Download Venture Capital financing of innovation patents

IASP Africa 2013
WORKSHOP
Presented by
Olutoye Ayodeji
Date: 9 April 2013
Venture capital financing of innovation,
patents and intellectual property in
emerging economies: A theoretical model
“Entrepreneurship is the American economy’s secret weapon. Since
1980, fast-growing entrepreneurial companies have accounted for
nearly all of the …jobs created by the U.S. economy…and have
altered the ways in which we live and work…yet the role of venture
capital in this dynamic process has been poorly documented and
often misunderstood”
-Bygrave & Timmons, 1992
Introduction
• Innovation, new ventures and entrepreneurship
fuel the engine of the modern economy (Herbig, Golden & Dunphy, 1994).
“Innovation…the carrying out of new combinations…is the key to
entrepreneurial profits…[innovation is the only way to create new
economic value over the long term”
(Joseph Schumpeter, 1934)
Innovation
• Pervasive issue within academic literature and policy dicourse
(Malerba &
Brusoni, 2007).
• Plays a critical role in firms strategy
• Fundamental issue in public policy for economic and social growth, and
competitiveness.
Introduction (Contd.)
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•Forms a core aspect of Science and Technology Parks
(STPs).
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•University programmes and evolution of university systems
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•Evolved into a major field of study
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•Very relevant for stimulating STPs, entrepreneurship, industrial dynamics,
public policy, economic growth and regional development.
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• funding of innovation and financing of innovation process and innovative
businesses is a very critical issue.
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Introduction (Contd.)
•Small firms produce 2 ½ times as many innovations as large firms per
employee
•Small entrepreneurial ventures bring innovation more rapidly to the
market place.
•Govt and public agencies play a major role in funding innovation
•There is need to strengthen govt. Efforts
•Financial support is important for entrepreneurial ventures.
Objectives
Identify the role of VC in the entrepreneurial process
Propose a theoretical model for developing VC financing of innovation,
patents & IPRs in emerging economies
Proposes a theoretical model for commercialisation of innovation,
patents & IPRs developed in STPs.
Theoretical framework
• Business is continually transformed by science & technology
• Innovation nations have a thriving small business culture, large
business, access to VC financing, infrastructure (Heap, 2008).
• Innovation and enterprise are a pre-requisite for a thriving economy.
Innovation Commercialisation &
University IP
• Research in Universities add significant value to economy and
society
• Underpin the reason why government and business invest in public
research.
• Recent emphasis is on market focused research
• Application of ideas is becoming a significant component of the
mission of universities (Wellings, 2008).
• Increase in focus on the relationship between university research
outputs and the creation of new products and services.
• Many studies have data on commercialisation, IP, licensing, start-up,
research contracts & consultancy, skills dev. & transfer activities.
Innovation Commercialisation &
University IP (Contd.)
– Data show very rapid change in research commercialisation
activity in universities in developed countries (licensing, sale of
research technology or spin-outs).
– Plays a major role in the National Innovation System through
skilled graduates, new knowledge and research application
– Output from most universities in terms of commercialisation
projects have global applications, knowledge transfer with local
application.
Venture Capital financing of Innovation
– Government and funding organisations, policies encouraging
greater levels of commercialisation is taking effect.
– 2000 – 2004 external investment funds used in formation of
about 1/3 of spin-outs in the U.K.
– Recent research on the supply of entrepreneurial finance for
business growth has focused on the venture capital industry
– Definition has changed over the years and varies from firm to
firm and country to country
– Generally understood to be capital provided to new ventures
Defining VC & VCs (Contd.)
“The VC industry supplies capital and other resources to
entrepreneurs in business with high growth potential in hopes of
achieving a high rate of return on invested funds”
- Helen Soussou (in Timmons, Spinelli & Zacharakis, 2004).
Venture capitalist take equity participation through stock, warrants
and/or convertible securities and has an active involvement in the
monitoring of each portfolio company (PFC) bringing investment,
financial planning, and business skills to the PFC.
- (Hisrich, Peters & Shepherd, 2004).
VC financing of innovation & patent
- Role of patents for VC financing examined by
- Haussler, Harhoff, & Muller, 2008.
Positive impact of patent stock of high-tech companies on the
amount of VC financing.
- Baum & Silverman, 2004
- Mann & Sager, 2007
- Hsu & Zeidonis, 2007
Venture capital models
- Previous literature very diverse and numerous
- Existing models are focused on developed countries
- Very few models for developing countries
- Addressed VC issues on micro (firm level)
• Tybjee & Bruno, 1984 (5 stage model)
• Bygrave & Timmons, 1985
• Fried & Hisrich, 1994
• Pandey, 1998
• Klonowski, 2007
– Emerging markets are more dynamic than western countries as
business plans are often re-written as new opportunities appear.
Methodology
Exploratory - extensive literature study
A theoretical model for emerging economies
5 components
- Government and govt. support agencies
- Banks, insurance and financial institutions
- Universities, research centres and STPs
- Venture capital firms
- Portfolio companies
Variables
- Supply of funds, general management skills, development &
monitoring
- Research funding
- Research, education, training & development
- Research ideas, innovative products
- Share equity participation
- Support framework, policy, operational guidelines
- Taxes and other statutory obligations
- communication
Deposit &
Investment
Supply of Funds
Banks , insurance and other financial
institutions
Taxes
Govt & support
Agencies
Support
framework, supply
of funds
Venture Capital
Firm
Portfolio
Companies
Product
Research
Research
Funding
Universities of
Tech & Higher
Institutions of
Learning
Conclusion
- Challenges facing emerging economies are obvious and quite
numerous.
- Impact of entrepreneurial initiatives and ventures as engines for
economic growth cannot be over-emphasised.
- Link exist between innovation, entrepreneurship, and new
venture creation.
- Paper has examined the importance of VC financing
- Government and public funding very critical at initial stage of
innovation funding
- Private funding very essential at growth and later stage.
- Model focus on emerging economies and at macro level
- Model highlights the various components and variables that
should be in place in any emerging economy.
- Model highlights the connection ‘missing link’ between
Universities, Research Centres, STPs, and Portfolio companies.
Thank you