The Role of Academic Entrepreneur's Experience in Building Networks

Transcription

1 The Role of Academic Entrepreneur's Experience in Building Networks Qazi Moinuddin Abro* *Associate Professor and Secretary Mehran University-Institute of Science, Technology and Development (MU-ISTD) Mehran University of Engineering and Technology Jamshoro Sindh Pakistan Phone: ABSTRACT This paper develops a theory relating to how academic entrepreneurs (AEs) with differing levels of venture experience build networks outside their academic arena to create and develop biotechnology spin-outs in the UK. It is argued that a lack of appropriate networks can significantly limit venture growth especially at an early stage of development. This area of research has gained significance within contemporary literature, because it remains unclear how academic entrepreneurs (AEs) build networks outside their academic arena, e.g. research institutes, labs, etc., to help grow their nascent ventures. This paper examines types of academic entrepreneurs (AEs) with different levels of entrepreneurship experience. Entrepreneurship experience is further explained by looking at prior founding experience. Using a participant observation qualitative research approach, each entrepreneur is examined retrospectively. Keywords: Academic Entrepreneurs, Technology transfer, Network ties, University Spinouts 1. INTRODUCTION Industry has been long considered the legitimate generator and exploiter of innovations (Nelson 1993). However, universities have been adopting a larger role in the innovation process (Etzkowitz and Leydesdorff 2009). The increasing importance of knowledge in industrial innovation (Etzkowitz et al. 2000) and the difficulty to transfer the tacit element of this knowledge to the industrial sphere (Chiesa and Piccaluga 2000) have contributed to the rise of a university entrepreneurial role that formerly belonged almost exclusively to industry. One of the indicatives of this entrepreneurial shift is the generation of spin-out companies. When spinning out new companies universities are going over the entire process of innovation, i.e. from the knowledge generation to the introduction of new products and services to the market. This academic phenomenon has lead to the creation and expansion of 68

2 important knowledge-based sectors such as biotechnology and ICT, that otherwise may not have arise. However, after several years of spin-out euphoria, some studies have started to look critically to the academic entrepreneurial output. A recent report on business-university collaboration in the United Kingdom indicates that even though some successful spin-out companies have been created, a large number of the companies created from universities will not survive in the long term (Lambert, 2006). Nonetheless, the creation of university spin-out companies still represents a potentially important innovation mechanism from academia (Vohora et al., 2004). The emphasis should now be placed on the creation of better spin-out companies and not only to create many of them. But how can universities create better spinouts? As pointed by Debakere (2002) universities need to enhance their innovation potential through appropriate strategies, structures and processes. These strategies should deal with the universities support activities and resources when spinning out, but also should minimise the spin-out failure drivers to successfully reach the market. Starting a new business requires organizing skills, but does it also require financial resources? It has been argued that the two main drivers of failure of academic spin-outs are undercapitalisation and poor management (Brett, et al., 1990). Although biotechnology is emerging industry; however it is a capital intensive industry (Ernst and Young, 2010). This is again a major challenge for an entrepreneur, because due to high capital costs, particularly for R&D, technology diffusion will be slow without significant levels of investment (Hine and Kapeleris, 2007). Biotechnology firms typically can not sell anything at the development stages which are posed in this paper; neither do they tend to employ many people. Therefore the classical performance measures such as turnover and number of employees are less useful. However; the performance measure that is used during this study is growth of the ventures through different stages (see Fig. 1). In biotechnology sector as new firms are formed and existing firms transformed to utilize the new technology derived from scientific breakthroughs, the very best scientists, which are primarily located in universities, are centrally important in affecting both the pace and diffusion of science and success of its commercial applications (Zucker and Darby, 1996). While going through different stages of development, the entrepreneur; especially the academic entrepreneur faces different kinds of challenges and obstacles. For example, the venture is generally based upon technological breakthrough that may have multiple commercial applications (Mosey and Wright, 2007) or entrepreneurs may not have sufficient skills and knowledge to recognise opportunities (Venkatraman, 1997), etc. In order to overcome the challenges like those, the venture must possess the human as well as social capital through building networks. Researcher entrepreneurs can achieve very little. To succeed they need to be integrated into networks allowing interaction between a wide variety of actors (Nicolaou and Birley, 2003). This paper is structured as follows. The next section gives a brief literature regarding the human and social capital of entrepreneurs. The following section outlines the methodology adopted for this study. Section 4 presents findings of a case study. Section 5 provides the development of propositions for future research. Finally, conclusions are presented. 69

