Enablers of exit through trade sale: the case of early-stage research-based spin-offs

Abstract

A significant share of new technology-based ventures exit through trade sale at an early stage of firm development. While trade sale is an important exit route for entrepreneurs and investors, and a potential source of new innovations and technology for acquiring firms, we have limited knowledge about the factors that help to effectively achieve a trade sale. We employ a unique dataset tracking the population of research-based spin-offs in Norway and conduct in-depth case studies of nine trade sales. Building on 52 interviews and other secondary data, we inductively develop propositions outlining three dimensions that lead to a successful trade sale—potential synergies, credible alternatives, and uncertainty reduction. We show that these enablers of trade sales are not only linked to the focal venture but also related to the idiosyncratic dyad with the buyer, reflecting both the potential for and likelihood of trade sale. Consequently, our study contributes to the literatures on entrepreneurial exit and academic entrepreneurship by mapping the important but under-explored area of trade sale as an exit mode.Plain English SummaryPotential synergies and credible alternatives increase the potential of a research-based spin-offs’ trade sale, but the likelihood of a trade sale depends on how uncertainty reduction is managed. A trade sale is an important exit route for entrepreneurs and investors, and a potential source of new innovations and technology for acquiring firms. Research-based spin-offs are often acquired during their early stages of development by large corporations. We track the population of Norwegian research-based spin-offs and study nine trade sales in depth. Our findings concerning the importance of synergy potential, credible alternatives, and uncertainty reduction have implications for both academic entrepreneurs and potential buyers for how they can complete an exit through trade sale. Since scientific research is critical for society, our findings have implications for policymakers in the form of interesting ideas for influencing trade sales, a potentially important route for commercialization of scientific research.

Resource configurations among digital academic spin-offs: finding the technology-market fit

“…Given their technological and knowledge capabilities, ASOs are attractive to investors and likely to be acquired by larger industrial firms through trade sales (Clarysse et al , 2013; Cumming and MacIntosh, 2003; Mathisen et al , 2022). Some firms plan exit strategies such as mergers and acquisitions when the businesses are well-performing and profitable in order to scale up their ventures (Kato et al , 2022; Mathisen et al , 2022). In most cases, after successful mergers and acquisitions, the acquired businesses' activities and innovations are likely to be continued under the governance of the buyer firms (Coad et al , 2016).…”

“…For instance, the performance of a digital ASO established in 1999 would be measured from 1999 until 2009, while that of one established in 2011 would be measured until 2021. The timespan of ten years is also appropriate because ASOs are likely to introduce radical innovations that need longer development times to convert their innovations into profitable ventures (Mathisen et al , 2022; Ortín-Ángel and Vendrell-Herrero, 2014).…”

Founder's Human Capital and the Entrepreneurial Process Duration

“…My theoretical contribution is extending the human capital theory, both in terms of an observable entrepreneurial process outcome and duration perspective, driven by the nascent entrepreneurs' human capital factors (both general and specific). This Entrepreneurial exit is attracting a growing interest to understand this phenomenon better (Mathisen et al, 2021). First, the founder's exit is a significant event in the entrepreneurial process that is harder to predict and, second, despite advances in entrepreneurial exit literature, the actual exit outcomes (i.e.…”

“…specific prior knowledge) as it can negatively impact venture creation process by not only hindering opportunity discovery process but also impacting exploiting innovation (Marvel, Wolfe and Kuratko, 2020;Marvel, Davis and Sproul, 2016;Gruber, Macmillan and Thompson, 2013). Another aspect I would like to highlight here is that while the work experience was considered as a control in Chapter 2 which focuses on the duration to a profitable outcome, in this chapter the mechanism is different due to the role prior work experience plays in the founder's exit considerations, which are not specific to financial performance only (Mathisen et al, 2021). Individuals with prior work experience also tend to invest more time in environmental scanning (e.g.…”

“…Moreover how these individual factors aid post-entry assessment of a venture's viability affects founders in making the right choice, even if comes to disengaging from the process in a timely manner affects a founder's exit decision (Mathisen et al, 2021). S.R.S.Pirzada, PhD Thesis, Aston University 2022…”