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Spin Off Firms and Gazelles - High Growth Firms from Universities and NRC Presentation to FPTT, Toronto, 2

Spin Off Firms and Gazelles - High Growth Firms from Universities and NRC Presentation to FPTT, Toronto, 2005 May 31st . Denys G.T. Cooper, Senior Advisor, Technology & International, IRAP denys.cooper@nrc-cnrc.gc.ca. Purpose. To assess the presence of Gazelles -

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Spin Off Firms and Gazelles - High Growth Firms from Universities and NRC Presentation to FPTT, Toronto, 2

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  1. Spin Off Firms and Gazelles - High Growth Firmsfrom Universities and NRCPresentation to FPTT, Toronto, 2005 May 31st Denys G.T. Cooper, Senior Advisor, Technology & International, IRAP denys.cooper@nrc-cnrc.gc.ca

  2. Purpose • To assess the presence of Gazelles - • High Growth Firms as Spin Off Firms from: • Universities, • including a sub group –> N.C.E.s • Networks Centres of Excellence • N.R.C.

  3. Definition of a UniversitySpin OFF and Spin OUT Firm • SPIN OFF Firm: created to COMMERCIALIZE INTELLECTUAL PROPERTY that is: UNIVERSITY OWNED * & / OR UNIVERSITY RESEARCHER OWNED • SPIN OUT Firm: created by a GRADUATE that has some links to the university – services, equipment etc, but NO University linked I.P. [Not part of this study] 3. IRAP Assisted University Spin Off FIRM Received >$15,000 of IRAP Funding within First 5 Years after Start Up * Includes some Hospitals

  4. Definition of Gazelles in Spin Off Firms - in Canada • Employment: • Double employment within 5 years during the 1990s+ and • Have at lest 20 employees within a 5 year period • Adopted in Statistics Canada / IRAP study • Sales: • Double sales with 5 years during the the 1990s and • Have at least $10 M sales within a 5 year period

  5. Definition of Gazelles – High Growth Firm – Other studies mostly based on new firm formation and spin outs Sweden considered: * 3 sources of growth and * grouped them into 7 types of growth. Sweden dropped sales definition. As also with Stats Canada 2003/4 study Finland 50% growth in sales in each of 3 years. Holland Looked at growth in urban versus rural areas

  6. Why Gazelles - 2005 University Spin Offs N. R. C. . O.E.C.D. GAZELLES . N. C. E. . I.R.A.P. 16,000 Jerome Doutriaux, Ottawa U.  Denys Cooper, IRAP 1995 +

  7. University Spin Offs – International Comparison CountrySample SizePeriod CoveredReference US 4081 1980-2003 AUTM 2003 Canada 1100 1962-2003 Cooper / Niosi France 320 1984-1991 Mustar Holland 300 1980- 90s U. Twente Australia 97 1984-1999 Thornburn Finland 66 1980 –90s Min of Trade & Ind U.K. 1499 1981-2002 Wright /Sainsbury

  8. Spin Off Firms from Universities and SBDAs - Surveys Stats Can Bordt and Read – 2003 2003 Survey = 880 NSERC Laciak ‘ Research Means Business’ 134 Case profiles SBDAs 1998-2003 = 120** AUTM Universities 2002 = 667 65 new Slowing down? Peaked at 68 in 2001 ** NRChas created 103 Spin Offs and Spin Outs as from 1970+?

  9. Socio - Economic Contribution from Universities / Federal Labs Orders of Magnitude: • Training of Students  Graduates  higher salaries •  better Jobs for the economy and Taxes - Univs • Licence of technology to established firms  products & services •  Jobs, Sales and Taxes • Staff as Consultants to industry  products and services •  Jobs, Sales and Taxes • University / SBDA Spin Off firms  products and services •  Jobs, Sales and Taxes • The one most studied for its socio-economic contribution

  10. 803 University Spin Off Firms 900 800 700 No. of Co. 600 Non IRAP 500 400 300 IRAP 200 100 0 1921 1964 1966 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 * NRC / DC 2001 Nov.

