focuses on the impact of support-mechanisms on science-based start-ups, and it is based upon the findings of four separate case studies which


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were part of a larger study of thirty firms Meyer conducted a few years prior, three based in the US and one in Europe. All four companies chosen were founded out of research universities. Meyer uses several factors when analyzing the success of these four firms, specifically (1) the companies ability to attract partners and external talent, (2) whether or not it reached IPO, (3) staff and turnover, (4) the background of board and supervisory board members, (5) background of the founders, and (6) on what level the company has maintained its ties to the university from which it was spun-off.

The key finding is that support mechanisms do not necessarily promote academic entrepreneurship but further the development of a behavioral pattern that can be associated with the notion of the 'entrepreneurial academic'. Additionally, badly targeted support mechanisms can have a negative impact on the growth-pattern of science-based SMEs by providing a distorted set of incentives.

Feldman, Martin P. "Government R&D Subsidy, Economic Incentives and Knowledge Spill-Overs."

Keywords: Knowledge Spillover; Certification Effect; R&D Policy


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Drawing from data on proposed projects and post application performance, author estimates the extent to which projects that received funding exhibited behaviors that the literature associates with knowledge spillovers. Paper makes three contributions to existing literature on government R&D subsidies; (1) develops a set of project characteristics that the literature suggests would generate knowledge spillovers and thus would be associated with increasing the social benefit of an R&D project; (2) we use these measures to test whether projects awarded subsidies are more likely to generate knowledge spillovers than the counterfactual group of firms that applied for, but were not awarded subsidies; (3) follow-up with firms one year after the award decision and estimate the effect of government funding on the subsequent ability to raise additional money for R&D.

Findings suggest, contrary to prior research, that projects receiving subsidies were more likely to have attributes that provide greater pathways for knowledge spillovers such as participation in new research joint ventures and connections to a large number of other firms. Further, government awards provide a signaling, known as a certification effect for subsequent R&D investment by other sources. Finally, results suggest that government R&D funding may have a positive and previously undocumented effect on private


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firm behavior and subsequent economic growth.

Erlich, Jacob N. and Alan Gutterman. “A Practical View of Strategies for Improving Federal Technology Transfer.” Journal of Technology Transfer (2003) 28: 215-226,

Keywords: Technology Transfer, Universities, Innovation Policy

This essay summarizes the impact of Public Law 104-113, which was signed in 1996 by President Clinton, which pertained to the federal technology transfer process. It focuses its analysis on the how this new legislation affects “cultural change” within the Federal Laboratory Consortium, which was formed in 1974 to promote rapid movement of federal R&D into the private sector, and the improvements made in licensing practices which provide for more direct benefits for American citizens from patents filed by researchers in federal labs. The authors stress the importance of these new measures in providing better channels for industry to commercialize Federally owned technology.

Cultural change is seen as indispensable for the improvement of technology transfer practices because many federal researchers take a skeptical view of


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the true value of patenting inventions, opting instead to publish their findings, which immediately renders any potential return on investment for the federal government unlikely. Emphasis is placed on the importance of laboratory directors fostering an open-door policy, which gives private business an opportunity to have direct access to government researchers, thus enhancing their ability to get beyond the difficulties of blindly interpreting the intentions of an inventor when determining the best strategy for commercializing their technology.

Regional Innovation Systems

Cooke, Philip. “Regional Innovation Systems, Clusters and the Knowledge Economy.” Industrial and Corporate Change (2001) Vol. 10, No. 4. 20-%20PMI%20e%20innovazione/cooke%202001d.pdf.

Keywords: Regional Innovation Systems; Biotechnology; Economic Geography

In this paper, Cooke is attempting to provide a systematic account of the idea and content of regional innovation systems. The first section of the paper provides an illustrative account of the precise mechanisms operating in


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a specific biotechnology innovation system centered in Massachusetts (Cambridge Cluster). The paper then moves into an analysis of conditions and criteria for empirical recognition and judgment as to whether scientifically analyzed, concrete cases of innovation warrant the designation of ‘regional innovation system' (RIS) or not, something not always done theoretically or empirically in the national systems of innovation (NIS) literature. Cooke was the first scholar to use the term regional innovation system to describe the new economy emerging in industries such as bioscience and information technology, and his analysis was subsequently embraced by regional scientists and economic geographers worldwide.

