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Impact of public seed-funding on academic spin-offs

DOI:10.1007/s10961-016-9476-5
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Mark R. Ayoub
Mark R. Ayoub
Mark R. Ayoub
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Sandra Gottschalk
Sandra Gottschalk
Sandra Gottschalk
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Bettina Mueller at Universität Mannheim
Bettina Mueller
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Abstract

In the entrepreneurial economy of today, it is not the multinational firms which are the predominant driver in the creation of new knowledge, but the individual entrepreneur. Correspondingly, new ventures of small size are leading in commercializing new knowledge and transferring it to the market. This economic shift has been reflected by broad entrepreneurship policies, which aim at supporting the individual on the challenge of a high-growth start-up. However, prior experience shows that uniform entrepreneurship policies do not address the individual needs in different countries and ecosystems adequately. In this paper, we study the performance of academic spin-offs that received public funding from the German EXIST Business Start-Up Grant, a support program which aims at increasing the number of innovative start-ups from academia. Using a control group matching approach, we provide evidence that these start-ups are smaller by two full time equivalent employees, generate 1.7 times higher losses and have a nearly three times lower return on capital than science-based entrepreneurial firms with comparable characteristics in the first 5 years after foundation. We interpret these results to be primarily caused by the inferior financial contracting structure of the program compared to private venture capital funding and by the resulting adverse selection and incentive effects on the entrepreneurs. The evidence calls for rethinking public interventions in a national system of entrepreneurship.
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Impact of public seed-funding on academic spin-offs
Mark R. Ayoub
1
•Sandra Gottschalk
2
•Bettina Mu
¨ller
2
Published online: 9 April 2016
ÓSpringer Science+Business Media New York 2016
Abstract In the entrepreneurial economy of today, it is not the multinational firms which
are the predominant driver in the creation of new knowledge, but the individual entre-
preneur. Correspondingly, new ventures of small size are leading in commercializing new
knowledge and transferring it to the market. This economic shift has been reflected by
broad entrepreneurship policies, which aim at supporting the individual on the challenge of
a high-growth start-up. However, prior experience shows that uniform entrepreneurship
policies do not address the individual needs in different countries and ecosystems ade-
quately. In this paper, we study the performance of academic spin-offs that received public
funding from the German EXIST Business Start-Up Grant, a support program which aims
at increasing the number of innovative start-ups from academia. Using a control group
matching approach, we provide evidence that these start-ups are smaller by two full time
equivalent employees, generate 1.7 times higher losses and have a nearly three times lower
return on capital than science-based entrepreneurial firms with comparable characteristics
in the first 5 years after foundation. We interpret these results to be primarily caused by the
inferior financial contracting structure of the program compared to private venture capital
funding and by the resulting adverse selection and incentive effects on the entrepreneurs.
The evidence calls for rethinking public interventions in a national system of
entrepreneurship.
&Mark R. Ayoub
m.ayoub@maastrichtuniversity.nl
Sandra Gottschalk
gottschalk@zew.de
Bettina Mu
¨ller
bettina.mueller@zew.de
1
Maastricht Centre for Entrepreneurship, Maastricht University, Maastricht, The Netherlands
2
Department of Industrial Economics and International Management, Centre for European
Economic Research, Mannheim, Germany
123
J Technol Transf (2017) 42:1100–1124
DOI 10.1007/s10961-016-9476-5
Content courtesy of Springer Nature, terms of use apply. Rights reserved.
... While positive impacts of KIE policy on firm-level R&D dynamics and, ultimately, on performance have been reported (Cowling, 2016;Fini et al., 2023;Giga et al., 2022;Hottenrott and Richstein, 2020;Lerner, 1999), substantial rates of business failure remain an issue of concern (Ayoub et al., 2017;Gicheva and Link, 2016). These risks put pressure on policymakers when deciding where funds should be allocated, creating incentives for making competitive bids as effective as possible. ...
... This can generate valuable knowledge on how to guide improved competitive bids for awarding R&D subsidies. As previous assessments have demonstrated, this stage is critical in: defining the impacts generated by the policy; and strengthening the quality of entrepreneurship policies as market signals for private investors (Ayoub et al., 2017;Colombo et al., 2011;Lerner, 1999). ...
... Differences emerging from the PIPE versus non-PIPE comparison are likely a function of a well-designed selection process. As previous literature identified (Ayoub et al., 2017;Colombo et al., 2011;Lerner, 1999), such conditions not only enhance the quality of entrepreneurship being nurtured; they also enhance the quality of market signals. ...
