Venture Capital in Hungarian Academic Spin-offs

351 VENTURE CAPITAL IN HUNGARIAN ACADEMIC SPIN-OFFS Becsky-Nagy Pa ícia 1 Facul y o Applied Economics and Ru al De elopmen o he Uni e si y in Deb ecen, Hunga y Abs ac : As pa o a esea ch abou Hunga ian academic s a -ups, I made a su ey examining pa o he answe s o a long ques ionnai e c ea ed o he whole esea ch illed in by academic spin-o s o mos impo an Hunga ian uni e si ies. The s udy is s uc u ed as ollows. Fi s I will p esen he mos impo an ope a ional in o ma ion on uni e si y spin-o companies aking pa in he esea ch. Then I will gi e an insigh o he de ails o inancing spin-o s, ho oughly analyzing he ins i u ional and he non-ins i u ional en u e capi al and he ole o unding oppo uni ies – applica ions. I examine which inancing sou ces domina e in academic spin-o companies, wha a e he expe iences o he spin-o s in he iel o he h ee inancial sou ces men ioned be o e, in o de o be able o answe how would wha kind o changes would be needed o subse e en u e capi al inancing Hunga ian spin o s, wi h high g ow h po en ional. The s udy ends wi h a summa y. JEL classi ica ion: G24, en u e capi al 1. In oduc ion The goal o ou esea ch was o assess, ge o know as widely as possible he pionee ing na ional uni e si y spin-o companies. As a i s s ep, based on he de ini ions ound in he p o essional li e a u e we c ea ed ou own de ini ion, which we used h oughou he assessmen . Du ing he esea ch we conside ed companies o ounde s who ha e de eloped echnologies o c ea ed esea ch esul s h ough hei uni e si y wo k and u ilized hese wi hin hem – as spin-o companies. The de e mina ion ollows he na owe in e p e a ions. The esea che had o be a uni e si y associa e in he momen o company ounda ion, howe e i was no expec ed om hem o gi e up hei academic ca ee s. Mo eo e , we did no expec om he pa en -uni e si y o ha e a o mal connec ion (owne ship o con ac ual) wi h he company. Conce ning he imma e ial means passed o he spin-o companies we also applied limi a ions: i had o be he passing o an in ellec ual p ope y based on some kind o new echnology and/o a codi ied knowledge. The pa en ins i u ion had o be a s a e uni e si y.2 The assessmen s we e aking place in ou la ge uni e si y ci ies, in Budapes , Deb ecen, Pécs and Szeged. The e is no a ailable in eg a ed da abase, s a is ics on he na ional spin-o companies, which made he esea ch di icul , he e o e as a second s ep we de eloped a da abase. To iden i y po en ial uni e si y spin-o companies he esea che s pa icipa ing in he esea ch used hei own pe sonal con ac sys ems, he uni e si y echnology- ans e o ices, as well as in e ne sou ces. Du ing he implemen a ion we succeeded in iden i ying 80 uni e si y spin- 1 assis an p o esso , Facul y o Applied Economics and Ru al De elopmen o he Uni e si y in Deb ecen 2 In wo cases he pa en ins i u ion independen ly o oge he wi h he uni e si y, bu i was an academic esea ch ins i u e. 352 o companies, and hal o hem, 40 companies we success ully in ol ed in he pe sonal que ies. Acco ding o ou es ima ions, we succeeded in iden i ying hal o he na ional uni e si y spin-o companies in line wi h ou de ini ion. We laye ed he sample based on he geog aphic loca ions o he companies’ eal ac i i ies, 40% o he que ies a e loca ed in Budapes , while 20%-20% o he p o incial ci ies. Du ing he esea ch we implemen ed a ques ionnai e-based pe sonal que y. The hi d s ep examined he composed ques ionnai es, beside he companies’ basic in o ma ion (company name, headqua e s, yea o ounda ion, sec o o ac i i y, knowledge-in ensi e indus y, in o ma ion om annual epo s), also he inno a i e ac i i ies and in ellec ual po olio, he ounde esea che as a pe son, his/he mo i a ions, social capi al, and he companies’ connec ion and coope a ion wi h he pa en -ins i u ion. Mo eo e , in o ma ion on he companies’ unc ioning, g ow h, pe o mance and inancing we e also subjec s o de ailed analysis. Fo he uppe mos accu acy we ied o make he pe sonal in e iews wi h he ounde uni e si y esea che s in all cases, he que ies las ed o 45-60 minu es in a e age. He eina e we will p esen he main empi ical esul s om 38 illed ques ionnai es3. 