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Startups Drive Commercialization of High-Impact Innovations

Startups have more incentive than incumbent firms to engage in potentially disruptive R&D because large, established firms have more to lose from the discovery of new technologies that replace traditional ways of doing things. With no existing operations, startups have nothing to lose and much to gain from disruptive innovation.

In Of Academics and Creative Destruction: Startup Advantage in the Process of Innovation (NBER Working Paper 30362), Julian Kolev, Alexis Haughey, Fiona Murray, and Scott Stern focus on patents that emerged from university-based research ecosystems. Innovative researchers often prefer the creative freedom offered by academia to the more structured environment of the corporate world, but they must rely on private firms to commercialize, and in some cases patent, their discoveries. 

Patents commercialized by startups are more likely to be disruptive than those commercialized by incumbent firms or universities.

In this process, the role of startups relative to that of established firms is growing. Between 2001 and 2019, patent licenses granted by top-25 research universities that went to startups grew from 19 to 27 percent while grants to large firms fell by about 10 percentage points.

The researchers point out that academics looking to commercialize their research may find entrepreneurship more attractive than partnering with established firms. Both BioNTech and Moderna, startups that pioneered the commercial use of mRNA technology, were founded by researchers whose academic work enabled them to judge the promise of mRNA-based therapies. When these startups were founded, large pharmaceutical firms were reluctant to touch what they viewed as a risky and unproven technology. This led the academics to start their own companies and seek seed funding from venture investors rather than existing drug companies. This path also promised greater financial rewards if mRNA technology succeeded.  

The researchers develop a conceptual framework in which the most disruptive university-based innovations will be commercialized via entrepreneurship while less disruptive ones will be commercialized by incumbent firms or universities themselves. To test this framework against recent commercialization patterns, the researchers study patenting between 2000 and 2015 in the regions surrounding the top-25 research universities, which were collectively responsible for nearly half of all university patenting. Using the PatentsView database and other information from the US Patent and Trademark Office, they categorize patents into those associated with startups, large firms, and universities. They examine the patents’ citation counts as well as measures of patent originality and generality calculated from citation patterns. Patents granted to startups are cited about 20 percent more during the first five years of patent life than patents granted to universities or established firms. This difference grows over time. Between 11 and 15 years after patenting, startups’ patents generate nearly twice as many citations as those granted to incumbent firms and academic institutions. Startup patents are also about 40 percent more likely to be for “outlier innovations,” innovations in the top 5 percent of patents by citation count. Innovations for which the patents are held by startups are about as original and general as those for which the patents are held by universities and are more original and general than those for which the patents are held by large firms.