More than one way to get there: a configurational view on performance drivers in knowledge-intensive entrepreneurship
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... First, the literature shows that researchers have evaluated nationwide and local public startup support measures in many countries, including Argentina (Butler, Galassi and Ruffo 2016), Finland (Luukkonen 2010), Germany (Almus 2001;Ayoub, Gottschalk and Mü ller 2017;Hottenrott and Richstein 2020;Caliendo and Tü bbicke 2021), Italy (Manaresi, Menon and Santoleri 2021;Biancalani, Czarnitzki and Riccaboni 2022), Romania (Busu et al. 2021), the UK (Meager, Bates and Cowling 2003;Alcock et al. 2012), and the USA (Goetz et al. 2010). Secondly, the policies evaluated include various types of element for promoting startups, for example, tax incentives, subsidies, credit guarantee schemes, legal exemptions for special cases, startup grants, technical assistance, and consulting. ...
... Other authors have focused more on the role of university policies and technology transfer organizations in promoting startups, for example, in the USA (Gray et al. 2022) and Israel (Meseri and Maital 2001). Thirdly, most of these studies are concerned with robust estimates of the quantitative effects of the interventions under study by employing research designs with comparison groups and applying econometric techniques such as difference-indifferences (DiD; Busu et al. 2021;Caliendo and Tü bbicke 2021;Manaresi, Menon and Santoleri 2021;Biancalani, Czarnitzki and Riccaboni 2022), matching (Ayoub, Gottschalk and Mü ller 2017;Hottenrott and Richstein 2020), or regression discontinuity analysis (Butler, Galassi and Ruffo 2016). Other authors have preferred to focus on the mechanisms that lead to effects and on the implementation of the measures, frequently also using qualitative research methods (Meseri and Maital 2001;Luukkonen 2010;Alcock et al. 2012;Gray et al. 2022). ...
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... These initiatives are in many cases anchored at regional rather than national level (Lanahan and Feldman, 2015;Munari et al., 2015;Rasmussen, 2008). However, an increasing number of studies are reporting disappointing results from efforts to promote university spinoffs (Ayoub et al., 2016;Bathelt et al., 2011;Borlaug et al., 2009;Brown et al., 2015;Harrison and Leitch, 2010). While policy efforts seems to result in an increase in the number of spin-offs created, the growth potential of these firms seems to be more modest . ...
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... These approaches have been evaluated extensively, contributing valuable insights for policymakers and enhancing scholarly discourse on strategies to improve the quantity and success of startups. Relevant research conducted in various countries and settings (e.g., Mueller, 2023a;Biancalani et al., 2022;Busu et al., 2021;Caliendo and Tübbicke, 2021;Audretsch et al., 2020;Goetz et al., 2020;Ayoub et al., 2017;Butler et al., 2016) offers valuable information to decision-makers regarding the range of options available. Most evaluations of startup support measures, however, focus on examining whether a particular measure under investigation generates effects or not. ...
What drives the effectiveness of public startup support programs? Empirical insights from the ‘EXIST-Business Startup Grant’
Preprint
Full-text available
  • Sep 2023
Purpose: In a recent quasi-experimental study, the effects of the largest German public startup support measure entitled 'EXIST-Business Startup Grant' on a variety of outcomes were determined, but without examining which factors are responsible for these program effects. The present study investigates the contribution of several factors to the success of the program in promoting product development and business planning. Design/methodology/approach: By means of a two-wave panel design and fixed-effects panel regressions, evidence is generated that provides unique insights into the effect mechanisms of a publicly funded startup grant. The data for the study come from the program monitoring of the startup support measure. Findings: Several factors were identified that significantly drive the effects of the program on the product development and business planning stages, namely program-induced improvement of skills of the startup team, intensification of cooperation with pilot customers/users, increase in the degree of networking and in advice/support from third parties, and the effort put into business plan preparation. Originality: Startup support programs are a crucial aspect of technology and innovation policies, which are often evaluated in order to find out whether they generate effects. Assessing whether a program is effective or not, however, does not usually allow specific recommendations on how to improve the measure to be developed. Further information on the mechanisms of intervention is needed for this purpose. The present study takes up on this idea and provides this information for a specific type of public startup support measure.
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... There are many ways to support startups, such as tax incentives, subsidies, credit guarantee schemes, legal exemptions, startup grants, technical assistance and consulting. The fact that many of these have already been evaluated in various countries and settings (e.g., Biancalani et al., 2022;Busu et al., 2021;Caliendo and Tübbicke, 2021;Audretsch et al., 2020;Goetz et al., 2010;Ayoub et al., 2017;Butler et al., 2016;Meager et al., 2003) provides important information for decision-makers and enriches the scholarly discussion about what options exist for increasing the number and success of academic (and non-academic) startups. The present study contributes to this literature by examining the effectiveness of a specific startup policy instrument, namely a startup grant entitled 'EXIST -Business Startup Grant' (EGS). ...
Startup grants and the development of academic startup projects during funding: Quasi-experimental evidence from the German ‘EXIST – Business startup grant’
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... Second, the dominant role of the R&D work stage is probably also due to the peculiarities of the EGS program, to which all of the startups surveyed were granted access. This program focusses particularly on startups with innovative ideas and products (e.g., Mueller, 2022;Ayoub et al., 2017), so R&D work may play an outsized role in the startups of the study sample. ...
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