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Are zombie start-ups haunting your TTO?

An in-depth article on how university start-ups are tallied and the push to create more meaningful metrics appears in the May issue of Technology Transfer Tactics. For subscription details, click here.

Are university TTOs essentially gaming the system when they dutifully report each year on the number of start-ups they have nurtured? That seems to be the suggestion of a provocative new analysis by professors at Brigham Young University (BYU) and Utah Valley University.

Scouring through reams of data pertaining to university-licensed start-ups from the top 50 patent-producing universities in the U.S. over a 31-year time span, 1980 to 2011, the authors conclude close to 40% of the start-ups produced during this period delivered little in terms of jobs or economic development, but nonetheless endured on the books for years.

Why would these so-called zombie companies exist when there is no evidence of revenue or demonstrated progress? Paul Godfrey, the lead author of the study and a professor of business strategy at the Marriott School of Management at BYU, can’t say for sure what was motivating university leaders or TTO directors who reported these start-ups, but he believes it is clear they were responding to an incentive system that only concerns itself with short-term results.

“The measurement … continues to focus on how many technologies did we license, how many start-ups did we form, and that is sort of a one-year type of a measure,” he explains. “But very few people have the sophisticated measures to go back and say, ‘well what happened three years later? How many of these firms have venture capital, how many of these firms are actually employing people?’”

Godfrey acknowledges that once a venture gets spun out, the success of the start-up is largely in the hands of the entrepreneur, not the university, but he suggests that a more comprehensive examination of performance would provide a much better view regarding economic impact.

“We do believe if universities and TTOs [looked at] a longer time horizon, it would shine more of a light on these licenses that start in year one but never grow and never pick up any employees,” he comments. “Lots of people will have some success story they can tell. It is just that you want to avoid creating the illusion that this is what happens all the time, and unless you collect more data on some of the downstream impacts of these start-up firms, you don’t really know. All you have are these anecdotes about who succeeds, and then you’ve got some occasional flameout failures, but you don’t have a solid database of what is really going on.”

Not surprisingly, the analysis has sparked considerable discussion in the tech transfer community, and while there is definitely pushback to some of the authors’ conclusions, there is also acknowledgement that perhaps it is time for some tweaks to the current reporting system for TTOs. In fact, Ragan Robertson, in the business development and information systems office at UCLA’s Technology Development Group (TDG), notes that some changes relevant to the new study have been under discussion at AUTM for the last two or three years.

Robertson, who has been managing the metrics committee at AUTM for the last eight years, credits Godfrey and his co-authors for giving the topic of performance measurement relative to university start-ups a higher profile of late. “Now there is definitely a much larger appetite among the [AUTM] membership to start looking at what we are calling a start-up,” he explains.

Currently, the definition AUTM uses on its licensing survey is very broad, so the thinking is that perhaps it is time to include multiple definitions or tiers that differentiate start-ups based on factors such as their demonstrated ability to attract funding or the number of employees they have taken on in the past year, observes Robertson. “That is one of the extremely valuable things that has [resulted] from [Godfrey’s] article. This conversation is now very loud,” he says.

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