  11. Long Term Studies of Firms  Gazelles - High Growth Firms CountryResearchersPeriodSample # Gazelles • U. S. A. D. Birch, M.I.T. 1969+ • Sweden P. Davidsson et al 1987 – 96 3. Canada Statistics Canada 1995 - 2000 and D. Cooper, D. Guillemette NRC- IRAP • Holland Erik Stam 1999-2004 • Finland Erkko Autio 1994 – 97 Stats. Canada Innovation Analysis Bulletin – # 88-003-XPE, 2004 Nov

  12. Long Term Studies of Firms  Gazelles - High Growth Firms CountryResearchersPeriodSample # Gazelles • U. S. A. D. Birch, M.I.T. 1969+12 Million 2 -4% • Sweden P. Davidsson et al 1987 –96 11,748  1,662 14% 3. Canada Statistics Canada 1995 - 2000 1 Million  16,005 and D. Cooper, D. Guillemette NRC- IRAP 1 -4% • Holland Erik Stam 1999-2004 785,000  3,688 0.46% 5. Finland Erkko Autio 1994 – 97 127 K firms  410 0.3% Stats. Canada Innovation Analysis Bulletin – # 88-003-XPE, 2004 Nov

  13. Statistics Canada - 2004 1995 data 1,104,602 firms 2000 data 1,159,528 records Matched records 552,071 firms 1995 Deaths 552,531 2000 Births 607,457 16,005 Gazelles Longitudinal Employment Analysis Program – Small Area File

  14. Average % Gazelles v. Size of City Rank 1--> 200 2.5 2 1.5 % Gazelles 1 0.5 0 0 50 100 150 200 250 Rank Largest City --> Smaller City

  15. High Growth in Technology Sectors (SIC) % Gazelles - High Growth by Technology Sectors n (1995) % High Growth 250,000 4.1% 4.0% 200,000 3.7% 3.0% 150,000 2.0% 1.5% 100,000 1.4% 1.3% 1.3% 1.1% 0.9% 1.0% 50,000 0.2% - 0.0% & Food Secondary Retail Trade Services Manufacturing Services Government Wholesale & Construction, Manufacturing Transportation Accommodation, Unknown SIC Base Industries Primary Ref: Statistics Canada / NRC-IRAP

  16. Gazelles for Spin Off FirmsUniversities, by Sector Sector # Univ S/O # Gazelles% Life Sciences 366 77 21% Electr / Software 238 50 21% Manuf / Engineering 79 11 14% Other 1191513% Total 803153 **19% ** Excludes 8 para gazelles

  17. Gazelles for Spin Off FirmsUniversities, IRAP vs Non-IRAP Assisted TypeGazellesGazelles with IRAP% IRAP Gazelle 91 70 77% Grow & Drop 62 * 41 66% Para Gazelle - doubled in 5+ yrs 8 4 50% Closed 100% Total 161 103 64% * Increased in 2004

  18. Gazelles for Spin Off FirmsUniversities, By # Firms by Decades, for Gazelles for Employment and Sales #

  19. Gazelles for Spin Off FirmsUniversities, # Gazelles by Company Size # Firm Size Staff Size

  20. University Spin Off Firms, By Stage – 803 Spin Offs , 353 funded by IRAP

  21. University Spin Off Firms vs Gazelles By Region – 803 Spin Offs , 344 funded by IRAP - Gazelles GE and GS

  22. VALUE FOR CANADA NRC and Canadian Universities – Spin Off Firms (from 1996-2001*) Benchmarked against Canadian universities, NRC is first with 49 spin-off companies formed over a period of six years. (Source: Association of University Technology Managers) * FY 2001 is the most recent Association of University Technology Managers Licensing Survey available.

  23. 103 NRC Spin Offs / Spin Outs

  24. 91 NRC Spin Off Firms – by Socio-economic Impact Jobs identified in 84 firms = 1447 * Sales identified in 35 firms = $68 M New Capital Raised in 37 firms = $360 M IPO / RTO on Stock Exchanges 4 firms * Latest year, excludes 5 spin in firms. • One Closed NRC spin off peaked at 1,400 jobs  O

  25. GROWTH in SALES & JOBSfrom Canadian Univ Spin Offs For public firms S = $4.7 B of $6.1 B J= 18000 of 29400 * NRC / DC 2005 Apr

  26. Gazelles for Spin Off FirmsUniversities, NCEs and NRC GazellesUnivNCEsNRC Sample base 803 95 91 Gazelles [ Jobs] 153 = 19 % 8 = 8 % 18 = 19 % Jobs - 1995+ * 29,400 476 1400 ** # G E 91 8 11 # G EDrop / GE Close 62 - 7 Sales - 1995+$6.1 B $6 M $68 M # G S 26 2 1 # G SDrop 19 - - • Latest year known,