US Incubators & Research Parks

US Business Incubators

As of October 2006 there were more than 1400 incubators in North America (US-1114; Canada-120; Mexico-191), 90-percent of which are non-profit organizations focused on economic development. Ten-percent are for-profit entities, usually established to collect returns on behalf of shareholders. Forty-seven percent are “mixed use”, focused on fostering early stage development for start-up companies, and a little more than a third


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(37%) of all tenets are high-tech companies. One-quarter of incubators are affiliated with universities and another 25% are associated with government agencies or economic development agencies.30

Incubators are among the most efficient job creating organizations in the US. For every fifty jobs created within an incubator, it is estimated that another twenty-five jobs are created in the local community. Employment in an incubator firm is also far more stable than other businesses because 87% of all incubator tenets graduate and are still in business. Government subsidies awarded to incubators have also been shown to have a positive impact on local economies. For every one-dollar of public investment, it is estimated that $30 dollars in local tax revenue is generated. Additionally, publicly supported incubators create jobs at a cost of about $1,100 each, whereas other publicly supported job creation mechanisms cost $10,000 each.31

Rothaermel, Frank T. and Marie Thursby. "University-incubator firm knowledge flows: assessing their impact on incubator firm performance".






Data taken from National Business Incubator Association, 31 Ibid.


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Keywords: Knowledge Spillover; Technology Licensing; Incubators

The authors attempt to answer the two-pronged research question of (1) how do knowledge flows from universities to incubator firms and (2) how do these flows affect the performance of new technology ventures? In respect to the first part of the question, they identify and analyze the effects of different mechanisms through which knowledge flows from universities to incubator firms: university license, and patent backward citations to university research, academic journals, research by the incubator-sponsoring university, and research from other universities than the sponsoring university. Embedded in the second research question is the search for an appropriate performance metric for nascent technology ventures, which heretofore has retarded empirical research in this important area.

The authors hypothesize that (1) exclusive technology flows in terms of a university license can endow the start-up with a unique resource; and (2) university backward patent citations are indicative of a start-up's absorptive capacity that enables it to recognize public knowledge flows emanating from a university, assimilate them internally, and then apply them to commercial ends. These hypotheses are tested on 79 incubated firms located at the Georgia Tech Advanced Technology Development Center, which they follow


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over a 6-year time span, utilizing four different performance measures: total revenues, total funds obtained, VC funding obtained and failure/graduation from the incubator. Backward patent citations are cited as the best measure of a firm's absorptive capacity, which is considered to be an essential characteristic in most successful ventures that utilize university research, because it is a gauge of the firms competency, and should generally enhance an incubator firms performance. Firms with high levels of absorptive capacity are also less constrained by geographical restrains on its knowledge base, which many university incubator firms encounter when they have a weak absorptive capacity.

Wiggins, Joel and David V. Gibson. "Overview of US incubators and the case of the Austin Technology Incubator". Int. J. Entrepreneurship and






Keywords: Incubators; Entrepreneurs; Innovation Policy

This essay profiles the 25 year history of US incubators and provides a case study of the Austin Technology Incubator, which is associated with the


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University of Texas and whose companies have generated over $1.3 billion in revenue and created more than 3,000 jobs since its inception in 1989. The authors conclude that business incubators must accomplish five tasks well in order to succeed; (1) establish clear metrics for success; (2) provide entrepreneurial leadership; (3) develop and deliver value-added services to member companies; (4) develop a rational new-company election process; and (5) ensure that member companies gain access to necessary human and financial resources. In there brief summation of the history of US incubators, the authors present several startling statistics.

Wiggins and Gibson credit three driving forces for the early evolution of incubation culture; (1) an attempt to put to use old, unoccupied manufacturing buildings in distressed Midwest and Northeast communities; (2) National Science Foundation funding aimed at promoting emerging university programs in innovation and entrepreneurship; (3) individuals or groups of successful entrepreneurs that sought to transfer their experience to and invest their resources in new technology companies. In 1980 there were a mere 12 business incubators in the US, which prompted the US Small Business Administration to undertake a number of initiatives to strengthen the incubation movement, specifically holding public seminars to stoke


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interest in previous unexplored regions, publishing promotional pamphlets and establishing the National Business Incubation Association (NBIA) in 1985. In the 16 years following its creation, membership in the NBIA has surged from 40 to 1100, and the number of incubators has concurrently grown about 40 to 850+ in the same time period.