2. The Hunga ian uni e si y spin-o companies’ ac i i ies The Figu e 1 shows he numbe o Hunga ian spin-o companies pa icipa ing in he assessmen by he yea o ounda ion and knowledge-in ensi e ac i i y sec o s. As indica ed on he diag am, mo e han hal o he companies pa icipa ing in ou esea ch we e ounded be ween 2006 and 2008, igh be o e he ou bu s o he global economic c isis, mainly in he ield o in o ma ion communica ion echnologies and bio echnology. Un il 2003 uni e si y spin-o companies we e ounded solely in he ields o bio echnology and pha maceu ical indus y, medical science and diagnosis, as well as in o ma ion communica ion echnologies. F om 2004 he ange o new companies go mo e colo ul by chemical indus y, consul ing and se ices, enginee ing in en ions, mic o and nano echnologies, o he na u al sciences, as well as elec onics. We can see educ ion o he numbe o company s a ups, which can be pa ially explained by he c isis, which ha e s a ed in 2008 and escala ed in 2009, which in luenced he inancing o uni e si ies on one hand, and on he o he led o he d ying ou o he unding sou ces ha we e abundan ly a ailable in he pe iod o 2004-2007, a e he en o cemen o he ac on esea ch and de elopmen and inno a ion. The 59,5% o he ques ioned companies de elop p oduc s based on new echnology and sell hem o business consume s and 51,4% p o ide inno a i e se ices o business consume s, he e o e mo e han a hal o he companies apply he B2B (business o business) business model. Compa ed o he p e ious a lo less 27% and 24,3% om he same ac i i ies sell di ec ly o he consume s in o he wo ds hey apply he B2C (business o consume ) model. Only 13,5% o he companies sell new (basic) echnologies. (Figu e 2) 3 Two companies we e excluded om he sample since hey did no comply wi h ou de ini ion. 353 Figu e 1: The numbe o Hunga ian uni e si y spin-o companies by knowledge-in ensi e ac i i y sec o s and he yea o ounda ion in 2012 (pc) Sou ce: own compila ion The 59,5% o he ques ioned companies de elop p oduc s based on new echnology and sell hem o business consume s and 51,4% p o ide inno a i e se ices o business consume s, he e o e mo e han a hal o he companies apply he B2B (business o business) business model. Compa ed o he p e ious a lo less 27% and 24,3% om he same ac i i ies sell di ec ly o he consume s in o he wo ds hey apply he B2C (business o consume ) model. Only 13,5% o he companies sell new (basic) echnologies. (Figu e 2) Figu e 2: Ac i i y na u e o he Hunga ian uni e si y spin-o companies (%) Sou ce: own compila ion Commen : mul iple answe s allowed The main ma ke s o he companies based on he cu en o planned e enue a e shown on he Figu e 3 97,3% o he esponden s icked Asia, 73% Hunga y, 30-50% Eu opean coun ies, bu No h Ame ica coun s o could coun as a ma ke only o one hi d o he companies. The No he n Eu opean coun ies, A ica, Aus alia, e c. we e in he o he ca ego y, and i was icked by almos all esponden s jus like Asia. 354 Figu e 3: Ta ge ma ke s o he Hunga ian uni e si y spin-o companies (% o hose selec ing he ce ain ma ke ) Sou ce: own compila ion 3. The inancing o Hunga ian uni e si y spin-o companies The Table 1 shows he pe cen age o he companies wi hin he sample epo ing o ha e been ecei ed inancial suppo in he gi en phase o g ow h. Since he cu en phase o li ecycle is di e en among he companies, hence he company being in an ea ly phase could no ha e chosen an answe o e.g. inancial suppo o expansion, bu he da a in he columns can be compa ed wi h each o he . Two- hi ds o he companies used hei own sa ings in he seed pe iod, while one- hi d ecei ed non- e undable inancial suppo om he s a e. The companies ha inanced hei ac i i ies h ough in ol ing a o eign capi al o an angel in es o o a close amily membe , also eached he high pe cen age o 22,2%. In he s a -up phase he non- e undable inancial sou ces go he mos sco es as inancing sou ces (41,7%), he own sa ings go he second place (36,1%). The sequence is e y simila among o he companies being in o he ea ly s ages o ea ly expansion, whe e he esponden s anked 33,3% and 19,4% he abo