Spatial collocation and venture capital in the US biotechnology industry

Biotechnology firms operate in a high-risk and high-reward environment and are in a constant race to secure venture capital (VC) funds. Previous contributions to the literature show that the VC firms tend to invest locally in order to monitor their investments and to provide operating assistance to their target firms. Further, biotechnology is a knowledge-based industry that tends to exhibit spatial clusters, and the firms in such industries may collocate to benefit from gaining access to local markets for specialized inputs (e.g., skilled researchers) and from local knowledge spillovers and network externalities. If such gains exist, we expect that the collocated firms should exhibit positively correlated performance, including in their ability to attract venture capital funds. The purpose of this paper is to empirically measure the strength and spatial extent of the relationships among the amount of funds raised by proximate biotechnology firms. We model these relationships with a spatial autoregression (SAR) model, and we control for characteristics of the biotechnology firms and the VC firms that provide their funds as well as site-specific factors. Based on our fitted SAR model, we find that the amount of venture capital raised by a particular biotechnology firm is significantly influenced by the number of VC firms and the VC funding levels raised by biotechnology firms located within a 10-mile radius, but these relationships are not statistically significant beyond this range.     

University-industry collaborations in Japan: The role of new technology-based firms in transforming the National Innovation System

This paper examines the role of new technology-based firms in university/industry collaborative (UIC) activities in Japan. UIC activities have been widely diffused into small startup firms over the past 5 years, according to quantitative analysis of RIETIs UIC Survey. In this paper, it is found that these smaller firms achieve higher productivity through UICs than large firms. In light of the findings of this paper, it appears that UICs are gaining momentum and are likely to play a strong role in reducing the dependence of Japan's system of innovation on in-house R&D conducted within large corporations.     

Understanding the technology market for patents: New insights from a licensing survey of Japanese firms

This paper provides an empirical analysis of the technology market for patents in Japan, by using a novel firm-level dataset that combines a Japanese Patent Office survey titled Survey of Intellectual Property Activities, the Institute of Intellectual Property patent database, and the Licensing Activity Survey conducted by the University of Tokyo. In this paper, we use a two-step model to estimate a firm's licensing propensities; the first step estimates the determinants of potential licensors (willingness to license) and the second step identifies the factors of the actual licensing out of technology (licensing propensity). We found that a significant number of patents held by firms are not licensed out, although the owners are willing to do so. Our econometric analysis reveals that a major factor behind this technology market imperfection is the potential licensors’ difficulty in finding licensing partners.     

Managing competences in entrepreneurial technology firms: a comparative institutional analysis of Germany, Sweden and the UK

Innovating firms in new industries face a number of technological and market risks, especially appropriability and competence destruction. However, the relative significance of these varies between different sub-sectors, and so do managerial ways of dealing with them. These in turn are influenced by institutional frameworks, particularly those governing skill formation systems and labour markets. Consequently, the relative success of firms in fields with different appropriability and competence destruction risks is likely to vary between countries with contrasting patterns of labour market organisation. In the biotechnology and computer software industries, there are major differences in the dominant risks faced by innovating firms such that we would expect their relative success to differ between Germany, Sweden and the UK. While the UK and, to a limited extent, Sweden, have developed institutions similar to those found in the US that help govern “radically innovative” firm competences, Germany has invested in institutional frameworks associated with “competency enhancing” human resource practices that give its firms an advantage in more generic technologies in which organisational complexity is higher. While the distribution of public companies across sub-sectors broadly follows these expectations, Sweden has developed considerable strength in middleware software. This results from changing property rights and personnel policies at Ericsson.     

US faculty patenting: Inside and outside the university

In a sample of 5811 patents with US faculty as inventors, 26% are assigned solely to firms rather than universities as dictated by US university employment policies and Bayh-Dole. We relate assignment to patent characteristics, university policy, and inventor field. Patents assigned to firms (whether established or start-ups with inventor as principal) are less basic than those assigned to universities suggesting firm assigned patents result from faculty consulting. Assignment to inventor-related start-ups is less likely the higher the share of revenue inventors receive from university-licensed patents. Firm assignment also varies by inventor field and whether the university is public or private.     

The governance and performance of Xerox’s technology spin-off companies

Companies that conduct internal research cannot fully specify the output from that research in advance. Inevitably, spillovers may result. A company might choose to create a technology spin-off company to realize value from such research spillovers. But how is such a spin-off to be governed? Effective spin-off governance structures in a highly uncertain environment must promote experimentation and adaptation, in order to unlock the latent value in a technology. These can conflict with structures intended to manage coordination with the parent firm’s complementary assets.This paper analyses 35 spin-off organizations that arose from the Xerox Corporation. Xerox’s own initial equity position is negatively correlated with the subsequent performance of its spin-offs, but this is due not to their equity per se, but Xerox’s practices in managing its spin-offs. Spin-offs with a higher percentage of venture capital investors on their Boards were associated with higher financial performance, while spin-offs with a Xerox insider as CEO were associated with lower financial performance. Qualitative interview data suggest that Xerox’s practices caused its spin-offs to search locally near Xerox’s own business, while spin-offs governed by outside investors’ practices searched a broader space for commercializing their technologies.     

