1. 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

2. 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. 3 Definition of a University Spin OFF and Spin OUT Firm 1.SPIN OFF Firm: created to COMMERCIALIZE INTELLECTUAL PROPERTY that is: UNIVERSITY OWNED * & / OR UNIVERSITY RESEARCHER OWNED 2.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. 4 Definition of Gazelles in Spin Off Firms - in Canada 1.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 2.Sales: Double sales with 5 years during the the 1990s and Have at least $ 10 M sales within a 5 year period

5. 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 Finland50% growth in sales in each of 3 years. HollandLooked at growth in urban versus rural areas

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

7. 7 University Spin Offs – International Comparison CountrySample SizePeriod CoveredReference US 40811980-2003AUTM 2003 Canada11001962-2003Cooper / Niosi France 3201984-1991Mustar Holland 3001980- 90sU. Twente Australia 971984-1999Thornburn Finland 661980 –90sMin of Trade & Ind U.K. 14991981-2002Wright /Sainsbury

8. 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 SBDAs1998-2003 = 120 ** AUTM Universities2002 = 667 65 new Slowing down? Peaked at 68 in 2001 ** NRC has created 103 Spin Offs and Spin Outs as from 1970+?

9. 9 Socio - Economic Contribution from Universities / Federal Labs Orders of Magnitude: 1.Training of Students  Graduates  higher salaries  better Jobs for the economy and Taxes - Univs 2.Licence of technology to established firms  products & services  Jobs, Sales and Taxes 3.Staff as Consultants to industry  products and services  Jobs, Sales and Taxes 4.University / SBDA Spin Off firms  products and services  Jobs, Sales and Taxes The one most studied for its socio-economic contribution

10. 10 803 University Spin Off Firms * NRC / DC 2001 Nov. 0 100 200 300 400 500 600 700 800 900 192119641966196919711973197519771979198119831985198719891991199319951997 19992001 Non IRAP No. of Co.

11. 11 Long Term Studies of Firms  Gazelles - High Growth Firms CountryResearchers Period Sample # Gazelles 1.U. S. A. D. Birch, M.I.T.1969+ 2.Sweden P. Davidsson et al1987 – 96 3. CanadaStatistics Canada1995 - 2000 and D. Cooper, D. Guillemette NRC- IRAP 4.HollandErik Stam1999-2004 5.FinlandErkko Autio1994 – 97 Stats. Canada Innovation Analysis Bulletin – # 88-003-XPE, 2004 Nov

12. 12 Long Term Studies of Firms  Gazelles - High Growth Firms CountryResearchers Period Sample # Gazelles 1.U. S. A. D. Birch, M.I.T.1969+12 Million2 -4% 2.Sweden P. Davidsson et al1987 –9611,748  1,662 14% 3. CanadaStatistics Canada1995 - 20001 Million  16,005 and D. Cooper, D. Guillemette NRC- IRAP 1 -4% 4.HollandErik Stam1999-2004 785,000  3,688 0.46% 5. FinlandErkko Autio1994 – 97127 K firms  410 0.3% Stats. Canada Innovation Analysis Bulletin – # 88-003-XPE, 2004 Nov

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

14. 14

15. 15 Average % Gazelles v. Size of City Rank 1--> 200 0 0.5 1 1.5 2 2.5 050100150200250 Rank Largest City --> Smaller City % Gazelles

16. 16 High Growth in Technology Sectors (SIC) Ref: Statistics Canada / NRC- IRAP % Gazelles - High Growth by Technology Sectors 4.1% 0.2% 1.1% 1.3% 1.5% 1.3% 1.4% 0.9% 3.7% - 50,000 100,000 150,000 200,000 250,000 Primary Industries Base Manufacturing Secondary Manufacturing Construction, Transportation Wholesale & Retail Trade Services Government Services Accommodation, & Food Unknown SIC 0.0% 1.0% 2.0% 3.0% 4.0% n (1995) % High Growth

17. 17 Gazelles for Spin Off Firms Universities, by Sector Sector # Univ S/O # Gazelles % Life Sciences366 77 21% Electr / Software238 50 21% Manuf / Engineering 79 11 14% Other119 1513% Total803153 ** 19% ** Excludes 8 para gazelles

18. 18 Gazelles for Spin Off Firms Universities, IRAP vs Non-IRAP Assisted Type GazellesGazelles with IRAP % IRAP Gazelle 91 70 77% Grow & Drop 62 * 41 66% ParaGazelle - doubled in 5+ yrs 8 4 50% Closed 1 0 0% Total161 103 64% * Increased in 2004

19. 19 Gazelles for Spin Off Firms Universities, By # Firms by Decades, for Gazelles for Employment and Sales #

20. 20 Gazelles for Spin Off Firms Universities, # Gazelles by Company Size Staff Size Firm Size #

21. 21 University Spin Off Firms, By Stage – 803 Spin Offs, 353 funded by IRAP

22. 22 University Spin Off Firms vs Gazelles By Region – 803 Spin Offs, 344 funded by IRAP - Gazelles GE and GS

23. 23 NRC and Canadian Universities – Spin Off Firms (from 1996-2001*) VALUE FOR CANADA 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.