It has been estimated that between 75-90% of all incubators are non-profit entities, however, during the .com frenzy of the mid-late 1990's, it is estimated that a new for-profit incubator was created every other day, most of which have or are expected to fail. Regardless, the net gain in for-profit incubators will be at least four-fold over the period 1998-2003. A vital determinant of incubator success that has emerged from the incubation mania and which is reflected in the success-rates of these new entities has been the delivery of value-added services.

Research Parks

Link, Albert N. and John T. Scott. "US University Research Parks." J Prod






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Keywords: Research Parks; Technology Transfer; Knowledge Spillover

In their comprehensive study of US university research parks, Link and Scott attempt to provide the first true measure of research park success. They begin by asserting that university research parks are important as a mechanism for the transfer of academic research findings, as a source of knowledge spillovers, and as a catalyst for national and regional economic growth. In an attempt to define the term "university research park" (URP) the authors posit the following, A URP is a cluster of

technology-based organizations that locate on or near a university campus in order to benefit from the university's knowledge base and ongoing research. The university not only transfers knowledge but expects to develop knowledge more effectively given the association with the tenants in the research park. They proceed to profile the existing US university
research parks according to year of founding, and they correlate acceleration in research park creation to increases in general R&D spending, as well as public policy initiatives, such as Bayh-Dole, which acted as a catalyst to park development.

The authors conclude that there are currently 81 research parks in the US that fall under the parameters they laid out in their definition, with a further


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27 parks either in the planning or construction stage. They distinguish further the parks that are managed by university staff, and conclude that such an operating structure impedes upon park growth, which they measure using a formula they have devised which is too complex to synthesize herein. Professors Link and Scott further delineate between research focus, noting that 30 of the 81 focus on information technology or bioscience, and whether they are associated with a state or private university, which they see as having direct bearing on the efficiency and accountability of the park. Their conclusion is that the growth rate of URPs does vary by park and technology characteristics. The fastest growing parks are those focused on information technology, growing at an average of 4% more year-on-year than parks geared toward bioscience. Additionally, they find that parks with an on-sight incubator grow on average 3% faster than those without an incubator.

Academic Entrepreneurs

Murray, Fiona. “The role of academic inventors in entrepreneurial firms: sharing the laboratory life.”

Research Policy (2004) 33: 643-659. ventors.pdf.


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Keywords: Entrepreneurs; Cosmopolitan Network; Biotechnology

Professor Murray, studying at MIT, is in this essay attempting to understand the mechanisms through which academic inventors shape entrepreneurial ventures established to commercialize their scientific ideas. Traditional understanding of the important role of these academic entrepreneurs gives special emphasis to the importance of human capital. Murray’s research is focused on the biotech industry, and she could be a very interesting person to possibly collaborate with one day.

This paper makes two contributions to the literature on the academic-firm ‘interface’. First, it establishes that the social capital of academic scientists is critical to firms because it can be transformed into scientific networks that embed the firm in the scientific community. Second, Murray argues that an academic inventor’s career plays a critical role in shaping his social capital, thus scientific careers mediate the networks and potential for embeddedness that an academic inventor brings to a firm. Both the academic’s laboratory

network and their cosmopolitan network are considered to be the foundation
of their overall social capital, and it is from both of these sources that a firm associated with an academic entrepreneur can find important resources.


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Mehta, Shreefal. “The emerging role of academia in commercializing innovation.”





1 Keywords: Biotechnology; Venture Capital; University R&D In this brief essay the links between US research universities and the biotech industry are profiled. It emphasizes the transition from basic research toward more translational research at the major US research universities, highlighting their increasingly adept licensing policies, providing industry with a possible outlet for otherwise exclusively borne R&D costs in drug discovery. As more universities encourage their researchers in biotech to commercialize their discoveries, many are also offering institutionally sponsored venture capital and facilitating contact with other departments with complementary expertise for start-ups. Many graduate business programs are beginning to offer a bioscience specific program to prospective biotech entrepreneurs.

