A study of the different views of the financial gap issues for university spin-offs
Abstract: Stimulation of innovation is a hot topic around the world. The developed economies are nowadays significantly dependent on innovation for further growth. One central source of innovation is universities and their ability to turn new knowledge into value-adding innovations. One of these technology transfer measures is through the creation of university spinoffs (USOs). High-tech startups, however, often require a significant amount of capital invested during the formative stages, which can be hard to acquire. The purpose of this study is to contribute with knowledge that could help understand how to narrow the financial gap between USOs and the venture capital market. The study will approach this financial gap from the three involved actors in USOs: the founders, the investors and the technology transfer office (TTO). The scope of this study is Chalmers University of Technology and Lund University. The methodology used to explore this area and get an overview of the actors’ different views were in-depth interviews with people from the different actor groups according to an interpretivist approach, also known as the actor’s view. This approach supports the pragmatic objective of the study to first gain a deep understanding of the different actors’ views on the financial gap to later draw conclusions and induce theories. A total of 14 interviews were conducted, with investors, academic founders, and technology transfer offices. In order to build a theoretical framework for the subsequent analysis, an extensive exploratory literature search yielded four areas that all relates to the financial gap issue. The theories chosen were financial gap theory, choice of financing in small business theory, negotiation theory and governmental intervention theory. The results show that most of the financial gap theory can be confirmed. It is the risk connected to the information asymmetry and the uncertainties that are the most important reasons and much of that have to do with time and competence. The small size and thereby the lack of competition in the venture capital industry is another reason why institutional investors move forward in the venture life cycle, which increases the financial gap. This leaves more space to be filled by private investors such as business angels, and public money. Unfortunately, they are too few. The founders have to spend a significant amount of time to find and attract venture capital, resulting in less time spend on developing the core business. The conclusion of the study is that academic founders should try to fund their projects as a research project as long as they can. Once incorporated, the company should have a clear business model with a customer and potential market in mind, minimizing technical risk and maximizing the chances of attracting venture capital. The government needs to revise the employee stock option regulation to make it more transparent and easier to use. It should also accept the proposed investment credit to stimulate seed investments. Most importantly, the government should make more public capital available in the seed phase together with the private investors, i.e. hybrid investment.
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