Effect of Venture Capital on the Growth of Information and Communication Technology University Spin-Offs: Venture Capital Effect on the Growth of ICT-USOs

Introduction

In recent decades, the creation of university spin-off firms (USOs) is one of mechanisms used by universities to transfer technology to society and contribute to the regions’ economic development. The USO concept does not have a single and consensually accepted definition (Pirnay et al., 2003), but rather several proposals that are not always convergent. In a literature survey, Djokovic and Souitaris (2008) indicate that definition must contain two main issues: the agents involved and the elements to be transferred. Regarding the first one, the parent organization has to be a university or academic institution but there is no consensus on the need for participation of a university member in the company.

Regarding the second one, the new entity has to exploit knowledge produced from academic activities or academic pursuits. In this respect, whereas some authors use a very narrow definition, requiring that the rights transferred being of an exclusively technological nature (O'Shea et al., 2008), other ones argue that these rights may include both codified knowledge (for example, in the form of patents or copyrights) and tacit knowledge (technical know-how) (Hindle & Yencken, 2004). The output of these combinations has to be a separate legal entity to be considered a university spin-off.

In this paper, we follow the definition by Red OTRI, which considers USOs as start-ups exploiting university knowledge but not necessarily founded by university staff (Red OTRI, 2011). This definition of USO also appears to be one of the most widely employed among researchers (Zhang, 2009). Using this definition in the Spanish and Portuguese academic entrepreneurship contexts means to consider a mix of both technology and service-based spin-offs.

USOs are an important mechanism of transferring knowledge from Universities to society. In so doing, USOs contribute to create new high quality employment and accelerate the productivity of regional economies (Hayter, 2016; Shane, 2004). Therefore, policy-makers are increasingly investing in universities to foster the creation of innovative start-ups (Autio et al., 2014). However, several studies have suggested that USOs are not the best way to transfer knowledge from universities to industry as these firms tend to remain relatively small (Zhang, 2009).

USOs usually face certain problems, namely financial constraints and founder teams lacked of basic managerial skills. In this respect, the presence of venture capital (VC) partners may help USOs to gain access to the lacking resources, exerting a positive impact on their performance. Venture capitalists are a type of financial intermediary with three main functions (Metrick & Yasuda, 2010, p. 19); “screening potential investments and deciding on companies to invest in, monitoring these companies and providing value-added services for them, and exiting their investments in these companies by selling their stake to public markets or to another buyer”. The object of VC capital investors is to contribute to the expansion and development of the company and, therefore, increases their value. Later, when the company has generated the expected value it is listed to be reversed, and, therefore shareholders, including venture capitalists, can obtain a recompense on the capital invested. The injection of VC funds is complemented by an added value with services like: advice, credibility with third parties, professionalization of management teams, openness to new business approaches, experience in other sectors or markets, etc.