3 2 LITERATURE REVIEW: 2.1 INTRODUCTION This section introduces the literature review in details by discussing about the academic entrepreneur and his role in the network building. The section also explains the problems associated with the academic entrepreneurs including venture capital and social networks. 2.2 ACADEMIC ENTREPRENEUR S NETWORK BUILDING Problems Associated with New Venture The difficulties associated with a new venture are well documented in the literature. As Stinchcombe (1965) generalises that higher proportions of new organisations do not survive in comparison to older ones. This, according to the author, is due to the fact that new venture has to deal with the liability of newness. This barrier limits the ability of new venture during the early stages of development and growth to become an established firm in the market, capable of earning suitable profits. Entrepreneurs need to overcome this challenge to achieve succession of transition from one phase of development to the other (Vohora et al., 2004). Biotechnology is defined as a developing science, in which the R&D process is based on tacit knowledge with little a priori understanding, and the process is exploratory and based on learning by doing (Oliver, 2004). Academic entrepreneur face a number of significant barriers and challenges in, initially, creating the venture and, then, sustaining new venture (Mosey and Wright, 2007). First, university spin-outs (USOs) face specific challenges as they evolve from an initial idea in a non-commercial environment to becoming an established as a rent generating firm. In particular universities typically lack resources and academic entrepreneur may lack commercial skills to create venture in an attempt tocommercialise technological asset (Siegel et al., 2003). Second, the academic entrepreneur may not have skills or knowledge to recognise opportunities (Venkatraman, 1997). Third, the traditionally non-commercial environment of universities and conflict of interest among universities, academic entrepreneur, financiers and other stakeholders, poses the real threat regarding the support available and to create and develop the venture during different transitional phases of growth (Mosey and Wright, 2007; Vohora, et al., 2004) Building Networks: Entrepreneurial Capital and Social Capital Entrepreneurial Capital Leading academic researchers may be entrepreneurial in identifying new research areas and sources of funds, but they have difficulties in identifying opportunities with commercial applications (Mosey and Wright, 2007; Lockett, et al., 2003). For example, in AGBO 1 Survey (2006), the most influential factor to overcome that is first rate management team. Also, academic entrepreneur s human capital is identified making two credible contributions: the transfer of tacit knowledge and signalling (Murray, 2004). In the literature on tacit knowledge transfer, it is widely recognized that knowledge that is complex can be hard to exchange and move among different organizational settings (Winter, 1987). Traditional arguments regarding a scientist s contribution to an entrepreneurial firm are focused on appropriable human capital, specifically technical capital established through 1 Anglo-German Biotech Observatory. 70

4 training and experience (Levin and Stephan, 1991). According to Zucker, et al. (1998), the performance of many early entrepreneurial biotechnology firms was dependent upon a close relationship with certain star scientists because they held the key to tacit knowledge that was otherwise hard to transfer to the firm. According to alternative theories consistent with signalling mechanisms, the role of a well-respected scientist that is affiliated with a firm is rather to signal the quality of the underlying science (Murray, 2004). This signal helps to overcome the challenges that investors might have in trying to establish the authenticity and quality of the complex and highly specialized scientific ideas that are presented as investment opportunities by scientists and entrepreneurs (Audretsch and Stephan, 1996). The possibility that a scientist may contribute not only human capital but also social capital raises the issue of what elements of social capital are most potentially useful to the firm and what are their origins. Social Capital To gain an insight into the types of challenges and barriers faced by the academic entrepreneur through various stages of development (see Vohora et al., 2004), the literature on social capital is drawn. Bozeman et al., (2001) argue that scientists accumulate experience in distinctive institutional setting, and in addition build social capital. Mosey and Wright (2007) propose that social capital is important for the creation of venture based upon university research, yet the social network of academics is typically constrained to a narrow scientific research networks. The authors are of the view that academics build social capital regardless of the type of the ties- whether strong or weak -within their closer networks, i.e. team members in their departments. But in order to move on towards creating venture and to be sustainable in the future, the academics must attempt to build the networks outside their working domain or academic network. Strong ties are associated with the exchange of finegrained information and tacit knowledge and trust-based governance (Elfring and Hulsink, 2003). Their advantages are different from the benefits generated by weak ties. Weak ties are beneficial as they provide access to novel information as they offer linkages to divergent regimes of the network (Granovetter, 1973; Burt, 1992). 3. METHODOLOGY For this research qualitative research methodology is adopted as the literature indicates that several points regarding the academic entrepreneur are unclear. Therefore, for this research keeping in view the literature a comprehensive participant observation approach of the qualitative research methodology is adopted for this research. Ten entrepreneurs were observed at different workshops, throughout the UK (Table 1). At those workshops, each entrepreneur was observed, who shared their venture creation experience. On the basis of those observations, themes were included and developed following interviews with those entrepreneurs. Ten entrepreneurs were selected with different ownership experience: eight nascent entrepreneurs and two habitual entrepreneurs. Nascent entrepreneurs are defined as those who do not have prior venture experience. Habitual entrepreneurs are defined as those who were previously engaged, at least once, in creating a venture. The focus of this study is to look at early stage of venture development. 71