Technology Licensing in US Universities

Djokovic, Djordje and Vangelis Soultaris. “Spinouts from academic institutions: a literature review with suggestions for further research.” Cass Business School (June 2004)


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Keywords: Spinouts; Universities; Technology Transfer

This paper provides a comprehensive look at the academic literature focused on the phenomenon of spin-offs from academic research institutions, categorizing the literature into micro- and macro-phenomenological studies. Micro-phenomenological studies focus on two key themes: (1) the effectiveness of spinning out as a mechanism of technology transfer and (2) spin-off support mechanisms from industry, government and

university. Micro-phenomenological studies can also be grouped into two streams: (1) human relations and interactions during the spin-off formation process and (2) spin-off links with university and industry.

Di Gregorio, Dante and Scott Shane. generate more start-ups than others?"

"Why do some universities



(2004) Keywords: Technology-Transfer; Universities; Start-ups Professors Di Gregorio and Shane compare four different theories for cross-institutional variation in new firm formation rates from university technology licensing offices (TLOs) over the 1994-1998 period. These

explanations are based upon (1) the availability of venture capital in the university area; (2) the commercial orientation of university research and


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development; (3) intellectual eminence; (4) and university policies. Their results indicate that intellectual eminence, and internal university policies of making equity investments TLO start-ups and maintaining a low inventor’s share of royalties increase new firm formation.

Roughly 12-percent of university assigned inventions are transferred to the private sector through the founding of new organizations (AUTM, 1999). TLO start-ups are also disproportionately successful start-up firms. As of the date this paper was written, 70% of the 2578 TLO start-ups established since 1980 were still in operation, and research done at MIT indicates that nearly 20% of these companies experience an IPO. However, despite these overwhelmingly successful figures, TLO start-up activity varies significantly across universities.

The data sample from which the authors reach their conclusions included a survey of 101 universities, all of which are members of the Association of University Technology Managers (AUTM), and consisted of start-up data from 457 individual university-years. The sample included 89 of the 100 top US universities in R&D volume, and account for approximately 85 percent of all US patents issued to universities, and thought exact figures of total start-ups generated were not available, the sample appears to represent the


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vast majority of university start-up firms. To gather data on intellectual eminence, assessment scores for overall graduate and professional degree programs at the participating institutions were taken from the Gourman Report, a widely used assessment of graduate and professional degree programs. Finally, patent data was found by searching the US Patent and Trademark Office’s online database by university name and recording the number of patents associated with each school annually.

Lach, Saul and Mark Schankerman. “The Impact of Royalty Sharing Incentives on Technology Licensing in Universities.” (January 4, 2006) ION.pdf. Keywords: Technology Licensing Office; Intellectual Property; University R&D In this research paper the authors try to measure empirical data to determine what, if any, effect royalty sharing policies in university technology licensing offices (TLOs) have on total income received from licensed inventions. It is noted that

technology-licensing activity has grown dramatically in the past two decades. The number of licensed inventions tripled over the course of the 1990’s, and license revenues increased from $186 million to about $1.3 billion. At the heart of

understanding what has given rise to this increase in licensing activity. Is it simply


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an appreciation for intellectual pursuit shared by academic researchers, as some commentators claim, or do economic incentives matter. In the US intellectual property policies always grant universities first refusal rights over inventions produced by their researchers, however any cash flow is shared with inventors according to university specific policies. The authors show that there is substantial variation in royalty sharing policy across universities, and they use this cross-sectional variation to estimate the effect of royalty sharing arrangements on license income. Lach and Schankerman develop simple empirical framework in which scientists allocate effort to start new research projects and improve the quality of each project. Scientists value both royalty income and publications. They make two predictions based upon these assumptions; (1) the greater the share of royalties universities allot for scientists, the greater the effort of research scientists to innovate and thus the greater the total income of licensing activity, and (2) variations in royalty incentives across universities affect the sorting of more productive scientists to universities. There are three key empirical findings reached. First, royalty shares affect the level of license income generated by universities. Second, the incentive effects of royalty shares appear to work both through the effort and sorting channels. Third, the response to incentives is much stronger (and more significant) in private universities than in public ones. Regarding the differences in the results viewed between private


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and public universities, it is found that in almost all private universities, and about half of public universities, the incentive effect is great enough to produce a Laffer effect, where raising the share of inventors increases the total income retained by the university. It is also found that TLOs in private universities are more productive, suggesting that private institutions have more effective, commercially oriented technology transfer activity. Myers, Robert A. “Challenges for Japanese universities’ technology

licensing offices: what technology transfer in the United States can tell us”. Center on Japanese Economy and Business Working Paper Series, Columbia University, based on presentation given to the Institute of Intellectual Property in Tokyo, Japan (March 10, 2005).

