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24 May 2017

Spinouts benefit from internal seed capital

A research paper published in the Journal of the National Academy of Inventors shows the benefits of seed capital provided by institutions over external VCs.

Author: Thierry Heles, editor

Technology and Innovation, the Journal of the National Academy of Inventors, has published a research paper on the effects and benefits of different kinds of venture capital for research commercialisation.

The paper – University seed capital programs: benefits beyond the loan – is based on research was undertaken by seven co-authors: Joelle Mendez-Hinds and Paul Sanberg, of South Florida University’s (USF) Research & Innovation; Jack Miner, of Michigan University’s technology transfer office; Marc Sedam, of New Hamphire University’s research office; and Kevin Wozniak, of Georgia Tech’s Office of Industry Engagement.

The paper acknowledges the far-reaching effects of an external venture capital ecosystem, but notes that seed capital originating from the university actually “expanded funding opportunities, hiring and retention of top entrepreneurial faculty, goal-setting, entrepreneur development, economic development, and university engagement”.

Spinouts, the paper points out, face a far greater risk of failure than traditional startups due to the early-stage nature of their products – risks that can be offset with internal seed capital supplied by the university’s foundation and tech transfer office.

The seed capital, which in effect constitutes bridge funding, also has an impact beyond campus, the authors find, helping to foster an entrepreneurial community among faculty and students. That community  is  then able to attract seasoned entrepreneurs from elsewhere, who help boost the local economy.

To underline their point, the authors selected  a range of case studies, such as USF Research Foundation’s Seed Capital Accelerator Program. The initiative supplies up to $50,000 to support spinouts’ initial steps towards critical development milestones. To be eligible, spinouts need to be part of the Tampa Bay Technology Incubator.

The program has led to the long-term success of spinouts such as ClearSpec, founded in 2011 to develop a medical device, and Scientific League, also founded in 2011 to produce educational materials for primary school children in science, technology, engineering and maths subjects.

The success of programs such as the Seed Capital Accelerator was quantified by whether  spinouts were able to repay loans or provide favourable equity returns, as well as by indirect factors such as how many jobs were generated, how much sponsored research they attracted and how many products they launched. Other case studies included programs at Purdue University, University of Texas, Chicago University, Washington State University and Georgia Tech.

Paul Sanberg, co-author of the paper and senior vice-president for research, innovation and economic development at USF, said:

“In essence, there is a sense of ownership that strives for, and drives toward, a company’s success. The company’s success is then the university’s success.”

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