Development of SMEs and heterogeneity of trajectories: the case of biotechnology in France

Biotechnology is an emergent sector based on the creation of research-intensive Small and Medium Enterprises (SMEs). While some SMEs are growing, most of them remain small, even those set-up several years ago. What is the pattern of development of the biotech sector? What are the patterns of development of firms? Studies on the development of high-tech SMEs have focused on a business model, in which entrepreneurs rely on growth forecasts to persuade capital investors (business angels and venture capitalists) to invest in a radical innovation project. Firms aim for a world market to industrialise their innovation, and initial public offering (IPO) enables initial investors to make profits that offset risky initial investment. While this model is appealing, it is simply one of the possible models of biotechnology development. Some firms are not designed to experience exponential growth, and choose to target local markets. Moreover, not all firms have the ambition of being listed on the stock exchange. Based on an in-depth analysis of the business and development of 60 French biotech SMEs, this article identifies two business models. By defining the development trajectories of each of these models, it highlights the temporary nature of the emergent model.     

Initial public offering and financing of biotechnology start-ups: Evidence from Japan

This study explores the initial public offering (IPO) and financing of biotechnology start-ups in Japan. Using a unique data set, we find that biotechnology start-ups initially backed by venture capital (VC) firms and those originating from universities are more likely to go public within a shorter period. Moreover, we find that neither staged financing nor syndication by VC firms is associated with higher IPO value relative to investment. Furthermore, we provide evidence that the timing of IPOs does not depend on equity market conditions in the biotechnology industry, whereas IPO value tends to depend on equity market conditions. We discuss the factors that explain these findings, which contradict findings in previous studies of VC investments.     

The point of view of firms in Minas Gerais about the contribution of universities and research institutes to R&D activities

The purpose of this paper is to analyze the interactions between firms, universities and research institutes based in Minas Gerais, Brazil. The theoretical standpoint is the innovation system of developing countries. Multivariate cluster analysis is used, more specifically, the Grade of Membership method, to group firms with similar characteristics and evaluate their pattern of interaction with universities and research institutes. The main results show that the highest rates of interaction are found among firms that manufacture chemical products, cellulose, paper and paper products, followed by those engaged in the extraction of metallic and non-metallic minerals.     

Applying open innovation in business strategies: Evidence from Finnish software firms

Our study aims at shedding light on the innovative business strategies in the software sector and understanding better the economics that underlies the supply of Open Source Software (OSS). We use survey data collected from 170 Finnish software companies to investigate how different properties of software firms, such as size, age, intellectual capital, absorptive capacity, and ownership structure affect their decisions to base their business strategies on OSS supply or proprietary distribution of products and services.Our empirical findings indicate that the adoption of technologically advanced strategies requiring complex legal and managerial knowledge, such as the OSS supply strategy, demands relatively highly educated employees. The support for and development of an education system providing highly skilled people from different fields are essential for the firms’ successful adoption of innovative business strategies. We also find that market entrants have largely driven the OSS adoption, but there are no significant age-related differences in the adoption behavior of incumbent software firms.     

The impact of public basic research on industrial innovation: Evidence from the pharmaceutical industry

While most economists believe that public scientific research fuels industry innovation and economic growth, systematic evidence supporting this relationship is surprisingly limited. In a recent study, Acemoglu and Linn (2004) identified market size as a significant driver of drug innovation in the pharmaceutical industry, but they did not find any evidence supporting science-driven innovation from publicly funded research. This paper uses new data on biomedical research investments by the U.S. National Institutes of Health (NIH) to examine the contribution of public research to pharmaceutical innovation. The empirical analysis finds that both market size and NIH funded basic research have economically and statistically significant effects on the entry of new drugs with the contribution of public basic research coming in the earliest stage of pharmaceutical drug discovery. The analysis also finds a positive return to public investment in basic biomedical research.     

Risk factors and mechanisms of technology and insignia copying—A first empirical approach

This paper examines the relationship between a firm's strategic framework and business environment and the probability of becoming the target of “copying”, differentiated into (i) unauthorized reproduction of its technological product elements or insignia, and (ii) patent and trademark infringement. Based on bivariate and multivariate analyses of survey data, we show patterns of the links between being (legally or illegally) imitated and IP protection (e.g., defensive publishing), general strategy (e.g., selling products abroad or off-shoring R&D activities) and organizational factors (e.g., firm size). Management implications for successful strategies against the different types of being copied are derived.     

