Funding of university spin-off companies: a conceptual approach to financing challenges

Purpose - During the last decade, there has been an increasing focus on commercialization of knowledge and technology from universities. However, universities report financing as being the main impediment to successful university spin-off companies (USOs) creation, leaving valuable inventions un-commercialized. The purpose of this paper is to develop a conceptual model in order to explain financing challenges experienced by USOs. Design/methodology/approach - This paper presents a conceptual model illustrating financing challenges met by USOs, and provides an explanation why TTOs report that obtaining financing is their biggest impediment to spin-off creation. Two different theoretical perspectives back this conceptual development: Knightian uncertainty and agency theory. Findings - This theoretical examination suggests that increasing levels of uncertainty affect the investor's willingness to fund new companies in a negative way. Through the literature review, clear indications were also found for the increased uncertainty with which USOs are faced. It is therefore natural to conclude that investors are more reluctant to invest in USOs because of the level of uncertainty compared with other entrepreneurial companies. Research limitations/implications - This study made a generalization of USOs as a homogeneous group of companies, which is an oversimplification. Further research should address how different business models, types of resources and their institutional link affect USOs' capital requirements and their problems in raising the required capital. Originality/value - The main contribution from this paper is the combination of theoretical insights from the concepts of Knightian uncertainty and agency theory. These combined with insights from previous empirical studies explain why USOs face specific challenges in order to raise risk capital.