  27. Gazelles for Spin Off FirmsUniversities, NCEs and NRC Lag Time by Sector 50 Employees # Firms Years

  28. Gazelles for Spin Off FirmsUniversities Lag Time by Sector $10 M / Yr Sales # Firms Years

  29. I I

  30. Gazelles for Spin Off FirmsUniversities, NCEs and NRC What do we now know about the creation and growth of Spin Off Firms? We know where they are, in which cities, and in what sectors. We know some data on certain inputs i.e. VC funds and Stock Exchange status of NCE and NRC spin offs. We know Little about the ingredients or characteristics for their creation or growth growth.

  31. Inputs to Gazelle Formation / Growth ? – Stats Can bases Universities 1 of 2 ItemSampleR 2 Gazelles Size # % . 1. Gazelles and # Universities per City 38 0.89 0.13 2. Gazelles and Research funding /City a.Total R&D [$100s Million] 30 0.85 0.06 b.   Total University R&D $ 38 0.60 0.015 c.   Univ NSERC $ Av 96 & 97 31 0.15 0.030 d. Medical R&D $ to univ. & hospitals 14 0.023

  32. Inputs to Gazelle Formation / Growth – Stats Can bases ? 2 of 2 ItemSample Size R 2 Gazelles# % 1. Gazelles per Fulltime university students / City 82 0.93 0.020 2.Gazelles related to Univ. Spin Off Firms by City 441* 0.35 0.0001 3. Gazelles related to VC 1996 / City 23 0.90 0.096 • “ “ “ “ 1999 & 2000 / City 24 0.127 • H.Q.P. by City 21 No Link * University Spin Offs with info on jobs and still surviving

  33. Gazelles for Spin Off FirmsUniversities, NCEs and NRC - Examples FirmSectorG Empl 100+G Sales $100 M+ Cytovax Bio Y Dalsa Elect Y Y QLT Pharma Y Y Sciex Elect Y Y SiGe [NRC] Elect Y Stem Cell Bio Y Virtek Bio/ Manuf Y Zenon Enviro Y Y

  34. IRAP SCOREBOARD 803 University Spin Off Firms • Closures Neutral • Sectors Neutral • Slow Growth Firms + Fewer • Gazelles + • 2004 Sales / Firm + [Few Bio so far] • 2004 Jobs / Firm - Av 61 vs 71 jobs / Firm] • Taken Over Firms + + 91 Public Companies + + • Market Cap + • Sales ++ For Sales over $10M or $100 M • Jobs ++ For Jobs over 100 or 1000 • R&D + • Investments – 2 Yr + Bio

  35. Analysis of Gazelles in University Spin Off Firms 1 of 2 • University Spin Off firms have a higher % of Gazelles • 18% versus 1 - 4% for Canadian industry as a whole • Davidsson in Sweden found 14% for all sectors • High Tech sector shows higher growth rates, in Canada • with littledifference within key sectors. • US, Holland and Finland show higher levels in Non-Tech areas • Manufacturing sector shows lower levels of Gazelles • Still got some Gazelles for larger firms • Average Time to takeover unrelated to: • Gazelle or if firm received IRAP support,

  36. Analysis of Gazelles in University Spin Off Firms 2 of 2 6. Low closure rates – only 1 Gazelle [ <1%] vs 20% for spin offs - i.e. firms do not ever-extend themselves – as confirmed in Finland study - Normally 50% of all firms close in 5 years 7. So far 58 university spin offs taken over [7% vs 20% for Gazelles]. - Most were IRAP funded. • There is considerable turbulence in employment levels • especially in 2003/4 - where Gazelles grew then dropped back but NOT to original levels. • Similar results in Europe for spin outs 9. Sizeable lag time to get Sales, but R&D jobs grow e.g. in Bio. 10. Few GS Sales Gazelles in NCE and NRC spin offs • Still too early

  37. Conclusion • This is the first study of its kind covering both Gazelles and University Spin Offs, as well as NRC Spin Offs. • Gazelles account for 75% of Sales and 70% of Jobs from University Spin Offs. • Based on available metrics from Statistics Canada data, most of the university parameters had little link to % of Gazelles. • More studies are needed to ascertain the reasons for gazelle formation and growth, in both university spin offs and industry overall. We now know where they are, but not how they get there. • Need some social science studies? • People issues, Networks for suppliers, Angel funding?