5 4 FINDINGS 4.1 Building Network Ties The entrepreneurs were identified during the series of Biotechnology YES (Young Entrepreneur s Scheme) workshops, held at Nottingham, Sheffield, Manchester and Oxford. After close examination, entrepreneurs were categorised as nascent and habitual, based on previous ownership experience within biotechnology sector (Table 1). Apart from that, the participatory entrepreneurs ventures were created at university and corporate environment. However, majority of the entrepreneurs belonged to universities, throughout the UK. The focus of the paper is to examine the problems that entrepreneurs encounter at early stage of venture development within the biotechnology sector. New ventures are vulnerable to these kind problems (Stinchcombe, 1965; Vohora et al., 2004). This is the reason why the majority of the cases were selected from nascent entrepreneurs. Through the analysis of the data, consistent differences in human capital and building network ties between nascent and habitual entrepreneurs are found. These differences were irrespective of the environment where the ventures were spun-out, i.e. university or industry. This may reflect the fact that, for those entrepreneurs whose venture spun-out from corporate sector appears to encounter the similar difficulties as those which spun-out from university environment. Specific human capital such as prior ownership experience of entrepreneurs appear to be most effective in building the effective ties, which take their ventures to the next stage of development Nascent entrepreneurs Ties at start: The most common ties that nascent entrepreneurs have at the start are: research colleagues, parent organisation and IP, for initial venture support (Table 2). Six out of eight entrepreneurs have research colleagues, and five out of eight entrepreneurs have only premises to start their business. Also, the parent organisation support the nascent venture by providing, equipment and lab facilities. On several occasions, the parent organisations support the initial seed funding, patent management fees, etc. On some occasions, mostly in case of university spin-outs, ventures were provided the protection of their Intellectual property. Most of the entrepreneurs do have other ties when they started their business (Table 1). However, they build several ties as they proceed to next stage of their venture development. As mentioned earlier, few of entrepreneurs spin-out their companies from corporate environment; therefore they have ties with their parent industries at the start. Few of the nascent entrepreneurs have ties with large firms, e.g. N3, N7 and N8.This is due to the fact that two out of these three nascent entrepreneurs (N7 and N8) have spun-out their ventures from corporate sector. However, N3 have prior industrial experience at the start of his/her venture Habitual Entrepreneurs Ties at the start: For habitual entrepreneurs, the most common ties at the start are UTTOs (University Technology Transfer Offices). H1 already has already had a tie with VC firms. While for H2, Medici programmes was another source of tie at the start. Habitual entrepreneurs do not have any other ties at the start. 72

6 New ties built: Habitual entrepreneurs built ties with legal /IP firms. Since they already have ownership experience, they can realise the potential of IP/legal firms. H1 has not built any other ties except with legal/ip firm. However, H2 built ties with funding networks most of the times. E.g. venture capital firms, business angels, IP/legal firms, other universities, private labs, SMEs, large firms/industry, science parks, business networks, UTTOs. These amounts of ties are built because: i) the entrepreneur has moved form university to science park; ii) the first venture was less successful in comparison to this. This puts an extra burden on the entrepreneur to build more ties, in contrast to H1, whose first venture was a success. Also, it depends on the type of the venture that has been developed. In case of H1, this venture is more service oriented and based on the usage of the computer. For that, more credibility and media exposure is required rather the ties, as stated in the Table 2. As according to H1 In case of [company name], any computer user can sign up, get my screensaver and, every time they connect to the Internet, get molecules to test to discover if they fit as potential drugs. 4.5million people now work for me - in 227 countries. Some people are surprised that the number is so large, but we have the support mainly from, initially, considerable publicity for our venture from the media especially television across the world and since then very large interest has come simply my word of mouth among our supporter The most valuable ties that gained by habitual entrepreneurs are business angels. This reflects the fact that VCs do not come on board when there is a significant amount of money in the business. For early revenues and seed funding business angels and government grants are extremely valuable. Other resources that are gained are: legal firms, private labs and science parks. 5. CONCLUSIONS Consistent differences were observed between nascent and habitual entrepreneurs. Number of structural holes between the research community and industry sector that restricts the nascent entrepreneurs to access the useful ties. First, habitual entrepreneurs were focused regarding building the new useful ties, not necessarily building several of them, as observed in case of nascent entrepreneurs. Second, in exception to very few, most nascent entrepreneurs lack the ability to raise finance and manage their nascent ventures at initial stages. On the contrary, habitual entrepreneurs have already gained this knowledge via prior ownership experience. The most valuable network actor to build ties with is turns out to be funders -whether business angels or VCs. Explanation for that has already been given in the previous section. Innovativeness is vital to the creation and sustenance of a biotechnology venture, while credibility remains the backbone of entrepreneurs characters (Hine and Kapeleris, 2007). The challenge of financing, particularly from VCs, proves to be a constant struggle for biotechnology entrepreneur. This may be achieved through strong ties with funders. As strong ties develop trust among investors and inventors. For the start-up, life will be far more difficult due to limited availability of early stage risk capital. Furthermore, greater eminence through academic and commercial success attracts more funding (Oliver, 2004). For policy makers and practitioners, it is suggested that there is a need to develop a focused policy to meet the different types of entrepreneurs within biotechnology sector. As ownership experience has proven to be effective in building valuable networks, the active use 73

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