Science-Based Industries and Spin-Offs

Science-based and high technology industries are a major source of economic growth and competitiveness. An important mechanism through which these industries generate benefits for the economy as a whole is new firm formation. The empirical evidence shows that high-tech industries have larger start-up rates compared with other industries (Shane, 2001). In particular, entry of new firms is more likely to occur in ‘entrepreneurial technological regimes’ characterized by high technological opportunities and low entry barriers. However, in industries characterized by high technological change and uncertainty only new few firms survive and therefore the likelihood of growth and survival is limited. It is important then to understand what are the growth potentialities of different types of new science and technology-based firms (NSTF). The relevance of these issues for industrial policies is demonstrated by the marked differences between Europe and the US in terms of science-based entrepreneurship and post-entry growth of new start-ups, including those in high tech industries (Bartlesman et al., 2003). Scholars and policy makers agree that the European ‘innovation deficit’ is in part due to the limited new firm formation in science based industries. Several recent empirical works focus especially on the links between university and industry. Compared with the US academic system, European universities have limited technology transfer activities and spawn a much smaller number of spin-offs. To explore this issue, we first propose some definitions of NSTFs and the more recent theories and stylized facts. We then focus on spin-offs, that are NSTFs spawned by established firms or academic institutions, and introduce a taxonomy of science and technology-based spin-offs (STSO). We examine the role of parent organizations, firms and academic institutions, and their strategies towards STSOs. We also explore the implications of spin-offs for the incentives of established organization to invest in human capital formation and the impact of IPR and the market for technology on STSOs. Finally, we present evidence on the performance of STSOs and discuss some policy implications.