A study of commercialisation in technology and research intensive early stage firms must take into consideration that the first 3-10 years (depending on technology) are investment inten-sive, driving up costs. Growth and commercialisation should thus not be studied from the per-spective of operating result and profits, but rather from the perper-spective of sales revenues and turnover.
Table 5.3 gives an overview of number of firms and development in sales revenues for each year after the FORNY programme got involved in the firms through the TTOs.8
8 Turnover is not including transfers from public sector funds (soft money).
As shown in the table, the number of firms falls rapidly with the number of years after entrance of FORNY. This is explained by the fact that many start-ups have been established lately. Moreover, as time goes by more firms are forced to close down.
Table 5.3 Turnover by years after entrance of FORNY (1000 NOK).
Turnover is expected to grow as firms mature. The average turnover increases from 670 000 NOK the first year to nearly 14 million NOK after 10 years. But average figures do not tell the true story about the FORNY portfolio. The figures are strongly affected by a few out-layers that pull the average figures up over time. Consequently, we have also reported turnover for the median firm, the top 25 percent firm and the top 10 percent firm. Neither the median firm nor the top 25 percent firm show any growth of significance. We have to move all the way up to the top 10 percent firm to identify a strong growth pattern. However, notice that after 10 years where turnover makes a big jump, the top 10 percent firm is actually the second largest firm, since there are only 20 firms representing this cohort.
Some of the FORNY start-ups have caught the attention from other firms who eventually have acquired them (e.g. Secustream), leading to a profitable closedown as the activity is merged into the acquiring firm. This exit route leads to a potential downward bias in the turnover growth pattern. However, the number of FORNY start-up acquisitions is low and the overall acquisition price (signalling future revenues) is limited. Moreover, experience from such trans-actions in the seed and venture capital segments shows that most firms continue to exist after being acquired. In other words, we do not expect that this downward bias affects the overall patterns.
Turnover revenues may not necessarily stem from innovations that the FORNY start-up was based on. Results from the survey indicate that turnover is either strongly related to the firm’s commercialisation, or only marginally related. 18 percent of the firms reported that all sales revenues were related to the commercialisation. More than half of the firms reported that only 0-10 percent of the turnover was related to the commercialisation.
79 Table 5.5 Share of the turnover in 2008 which is related to commercialisation.
Share of turnover related to the
commercialisation Share of the firms
0 % - 10 % 55 %
11 % - 99 % 27 %
100 % 18 %
Source: The FORNY start-up survey
Most firms are likely to be in a development phase were the commercialisation so far has not brought any significant income. Hence, turnover is not related to commercialisation but some-thing else, for instance financial support from public funds. Several firms have moved into the commercialisation of a different product. Hence, they have commercial revenues, but not re-lating directly to the FORNY commercialisation.18 percent of the firms in the survey report that the entire turnover is related to the commercialisation. This is likely to be firms which have made it through the development phase where the commercialisation now gives return in terms of turnover.
5.2.1 Degrees of commercialisation
So far, we have not conducted normative valuations of FORNY-portfolio firm performance in terms of successful commercialisations. There are a large number of different definitions of commercialisation in the literature. One view of commercialisation previously used in the FORNY programme is when a firm has a product or a service which may be introduced com-mercially. This is a wide definition with focus on potential performance and no requirement of actual achieved commercial success. Our data material allows for backward looking studies, hence, definitions of commercialization can be based on figures describing the development of actual commercial revenues. In the following we have defined two simple degrees of com-mercialisation and a profitability criterion:
Lower degree commercialisation: turnover higher than 500 000 NOK at least once over the period 2000-2007.
Higher degree commercialisation: turnover higher than 5 mill NOK at least once over the period 2000–2007, and growth in turnover over the last three years higher than 75 percent.
Profitability: operating result plus write-offs (EBITDA) greater than zero at least once during the period 2000–07.
A lower degree commercialisation confirms that there is or has been some demand for the product. On the other hand, the firm is not a high growth case with a potential for significant future value creation and employment.
A higher degree commercialisation signals that the firm is able to move into a high growth path with large potential future revenues and employment. The objective of the FORNY programme is to contribute to long term value creation and employment. Hence it is the
group of higher degree commercialising firms that should be in focus. Notice though that a higher degree commercialisation not necessarily implies a fully successful enterprise, only a potential one.
Figure 5.2 Number of commercialisation among the 297 FORNY firms.
Number of non-profitable firms n brackets.
Figure 5.2 illustrates that there is a small number of firms, about five percent, which fulfil the criteria for commercialisation of a higher degree, while almost half of the firms fulfil the criteria for commercialisation of a lower degree. This pattern fits well into the overall pattern for start-up firms in Norway. Somewhat less than five percent of start-ups transform into firms that grow fast over a long period.9
9 See e.g. Grünfeld et al. (2009), Kolvereid, Bullvåg and Åmo (2007), Sørheim and Isaksen (2008) The vast majority of firms (technology intensive as well as others) remain small with modest or no growth. They serve the purpose of employing a few persons.
In chapter 3.2 and 3.3, we have presented the spin-off activity of TTOs in other countries. A direct comparison with the surveyed institutions is not easy, however, it appears that the number of spin-offs with strong employment and output growth is larger in many of the cases.
Also, the number of firms going public or being acquires by other firms appears to be higher in those foreign TTOs that we presented.
TTOs clearly operate with different approaches to the start-up process. Figure 5.3 displays the number of commercialisations in the different TTOs.
0 50 100 150 200 250 300 350
All Lower degree Higher degree
Number of firms
All
Non profitable Profitable
297
126 (47)
12 (4)
81 Figure 5.3 Commercialisations by TTOs.
It is not straightforward to compare the different TTO portfolios since the portfolios differ much in size, age and underlying strategy. Higher degree commercialisations have mostly taken place in the TTOs where there have been a large number of FORNY start-ups. Those TTOs which are newer have a smaller number of FORNY start-ups and no higher degree com-mercialisations. Some of the TTOs are focusing heavily on start-ups in the fields of biotech/
medtech/food industry. In these sectors, the road to commercialisation is often two or three times longer than in other industries. Hence, the number of higher degree commercialisations will be capped.
Notice also that some of the newer TTOs are strongly dominated by lower degree commerci-alisations (very few start-ups with no revenues). This indicates that firms have had a relatively short road from establishment to commercial revenues.