Academic Entrepreneurship in Europe
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Academic Entrepreneurship in Europe

Mike Wright, Bart Clarysse, Philippe Mustar and Andy Lockett

This book advances our understanding of university spin-off creation and development in environments outside the high-tech clusters of the US. While there has been substantial university spin-off activity internationally in recent years, a number of major aspects are little understood. The authors argue that the nature of universities is changing as reduced public funding reflects a public debate on their role in society. An important aspect of this international phenomenon is an increased emphasis on the commercialization of university research and on academic entrepreneurship. These new ventures therefore involve the spinning-off of technology and knowledge generated by universities.
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Chapter 7: Financial Constraints and Access to Finance

Mike Wright, Bart Clarysse, Philippe Mustar and Andy Lockett


7. Financial constraints and access to finance1 7.1 INTRODUCTION A key constraint for spin-offs is finding access to finance. Our survey of TTOs in the UK identifies access to finance as the major constraint facing university spin-offs (USOs) (Table 7.1). The existence of a financing gap for new and small ventures has long been recognized in policy initiatives to help fill that gap both at the European level (European Commission, 2000a) and in individual countries (Bank of England, 2003). The pecking-order hypothesis assumes that internal funding is preferred over external sources and where these are insufficient then debt is preferred over equity (Roberts, 1991; Watson and Wilson, 2002). Debt is preferred over equity in order to avoid ownership dilution. In line with the pecking-order hypothesis, we would expect that university spin-offs, which are innovative start-ups facing severe financing constraints (Westhead and Storey, 1997), look for different forms of internal financing complemented with debt financing before they seek venture capital. Alternatively, we would expect that policy-makers first make internal and debt financing easier to obtain before they introduce mechanisms to encourage venture capital as a way to stimulate spin-offs. Issues surrounding both demand and supply side aspects of the search for finance for USOs may create market failure problems that could be more significant than for other ventures. On the demand side, shortfalls in human capital in terms of the knowledge and understanding required to develop the case for investment in a way that is persuasive and...

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