Keywords: Technology Transfer; Japanese Innovation Policy; Universities

Professor Myers evaluates US technology transfer from the viewpoint of an industrial “customer” (IBM) and from the perspective of his own consulting firm which represents universities and companies in technology transfer. The purpose of the lecture is to identify some challenges facing newly “privatized” Japanese universities and propose some suggestions to Japanese Technology Licensing Offices (TLOs) on what his firm considers to be “best


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practices” in technology transfer.

Myers begins his comparative study by describing the fundamental differences and similarities of technology-transfer institutions and customs in the United States, Japan and the European Union. One theme Myers is compulsively trying to engrain on his audiences’ minds is the vital nature of filing for a patent in the US if there is any anticipation that the invention has potential to provide significant return.

Myers’ recommendations for best practices are simple and practical, emphasizing internal organization as an indispensable characteristic of a successful TLO. He stresses the importance of delegating responsibilities and developing effective measures of success, for example, royalty income, customer satisfaction surveys, publications and awards, citation indexes and patents applied for and received. Professor Myers also emphasizes the

effectiveness of providing financial incentives to staff, and promoting technology transfer activity amongst faculty and students. Technology

transfer is a long process and without an experienced staff of TLO professionals, which understands the importance of being patient and perseverant, as well as not over-reaching, it will be difficult to effectively establish relationships with potential licensees.


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Geiger, Roger L. and Creso Sa. “Beyond technology transfer: US state policies to harness university research for economic development.” Minerva (2005) 43: 1-21.

Keywords: Technology Transfer; R&D; Knowledge Spillover

Analyzes the innovation-driven policies of individual states, looking at R&D expenditure for research institutions, funding priority, return on investment and the “spillover” effect of these three factors on the state GSP. Authors conclude that the economic contribution made by universities extends far beyond the production of economically relevant research. Their greatest contribution is in the creation of human capital; the actual value of which is contingent upon the quality of the university in question. Additionally, universities are major actors in creating and sustaining knowledge-intensive industries.

States have refocused the aim of their policy-making framework toward “technology creation,” with the primary aim to bolster quality by enhancing research infrastructure. The primary actors in a knowledge-based economy


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are knowledge-intensive firms, specifically large corporations; start-ups (which assume great risk to turn knowledge into commercial products) are smaller complements of a much larger process. The role of the university lies in their capacity to produce new knowledge. The state’s responsibility when crafting policy is to “weld these components together, and to lubricate the process.”

Audretsch, David B. “Entrepreneurship Policy and the Strategic Management of Places.” Max Planck Institute and Indiana University. entrepreneurship_policy.pdf.

Keywords: Entrepreneurship; Innovation Policy; Small and Medium-Sized Enterprises

In this essay, Professor Audretsch outlines the evolution of government policy regarding entrepreneurship in the context of academic understanding of entrepreneurial activity. In the first third of the paper he explores the evolution of the definition of the word entrepreneurship, which largely was contingent upon the greater understanding of the nature of the global, and occasional local economy. The stated purpose of the essay is to explain why


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and how a new type of public policy has emerged- the strategic management of places- and the central role that entrepreneurship plays in this new policy.

Audretsch holds his own research to be the most compelling and prevalent view of entrepreneurship, because it focuses on the importance of knowledge in the marketplace and the perception of new economic opportunities. In his analysis, entrepreneurship is about change, just as entrepreneurs are agents of change; entrepreneurship is thus about the process of change. This idea is reflected in the OECD proposed definition of entrepreneurship, “Entrepreneurs are agents of change and growth in a market economy and they can act to accelerate the generation. Dissemination and application of innovative ideas…Entrepreneurs not only seek out and identify potentially profitable economic opportunities but are also willing to take risks to see if their hunches are right” (OECD, 1998, p.11).

