German spin-outs 'not contributing to modernisation'

There is a widespread assumption that spin-outs from universities and research organisations, such as the Fraunhofer and the Max Planck institutes, are highly innovative and able to transform knowledge and intellectual property rapidly into novel products and services.

As a result they are lauded and promoted accordingly.

But a study by the Fraunhofer Institute for Systems and Innovation Research (ISI) in Karlsruhe, carried out for the federal government, comes to a different conclusion. In 20 case studies of academic spin-offs – ten in the former East and ten in the former West Germany – there were many successful spin-offs, but very few of these companies were making a significant contribution to the modernisation of the country’s industrial structures.

In interviews with founders, investors, business consultants and representatives of the scientific organisations, the ISI researchers searched for criteria for the success and failure of these spin-offs.

'Modest' commercial goals

One striking fact is that the founders themselves often have ambitious technological goals, but mostly very modest commercial ones. They aim for slow, steady growth and frequently attempt to survive without venture capital or bank loans.

In addition, founders – as a rule, highly qualified natural scientists or engineers – possess little know-how in business administration and marketing, and often fail to draw up realistic business plans and marketing strategies until a very late stage in the spin out process.

Overall the study found, technology and knowledge transfer via academic spin-offs is not always as effective as policy makers would like to believe.

Founding scientists frequently start off without a concrete product idea, or with a product that is nowhere near ready for the market – or indeed, for which there is no market.

Many founders operate their companies like an extension of their scientific work.

But another recently completed investigation by ISI uncovered individual scientists gifted with natural entrepreneurial talents, who have produced astounding success stories in the short time scales, and with no commercial knowledge and experience.

Lack of incentives

Current policies extolling the value of commercialising research are not providing the proper incentives for academic founders, says ISI project manager Joachim Hemer.

“Greater allowances should be made in future for the specific mentality and aims of scientific founders in Germany,” he says.

"Instead of backing (only) fast growing enterprises, careful but sustainable business strategies should also be supported.” However, notes Hemer, new financing and promotional concepts will be necessary to achieve this.