Going, going, gone. Exit forms and the innovative capabilities of firms

Although innovation is essential to build a competitive advantage and survive in the long run, some firms choose to exit, through mergers and acquisitions (M&As), or radically change their business portfolio and identity. This paper examines how innovative capabilities influence the decision of a firm to exit, among business closure, M&A, and radical restructuring. Using an analysis of a large and rich panel of Dutch manufacturing firms, we find that product and process innovation are equally important to lower the probability to close down activities, and this effect is stronger when product and process innovations are pursed in combination. We also find that process innovation reduces the probability of exit by radical restructuring, while product innovation, when not supported by process innovation, especially increases the probability of exit by M&As. Our findings suggest that exit strategies are intimately bound to the nature and synergies of innovative efforts.     

Performance of Spanish universities in technology transfer: An empirical analysis

This paper investigates the performance of universities in the transfer of technology using a unique university-level dataset for Spain. The results suggest that universities with established policies and procedures for the management of technology transfer perform better. Universities with large and experienced technology transfer offices (TTOs) generate higher volumes of contract research, but the TTO characteristics appear to matter less for university performance in terms of licensing and creation of spin-offs. Furthermore, universities with a science park perform better than those without, which suggests that the agglomeration of knowledge close to universities has a positive effect on universities’ technology transfer performance.     

German employee inventors’ compensation records: A window into the returns to patented inventions

This paper uses a novel data source, namely German employee inventors’ compensation records compiled in compliance with the German Employee Invention Act of 1957 to estimate the returns to patented inventions. In contrast to patent value estimates obtained from surveys and renewals, these records primarily provide a measure of the value of the use of the invention and not the value of patent protection. While indicators of patent value explain much of the variation in these patent value estimates, the values are only weakly correlated with the estimated renewal value of the patents. The distribution of patent value from these records is highly skew, with the vast majority of the returns earned by a select set of high valued patents, consistent with finding for other measures of patent value. The value estimates however are considerably lower than recent survey estimates with most of the patents having little or no realized value, suggesting that the returns appropriated through the use of an invention may represent only a fraction of the value of a patented invention.     

Pre-empted patents,infringed patents and firms’ participation in markets for technology

In recent years, firms have increasingly contributed to and been confronted with a patent landscape characterized by numerous but marginal inventions, overlapping claims and patent fences. As a result, firms risk their patent applications to be pre-empted or to be infringed upon by rivals. While both aspects constitute major challenges for the appropriation of returns to inventive activity, extant literature suggests that participation in the market for technology might actually resolve or at least alleviate these problems. In this paper, we investigate the effect of pre-empted and infringed patents on firms’ engagement in in- and cross-licensing. Based on a sample of more than 1100 German manufacturing firms our results show that firms engage in in-licensing as a reaction to pre-empted patents and in cross-licensing if their protected IP was infringed upon. However, these effects vary depending on the fragmentation of technology fields and whether the firm operates in a discrete or complex product industry.     

The creation of spin-off firms at public research institutions: Managerial and policy implications

We consider the managerial and policy implications of the rise of spin-offs at public research institutions (PRIs), based on a knowledge-based view (KBV) of the firm. This framework highlights the importance of knowledge in the creation and development of spin-offs. We argue that in order to understand the development of spin-offs, researchers should focus on “knowledge gaps” these new ventures encounter. Knowledge gaps can occur at different levels of aggregation, including the PRI, spin-off, team, individual, incubator, and at different stages of spin-off development. Based on this framework, we synthesize findings from previous studies and papers in the special issue and offer some suggestions for additional research on spin-offs from PRIs.     

Absorptive capacity and the search for innovation

This paper examines the link between a firm's absorptive capacity-building activities and the search process for innovation. We propose that the enhanced access to university research enjoyed by firms that engage in basic research and collaborate with university scientists leads to superior search for new inventions and provides advantage in terms of both the timing and quality of search outcomes. Results based on a panel data of pharmaceutical and biotechnology firms support these contentions and suggest that the two research activities are mutually beneficial, but also uncover intriguing differences that suggest differing roles of internally and externally developed knowledge.     

An examination of the intertemporal returns of patented inventions

This paper examines the intertemporal returns of patented inventions using estimates of patent value obtained from German employee inventors’ compensation records. The paper finds heterogeneity in the mean age and dispersion of the annual returns by technology and cumulative patent value. While the returns earned by most patents dissipate rapidly, high valued patents tend to receive significant returns through the latter part of the patent term. These high valued patents which account for the vast majority of the realized returns, further can be identified based on past returns, relatively early in the patent term. These findings suggest that while shortening the length of the patent term could substantially reduce realized returns, graduated maintenance fees may not adversely affect returns, as firms would be able to identify and selectively renew the subset of high valued patents.     

Innovation and productivity among heterogeneous firms

This paper examines the links between firm innovation and productivity using the largest cross-country panel dataset assembled for this purpose to date. We use harmonized and comparable data on a total of 40,577 small, medium and large firms surveyed in the World Bank Enterprise Surveys (WBES) and provide some support for the reported patterns previously found in the innovation literature. Our results indicate that estimates from studies using cross-section data may be upward biased but nevertheless, innovative firms are significantly and economically more productive in both the manufacturing and services sectors.