La Neta De Los Pokenalgas

Designing Contracts for University Spin-offs
´ INES MACHO-STADLER Department of Economics, CODE XREA Barcelona Economics Universitat Aut` noma de Barcelona o 08193 Bellaterra, Spain Ines.Macho@uab.es ´ DAVID PEREZ-CASTRILLO Department of Economics, CODE XREA Barcelona Economics Universitat Aut` noma de Barcelona o 08193 Bellaterra, Spain David.Perez@uab.es

REINHILDE VEUGELERS
Department ofApplied Economics Katholieke Universiteit Leuven Naamsestraat 69, 3000 Leuven, Belgium EC (BEPA), Brussels and CEPR, London Reinhilde.Veugelers@econ.kuleuven.ac.be

We provide a theoretical model about how to design academic spin-off contracts between the university technology transfer office (TTO), the researcher, and the venture capitalist. The optimal contract entails the allocation of foundershares to the researcher to secure her participation in the venture. It may also require the researcher to be financially involved in the project to give her incentives to provide effort. We also show that when the TTO has better information than the other two participants concerning the likelihood of success of the spin-off, it will end up owning both founder and financial shares in the venture.We are grateful to Paul van Dun, director of KULeuven R&D and Rudy Cuyers for their detailed explanation of the functioning of university spin-offs at KUL. The authors thank the participants of the EARIE 2006 Conference (Amsterdam), the Jornadas de Econom´a ı Industrial (Barcelona), the Research Workshop in IO and Innovation (Barcelona), seminar attendants at the Colegio de Economistas, QueenMary London, and Isles Balears for useful comments, and particularly Gerard Llobet, Mark Schankerman, the coeditor, and finally the referee. This research has been conducted thanks to the financial support of the Fundacion BBVA. We also thank project SEJ2006-00538-ECON. The paper reflects only the ´ views of the authors and does not commit the European Commission.
C 2008, The Author(s) JournalCompilation C 2008 Blackwell Publishing

Journal of Economics & Management Strategy, Volume 17, Number 1, Spring 2008, 185–218

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Journal of Economics & Management Strategy

1. Introduction
New technology ventures originating from basic research have the potential of introducing technological disequilibria that shake existing industries and form the gene pool from which new industries mayemerge in the long run. Academic entrepreneurship in biotechnology and ICT are probably the most striking examples of this phenomenon (Zucker et al., 1998). Universities and public research institutes play an important role in this process, as they can be a breeding ground for new venture creation from basic research. Although basic research results can be channeled to industry via eithercollaborative research schemes or licensing arrangements of patented university inventions, spinning off is the entrepreneurial route to commercializing public research. The latter have attracted a great deal of policy attention within the current wave of start-ups and new venture creation in many countries. The university spin-off formation rate is often seen as a key indicator of the quality of theindustry–science links of a country or region. The general perception is that there is insufficient academic entrepreneurship. Policies are currently being designed to stimulate universities to be more effective in generating spin-offs. In the United States, commercial activities by academic institutes were stimulated by the Bayh-Dole act of 1980 and the 1986 Federal Technology Transfer Act (Mowery etal., 2001; Nelson, 2001). But also in Europe, policies have been introduced that strengthen the role of universities and academic spin-offs in innovation and growth (Geuna et al., 2003). In most EU countries, ownership of inventions generated by publicly funded research has been awarded to universities, giving them more leeway for commercialization. Despite the huge amount of attention by policy...