  38. Dr. Denys Cooper, Senior Advisor, Technology & International Industrial Research Assistance Program National Research Council Canada (613) 993-7620 fax (613) 952-1079 denys.cooper@nrc-cnrc.gc.ca

  39. Previous Studies on Benefits from Government Assistance Programs Some studies show that their assisted firms perform better than non-assisted firms e.g. US SBIR program: firms raise more VC funding But many studies suffer from: • Sample size not being large enough • Inability to get well matched firm profiles with / without funding • Insufficient ability to assess attribution to program activity • Inability to discount the “filtering in” process • i.e. select better firms that are more likely to succeed

  40. Does this study of 803 University Spin Offs address the prior concerns? • Are the Closure Rates the Same ? YES • Are IRAP funded Firms the Pick of the Crop ? NO • IRAP funded 44% of 803 firms in this study • Do we have Similar Sectors ? YES • Do we have a Large enough Sample Size? YES Note: University Spin Off Firms now tend to be in Higher Tech areas.

  41. 52 University Spin-Off Firms (Bio / Non-Bio) Incorporation Year to Initial Public Offering (IPO) Years to IPO / RTO Incorporation Year 6 firms were Reverse Take Overs (RTO) and 1 firm closed NRC - DC/JCP

  42. 95 Network Centres of Excellence [NCE] Firms – 35 Firms with Jobs and IRAP IRAP Firms with SupportKnown Jobs # JobsAve /Firm Yes 14 of 20 274 20 No 21 of 75 202 10 --------- ---- --- Total 35 of 95 476 14 13 other firms were known to have NO jobs 25 Firms have received IRAP support

  43. Industrial Research Assistance Program - IRAP Established in 1961 by the National Research Council of Canada Mission: To stimulate innovation in small and medium-sized enterprises (SMEs) Technology Assistance • 12,000 Clients per year • 2,900 Funded projects • 260 Industrial Technology Advisors in 90 Technical Organizations Budget $160 M / year- $106 M budgeted for projects in Firms • Advice - 50% time of Advisors • Projects - $15 K, for decision in 2 weeks, with larger projects  $500 K –> $1.5 M

  44. Canadian University IP Base • Canada does not have a Bayh-Dole Act • 50% of centres, universities own the IP • Balance mostly researcher owned, a few have joint ownership • There is no major difference in outputs / impacts whether the IP is university or researcher owned except for the numbers of patents filed is higher if university owns the IP * * Bruce Clayman, 2004, using AUTM data

  45. Gazelles for Spin Off FirmsUniversities, Effect of IRAP on Sales and Employment Growth – above ave of 44% % Growth Leaps

  46. 95 Network Centres of Excellence [NCE] Firms • NCEs of all 1100 Spin Offs = 8.6% or created in the same time period of 1994-2004 = 14% Job creation / firm for NCEs = 14 vs Similar sample from 803 Spin Offs = 14

  47. 95 Network Centres of Excellence [NCE] Firms – by Socio-economic Impact Jobs identified in 35 firms = 476 Sales identified in 7 firms = $5.9 M New VC Capital Raised in 22 firms = $445 M IPO in Aspreva - Bio in BC 1 firm = $200 M Strategic Alliances in 1 firm = $200 M NCEs spin off technology also to other established firms

  48. Gazelles - High Growth Firms in Canada 16005 Gazelles - High Growth Firms and % for 1995-2000 18000 6.0 16005 15377 5.0 14000 5.1 11464 4.0 4.7 3.9 10000 3.0 2.9 6000 2.0 1.4 1.4 2961 1.1 1.0 952 556 2000 72 0 0.0 All 1-19 ILU 20-49 50-99 100-499 500+ Small (1-99) Firm Size Categories – Labour Units Ref: Statistics Canada / NRC-IRAP 2004

  49. Credit and Thanks to NRC - IRAP - Denise Guillemette - Corporate - K. Torkko - NRC data - Records Services for pulling hundreds of files - CISTI - K. Cook, A-P. Bruneau Stats Can – S&T: - F. Anderson, M. Bordt, L. Earle, C. Read + + NSERC - NCE - J-C Gavrel

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