24. 24 103 NRC Spin Offs / Spin Outs

25. 25 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

26. 26 GROWTH in SALES & JOBS from Canadian Univ Spin Offs * NRC / DC 2005 Apr For public firms S = $4.7 B of $6.1 B J= 18000 of 29400

27. 27 Gazelles for Spin Off Firms Universities, NCEs and NRC GazellesUniv NCEsNRC Sample base803 9591 Gazelles [ Jobs] 153 = 19 % 8 = 8 %18 = 19 % Jobs - 1995 + *29,4004761400 ** # G E91 811 # G EDrop / GE Close62 - 7 Sales - 1995 + $6.1 B$6 M$68 M # G S262 1 # G SDrop19- - Latest year known,

28. 28 Gazelles for Spin Off Firms Universities, NCEs and NRC Lag Time by Sector  50 Employees # Firms Years

29. 29 Gazelles for Spin Off Firms Universities Lag Time by Sector  $10 M / Yr Sales # Firms Years

30. 30 I I

31. 31 Gazelles for Spin Off Firms Universities, 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.

32. 32 Inputs to Gazelle Formation / Growth ? – Stats Can bases Universities 1 of 2 Item Sample R 2 Gazelles Size # %. 1. Gazelles and # Universities per City 380.890.13 2. Gazelles and Research funding /City a. Total R&D [$100s Million] 300.850.06 b. Total University R&D $ 380.600.015 c. Univ NSERC $ Av 96 & 97 310.150.030 d. Medical R&D $ to univ. & hospitals 140.023

33. 33 Inputs to Gazelle Formation / Growth – Stats Can bases ? 2 of 2 Item Sample Size R 2 Gazelles # % 1. Gazelles per Fulltime university students / City 820.930.020 2. Gazelles related to Univ. Spin Off Firmsby City 441*0.350.0001 3. Gazelles related to VC 1996 / City 230.900.096 4.“ “ “ “ 1999 & 2000 / City 240.127 5.H.Q.P. by City 21No Link * University Spin Offs with info on jobs and still surviving

34. 34 Gazelles for Spin Off Firms Universities, NCEs and NRC - Examples FirmSectorG Empl 100+ G Sales $100 M+ CytovaxBioY DalsaElectYY QLTPharmaYY SciexElectYY SiGe [NRC]ElectY Stem CellBioY VirtekBio/ ManufY ZenonEnviroYY

35. 35 IRAP SCOREBOARD 803 University Spin Off Firms ClosuresNeutral SectorsNeutral 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

36. 36 Analysis of Gazelles in University Spin Off Firms 1 of 2 1.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 2.High Tech sector shows higher growth rates, in Canada with little difference within key sectors. US, Holland and Finland show higher levels in Non-Tech areas 3.Manufacturing sector shows lower levels of Gazelles 4.Still got some Gazelles for larger firms 5.Average Time to takeover unrelated to: Gazelle or if firm received IRAP support,

37. 37 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. 8.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

38. 38 Conclusion 1This is the first study of its kind covering both Gazelles and University Spin Offs, as well as NRC Spin Offs. 2Gazelles account for 75% of Sales and 70% of Jobs from University Spin Offs. 3Based on available metrics from Statistics Canada data, most of the university parameters had little link to % of Gazelles. 4More 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. 5Need some social science studies? People issues, Networks for suppliers, Angel funding?

39. 39 Dr. Denys Cooper, Senior Advisor, Technology & International Industrial Research Assistance Program National Research Council Canada (613) 993-7620 fax (613) 952-1079 denys.cooper@nrcdenys.cooper@nrc-cnrc.gc.ca.ca

40. 40 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

41. 41 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.

42. 42 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

43. 43 95 Network Centres of Excellence [NCE] Firms – 35 Firms with Jobs and IRAP IRAP Firmswith SupportKnown Jobs # JobsAve /Firm Yes14 of 2027420 No21 of 7520210 ---------------- Total35 of 9547614 13 other firms were known to have NO jobs 25 Firms have received IRAP support

44. 44 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

45. 45 Canadian University IP Base 1.Canada does not have a Bayh-Dole Act 2.50% of centres, universities own the IP Balance mostly researcher owned, a few have joint ownership 3.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

46. 46 Gazelles for Spin Off Firms Universities, Effect of IRAP on Sales and Employment Growth – above ave of 44% % Growth Leaps

47. 47 95 Network Centres of Excellence [NCE] Firms 95 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

48. 48 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

49. 49 Gazelles - High Growth Firms in Canada Ref: Statistics Canada / NRC-IRAP 2004 16005 Gazelles - High Growth Firms and % for 1995-2000 11464 2961 952 556 72 1537716005 2.9 1.4 3.9 1.1 4.7 5.1 0 2000 6000 10000 14000 18000 1-19 ILU20-4950-99100-499500+ All Small (1-99) Firm Size Categories – Labour Units 0.0 1.0 2.0 3.0 4.0 5.0 6.0

50. 50 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

51. 51 Gazelles for Spin Off Firms Universities, NCEs and NRC 1..