Effects of the quality of science and innovation on venture financing: evidence from university spinoffs in Japan

ABSTRACT

University spinoffs build on strong science, which renders them a significant source of radical innovation. Radical innovation entails uncertainty as there is no market to target, which calls for individuals and organizations that bridge the gap between embryonic inventions and opportunity yet to exist. Recognizing that the commercial success of university spinoffs hinges on the entrepreneurial ecosystems they are embedded in, this study establishes an unbalanced panel (2015–2020) to analyse interrelationships among the key factors in the university spinoff ecosystem: science, innovation, and venture financing. Estimation results reveal that, first, the quality of science increases the probability of university spinoffs acquiring risk money from venture capitalists and business angels. Second, the quality of innovation has a positive effect on venture capital funding. Third, venture capital funding positively affects sales growth of university spinoffs, which corroborates the coach function of entrepreneurial intermediaries that offer startups hands-on support.

KEYWORDS:

• University spinoffs
• venture capital
• business angels
• entrepreneurial ecosystem
• patents
• radical innovation

JEL CLASSIFICATION:

• G32
• M13
• O16
• O34
• G24
• L26
• O32

Acknowledgments

This article is a product of the research project Developing an Entrepreneurial Ecosystem, conducted at the Research Institute of Economy, Trade, and Industry (RIETI). I thank the anonymous reviewers, RIETI project members, and participants of the RIETI Discussion Paper Workshop and the Innovation Economics Workshop for their comments on the draft. I particularly appreciate the technical support by Ayumu Masuda (Bureau van Dijk) and Shoji Takahashi (Elsevier). The usual caveats apply.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ See Fukugawa (forthcoming) for an earlier attempt.

² These are community application, R&D strength of the invention, R&D applicant ratio, technology in different term trend, sustainability of technology trend, total size of activity, family size, transferability to different industries, heterogeneity of potential applications, exploitation in different technologies, total amount of exploitation possibilities, evidence of use, relevance for other technologies/applications, differentiation to the state of the art, differentiation from direct competitors technologies, interfering with competitors technologies, validity level, patent maturity, claim width and coverage, validity in certain countries, intended worldwide protection, procedural state, and grant lag.

Additional information

Funding

This research was financially supported by a grant-in-aid from the Nomura Foundation and another from the Zengin Foundation for Studies on Economics and Finance.