Audretsch finds definitions of an entrepreneur as basically an agent of change to be overly simplistic for two reasons. First because it is a phenomenon that crosses multiple organizational forms, no single organizational form can claim a monopoly on entrepreneurship. Second, the concept of change is relative to some benchmark. Thus, the concept of entrepreneurship is embedded in the local context. Entrepreneurial activity


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at the local and regional levels can impact those markets, but its potential value is limited. However, entrepreneurial activity that is new across all organizational forms, all the way up to global, carries the greatest potential value. Therefore, one of the most compelling characteristics of

entrepreneurialism is that it crosses a number of key units of analysis (i.e. actions of individuals, individuals in the context of a group, different levels of industry, and even spatial levels).

Policymakers have long viewed entrepreneurialism through the same lens that they viewed small and medium sized enterprise (SME) policy. In fact, the only true difference between the two issues in the eyes of governments around the world is that SMEs have specific agencies or committees tasked with examining their market contribution and formulate policy

recommendations based upon these findings (i.e. US Small Business Administration), and entrepreneurs have yet to have a government institution designed strictly for there cause. Essentially, entrepreneurial policy is

embedded in SME policy and any understanding of the evolution of SME policy over time must be set within the framework of how SMEs were prioritized by policymakers in the post-war era.

Following WWII, it was the prevailing opinion of economists that the most


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important factor in national economic success and growth was the large corporation, and it was believed for a time that SMEs were a dying breed. It was this assumption that led European policymakers to determine that the best way for them to narrow the gap in competitiveness that had emerged with US MNCs was to focus on establishing major international corporations to compete with these superior MNCs in America. This led them to focus their resources on the development of about 100 corporations through the consolidation of the many smaller entities competing in each major industry in Europe and the strategic manipulation of firm location to best take advantage of resources.

What had appeared to be the slow death of SMEs suddenly reversed itself starting in the 1970’s. Audretsch hypothesizes that the impetus for this sudden reversal of fortune for SMEs was the result of increased globalization, which has shifted the comparative advantage towards knowledge-based economic activity. This runs counter-intuitive to conventional wisdom,

which would have predicted that increased globalization would present a more hostile environment to small business, because of the perceived additional costs associated with globalization were expected to marginalize SMEs and insure that foreign investment would be mainly an activity of large firms. The


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reasoning underlying the resurgence of SMEs were (1) large enterprises in traditional manufacturing industries have lost their competitiveness in producing in the high-cost domestic countries, and (2) small entrepreneurial enterprises take on a new importance and value in a knowledge-based economy.

Ali-Yrkko, Jyrki..” European Network of Economic Policy Research Institutes, Working Paper No. 39 (August 2005).

Keywords: R&D; Innovation Policy; Research Institutes

The specific focus of this research is on the impact of public financing of R&D on employment. It is an attempt to fill the gap in prior research on the impact of R&D on firm-level employment by delineating between the effect on a firm's global employment and that on domestic employment. The reasoning behind differentiating between the two is that the primary aim of technology policy is to promote competitiveness of the national economy by technological means, and because the objective is to create domestic benefits, it is essential to differentiate between domestic and overseas impacts of public R&D funding. Another new aspect of this study is that it makes a distinction between the effects of public versus private sources of financing and evaluates


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whether public sources have a positive and economically significant impact on domestic R&D employment. As to whether public funding has an effect on employment outside the R&D domain, no evidence suggests that this is the case. Nor is there any evidence that there is any impact on firm employment at the global level.

The results have several important policy implications. First, they do not support the view that the only effect of public R&D financing is to raise the wages of researchers, but rather that public R&D funding does have a positive impact on the R&D labor demand. Second, research provides no evidence that public R&D funding increases the labor demand of employment other than in R&D, at least in the short term. This is important because rather than increased innovation, the ultimate goals of economic policy are more in the realm of improved competitiveness, increased exports, increased employment and finally increased welfare.


Management of Technology 2006

Tables and Charts

Figure 2: National Science Foundation, Division of Science Resource Statistics 2006,

Support for academic R&D, 1972-2003
45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0

All sources of funding Federal Government State Government Industry Academic Institutions All other sources

19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02


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