University spin-offs (USOs) have become a significant feature of the UK’s higher education landscape since the late 1990s. However, once initial creation rates slowed, some commentators called for reviews of the USOs’ financial performance. Critics of the USO agenda have focused on whether it generated quantity rather than quality, and whether it ignored more challenging performance measures such as third party finance attracted, leading to a description of USOs as a ‘voodoo institution’.
Peter Jelfs and Helen Lawton Smith’s recently published study adds to knowledge of the conditions under which USOs perform because only a few studies have investigated the financial performance of USOs at company level. At first glance this may be surprising as there are a large number of USOs that have been created over a significant period which provide a potentially suitable dataset. In addition, many countries spend significant sums of money targeting university-based entrepreneurship. This only makes sense if such entrepreneurship is an effective way of establishing companies with high growth potential. However, attempts to conduct studies meet practical difficulties, which have led to the repeated observation of a lack of a sufficiently high standard financial data relevant to USOs.
It is therefore important, from a public policy as well as an academic perspective, to study the financial performance of USOs, not least because significant public money has been invested in support programmes. In addition, such studies are needed to evaluate the policy that USO creation is appropriate for a significant number of universities across many regions, to deliver regional financial benefits rather than just for elite universities with strong scientific and technological research pedigrees.
Moreover, the regional perspective has not yet been explored in sufficient depth at company level. Two points are worth noting. First, no studies of a single UK region are known. This paper presents evidence from a ‘post-industrial’ region, the UK West Midlands. The UK university sector has a research hierarchy ranging from elite intensive universities to less research-intensive ones. Previous studies have often focussed on elite research institutions such as Oxford, Cambridge and London Universities. These have strong, well-funded science and engineering departments, whence the majority of USOs traditionally originate.
Secondly, the West Midlands region, of interest as a de-industrialising region, contains a range of universities from research-intensive ‘Russell Group’ universities to newer universities with less research pedigree. Previous USO performance studies have tended to focus on a single university or a single country. Here, overall USO regional performance is disaggregated by university, challenging the assumption that elite universities’ USOs generate positive regional economic outcomes.
A policy expectation that successful USOs play an important role in creating and commercialising new technologies thereby halting regional decline through employment creation and protection, may be over-optimistic. This study is UK-based but the context of policies to regenerate post-industrial regions, and the role of USOs, are of wider significance. Moreover, explanation is needed for observed patterns. In this paper, signalling theory is used to explore the interconnections between investment decisions, the financial performance of USOs, their survival, and the regional context.
Jelfs, Peter and Lawton Smith, Helen (forthcoming) Financial performance studies of university spin-off companies in the West Midlands. Journal of Technology Transfer, (In Press)
This post has been contributed by Prof. Peter Jelf, Professor of Accounting at Brunel Business School and CIMR alumnus.