e men ioned sou ces. In he phase o expansion mos o hem selec ed he non- e undable sou ces, bu he own sa ings we e p eceded by close amily membe s and inancing h ough cus ome s. By he way, inancing h ough cus ome s in all phases indica ed 16,7%. In he s a -up pe iod he en u e capi al inancing ecei ed he highes p opo ion, which we e ollowed by he pe iod o ea ly g ow h and seed, bu in he expansion pe iod non o he companies ecei ed en u e capi al. Financing h ough dis an amily membe s, iends, o he non- inancial companies and supplie s we e selec ed in li le numbe , and an e en smalle p opo ion chose he e undable s a e suppo (e.g. p e e en ial loans), pa en companies as well as sho e m and long e m bank loans. The sho e m bank loans we e selec ed in he ea ly g owing s ages, while he long e m bank loans in he s a -up phases in 13,9% and 11,1%. The signi icance o uni e si y sou ces is simila ly low, i only go o e 10% in he seed phase. O e all, he Hunga ian spin-o companies wi hin he sample p ima ily ely on 355 own esou ces and non- e undable s a e unds in inancing hei ac i i ies, and he 3F-s’ ole is also signi ican ( amily, iends, ools – i.e. s ange s) in he seed and s a -up phases. Table 1: Financing sou ces o he Hunga ian spin-o companies in he a ious phases o hei li ecycle (p opo ion o hose indica ing he gi en answe compa ed o he o al numbe o esponen s, %) Financial sou ces Seed S a -up O he ea ly Expansion S ange indi idual/ex e nal capi al/angel in es o 22,2 13,9 2,8 2,8 Dis an amily membe s, iends 2,8 0 2,8 2,8 Close amily membe s 22,2 11,1 5,6 16,7 Own sa ings 66,7 36,1 19,4 8,3 O he non- inancial company 5,6 2,8 2,8 0 Ven u e capi al company 5,6 13,9 8,3 0 Re undable s a e (EU) suppo 8,3 5,6 2,8 0 Pa en company 5,6 11,1 8,3 2,8 Non- e undable suppo 33,3 41,7 33,3 19,4 Sho e m bank loan 2,8 2,8 13,9 2,8 Long e m bank loan 5,6 11,1 8,3 8,3 Uni e si y 11,1 8,3 8,3 2,8 Supplie 2,8 2,8 2,8 2,8 Cus ome 16,7 16,7 16,7 16,7 Sou ce: own compila ion Rema k: mo e answe s we e accep able The ins i u ional en u e capi al does no mean gene al unding sou ce o hem, despi e he ac ha echnology-o ien ed companies, in he same ime spin-o companies wi h big expansion po en ial a e mo e likely o ecei e en u e capi al han o he companies. 7.1. The ins i u ional en u e capi al inancing o he Hunga ian spin-o companies The esponden s indica ed hei expe iences connec ed o en u e capi al inancing in all di e en cases on a i e-poin scale (Table 2). Conside ing he a e age o he answe s he highes alue was eached by he a iable indica ing ha he en u e capi al in es o s do no know enough abou he gi en echnology. The in e na ional compe i i eness o he applied echnologies do no mean p oblems in he aspec o 356 he g owing o he companies as men ioned p e iously, bu in he aspec o inding in es o s i doesn’ . The new na u e o he echnology may cause his in o ma ion gap, he e o e he en u e capi al in es o s do no know he applied echnology, bu i – no only in he owne s’ opinion o ealis ically – he echnology o he p oduc is in e na ionally compe i i e, he e would p obably be will om he en u e capi al in es o s’ side o inance he company. The a ailabili y o he en u e capi als o he spin-o companies could be esol ed h ough dissolu ion o he in o ma ional asymme y. The en u e capi al in es o s do no like o in es small amoun s, which is he second signi ican p oblem and a p oblem also con i med in he in e na ional li e a u e, is he en u e capi al in es o s mo ed in he di ec ion o inancing companies in la e phases o g ow h o companies wi h bigge capi al needs and mainly o ou buying due o economics o scale easons. The de eloped capi al gap and in o ma ional asymme y oge he esul in a inancing gap in he ea ly s age (Becskyné, 2008; F eea e al., 2002; F eea e al., 1994; F eea and Sohl 2001). The inancing gap could be o e b idged h ough angel in es o s and h ough angel in es o s’ ne wo ks. The supply o en u e capi al o he spin-o companies is also ammeled by he high yield expec a ions o he in es o s, which is an in e na ionally known an cha ac e is ic o he supply’s side simila ly o he p e iously said, since usually he indus y is cha ac e ized by g ea g ow h po en ial, aiming a in e na ional ma ke s, p omising high yield o in es men when exi ing (Ka sai, 1997). On he demand side, namely om he companies’ iew he mos impo an p oblems a ising a e he ea o eedom o decision es ain , on he o he hand hey do no ha e adequa e en ep eneu ial and managemen skills. These a e gene al p oblems in o he coun ies, oo, bu as long as he change in app oach does no happen, he spin-o companies canno expec o ecei e highe en u e capi al inancing han be o e. Table 2: The expe iences o he Hunga ian uni e si y spin-o companies in he ield o en u e capi al inancing Value Opinion 4,0 The en u e capi al in es o s do no know enough abou he gi en echnology 3,7 The en u e capi al in es o s do no like o in es small amoun s 3,6 The en u e capi al in es o s ha e high yield expec a ions 3,5 The in ol emen o en u e capi al in es o s es ic s he company leade (s)’ eedom o decision du ing he unc ioning o he company 3,2 The en u e capi al in es o s a e se o inancing seed, s a -up o ea ly s age companies 2,9 The in es men is hampe ed by he low quali y business plan 2,8 The in es men is hampe ed by he lack o en ep eneu ial, managemen skills 2,7 The economic policy does no suppo enough he en u e capi al in es men s 2,6 The e is no enough in o ma ion abou he en u e capi al in es o s 357 2,6 The possibili ies o exi ing o he company o he en u e capi al in es o s a e bad Sou ce: own compila ion 7.2. The in o mal en u e capi al inancing o he Hunga ian uni e si y spin-o companies In he aspec o angel in es o s he esponden s iden i ied he bigges p oblem o be in he small numbe o angel in es o s and he lack o angel in es o ’s ne wo ks in Hunga y (Table 3). So he angel in es o s a e no he solu ion o he inancial gap o med h ough ins i u ional en u e capi al’s in e na ional endency nei he in he aspec o uni e si y spin-o companies. Acco ding o he esponden s he economic policy’s insu icien suppo o angel in es o na u e in es men s is a signi ican bu den. Go e nmen in e en ion on bo h demand and supply side could con ibu e o he e icien unc ioning o he in o mal en u e capi al segmen and o he ad an ages o po en ial possibili ies, bu he go e nmen mus no in any way ake o e he ole o he angel in es o s (Ka sai, 2002), namely i can only suppo he unc ioning o he indus y indi ec ly, by imp o ing he in es men en i onmen on he supply side, and by c ea ing an en ep eneu ial en i onmen s imula ing inno a ion on he demand side (Kosz opulosz - Mak a, 2004). The change o en ep eneu ial a i ude, he change o app oach o indi iduals ha ing adequa e capi al o in o mal in es men s, and he c ea ion o an en ep eneu ial laye wi h managemen skills could lead o esul s in his a ea. The in o ma i e gap connec ed o angel in es o s means a simila p oblem o he esponden s as in he case o ins i u ional en u e capi al, bu acco ding o he in e na ional li e a u e he in o ma ional asymme y is in ensi ied in his case, namely he companies seeking capi al and he angel in es o s ind each o he e en ha de (Ha ding, 2002). Since he ole o angel in es o s in Hunga y is minimal, hence he bigges p oblem lies in he lack o angel in es o s and no in he e iciency o he indus y’s unc ioning. The second s ep in he segmen ’s de elopmen is he de elopmen angel in es o s’ ne wo k, which could play an impo an ole in o e coming he second inancing gap ensuing om he edi ec ion o o mal capi als o la e phases (Ae noud , 2005). Acco ding o Whea he by (2007) he inancial gap is ge ing na owe in he wes e n coun ies esul ing om hei ma ke eac ions, since he “supe angels” and hei g oups o e b idge he p oblem, and on he o he hand he ini ial capi al equi emen s o ce ain echnology-o ien ed companies, especially o in e ne companies signi ican ly d opped. 358 Table 3: The expe ience o he Hunga ian uni e si y spin-o companies wi h angel in es o s Value Opinion 4,7 The e a e only ew angel in es o s in Hunga y 3,6 The angel in es o s’ ne wo ks (pa ne media o o ganiza ions) a e missing in Hunga y 3,6 The economic policy does no suppo su icien ly he angel in es o na u e in es men s 3,1 The p o essionalism, expe ise o he angel in es o s is insu icien 3,1 The in es men is ammeled by he lack o en ep eneu ial and managemen skills o he company leade s seeking capi al 3,0 The exi ing possibili ies o he angel in es o s a e limi ed 2,6 The angel in es o s do no unde s and ou company’s echnology 2,6 The quali y o he business plan o he company seeking capi al is unaccep able 2,5 The company owne (s) do no wish o sha e o any ex en hei con ol o e he company wi h an ex e nal pa y 2,3 The e is no enough in o ma ion a ailable on he ole and cha ac e is ics o he angel in es o s 1,9 The angel in es o does no ha e he needed sum o capi al 1,9 The angel in es o s’ yield expec a ions a e oo high Sou ce: own compila ion 7.3. Financing o he Hunga ian uni e si y spin-o companies h ough applica ion possibili ies We could al eady see a he selec ion o inancing me hods based on li ecycle phases ha he non- e undable s a e unding is one o he main esou ces o he spin-o companies, and as I men ioned al eady 62% o he esponden s al eady ecei ed s a e o communi y unding. Mos o he esponden s ind he applica ion p ocedu es oo bu eauc a ic, bu hey belie e ha hese undings helped he de elopmen o hei companies. Acco ding o he esponden s he delay o he call o p oposals and imbu semen s makes he planning and unc ioning o he companies di icul . The di icul implemen a ion o obliga o y commi men s and he oo high own con ibu ion in he aspec o companies is mode a ely alid. The companies ind i leas impo an ha he applica ions edi ec he company’s ocus om he ma ke s and ha he decision making p ocesses a e impene able and co up (Table 4). 359 Table 4: Expe iences o Hunga ian uni e si y spin-o companies wi h applica ion p ocedu es Value Possible answe s 4,2 The applica ion p ocedu es a e oo bu eauc a ic 4,1 The unding h ough applica ion helped he de elopmen o ou company 3,9 The e en uali y and delay o call o p oposals make planning di icul 3,9 The delay o imbu semen made he unc ioning and he de elopmen o ou company di icul 3,0 The obliga o y commi men s connec ed o he applica ion a e ha dly implemen able 2,9 The equi ed own con ibu ion is oo high 2,6 The call o p oposals edi ec he company’s ocus om he ma ke wo k 2,3 The decision making conce ning o applica ions is impene able and co up Sou ce: own compila ion 8. Summa y Mos o he Hunga ian uni e si y spin-o companies included in he sample we e es ablished be ween 2004 and 2008. Pa allel o he global economic c isis he p opensi y o spin-o company es ablishmen d opped, in he pas ou yea s only wo companies we e es ablished. Mos o he spin-o companies a e connec ed o bio echnology and pha maceu ical indus y, as well as in o ma ion communica ion echnology among he knowledge-in ensi e ac i i ies. In he aspec o business ac i i ies o he companies he “business o business” model is mo e cha ac e is ic han he „business o consume ”. The main ma ke s i selling a e he ones in Asia, bu Hunga y is also a signi ican a ge . The bigges p oblems in he aspec o en u e capi al inancing a e he in o ma ional asymme y and he shi ing o he in es o s’ in e es on la e phases in he li ecycle. The companies ind i ha d o gi e up hei independence in decision making and hey a e no eady o en u e capi al in ol emen , which impedes he ealiza ion o en u e capi al in es men s. The bigges obs uc ions o angel in es men s a e he small numbe o p o essionally p epa ed angel in es o s in Hunga y and he lack o angel in es o s’ ne wo ks, oo. The bigges p oblems o applica ion p ocedu es a e he o e loaded bu eauc acy and unp edic abili y. Summa izing all, he companies see hei mos impo an inancing possibili ies in applica ions and non- e undable sou ces, namely hey expec om he go e nmen o di ec ly suppo hem wi h “so ” money. The companies p ima ily expec om he go e nmen o co e hei capi al needs o g ow h, e en a e he s a e inancial esou ces d y ou . The go e nmen on he o he hand could suppo he as e g ow h o spin-o companies h ough he s imula ion o bo h demand and supply side o he ins i u ional and in o mal en u e capi al indus y, and ha g ow h would also con ibu e o he de elopmen o he na ional economy.