Measuring the impact of government subsidized hire-purchase facilities by starting biotechnology companies.

Measuring the impact of government subsidized hire-purchase facilities by starting biotechnology companies.

Verschoor, L.J.A.

Trott, P. (mentor)
Scholten, V.E. (mentor)
Van der Voort, H.G. (mentor)
Hulsink, W. (mentor)

Technology, Policy and Management

Management of Technology

Technology, Strategy & Entrepreneurship

2012-03-29

Over the last decades, biotechnology has become a very promising industry and is seen as a key area for thriving innovation in the future. In order to realize this potential for their economies, many countries including the Netherlands have made special policies containing governmental subsidies and credits aimed to increase the number of biotechnology startups and help them in becoming a success. This report has as goal to measure the impact of one of these credits, namely governmental subsidized hire-purchase facilities for biotechnology startups. If such a startup is in need of specialized equipment or facility they can apply for a hire-purchase investment. The foundation which governs the funds, called Mibiton checks this application and if it is granted the machinery is bought by them and hired to the applicant, who has to pay a representative monthly fee for its use. Beforehand a period is determined in which the company pays for the total value of the machine and when the period is finished the ownership is converted to them. With regard to the measurement of the impact of such a fund an interesting discussion applies. It is argued in the literature that governmental sponsorship can be positive or negative for a starting company, depending whether the investments are helping to strengthen the company’s initial strategic and competitive advantages or are creating an extra advantage with the extra resources. In the last case there is the risk that a company can become too dependent on the sponsorship in order to compete with its competitor, which leads to big problems when the sponsorship finished and ultimately the company can go bankrupt if it is not able to turn around to a more sustainable situation. There is however no tool available that can easily show both the financial and strategically impact of a hire-purchase investment for the companies, the fund and the sector as a whole. So in this report a special measurement protocol is developed based on three sub instruments. First of all a multiplier is used which expresses the social-economical revenues directly for the company, indirectly for its customers and suppliers and as induced effects for the society as a whole. Not only the financial data is included in the revenues, but also estimates are included of the revenues by employee growth, knowledge increase, etc. The problem with the multiplier is that it neglects the induced investments effects, which are the extra revenues caused by a shorter development time or time-to-market. In order to capture these effects the second sub instrument is the accelerator which expresses the decrease on a time-scale. However both instruments are still not measuring whether the investments are giving strategically or competitive advantages and therefore the impact effect is introduced which divides the investments into four categories ranging from no advantage to major advantages. In the background interviews done for this research another interesting problem was mentioned. It was said to be very hard to get a private hire-purchase investment because the equipment in the biotechnology sector has a fast depreciation period and as there are no second-hand market investors see it as a too risky investment and certainly at startups that are also lacking a track record. However there is very little research done in the literature to either confirm or dismiss this claims. Therefore this report is aiming to fill this gap. In order to measure the impact managers and directors of nineteen companies are interviewed. With the data gathered from these interviews there is tried to find the multiplier revenues, the acceleration and the impact effect for each of the companies. Also there is tried to look into the importance of equipment for these companies and the problems with financing them. Finally there is looked to the trends represented by the figures and conclusions are drawn upon them. After looking into the results it can be concluded that Mibiton investments in general have a strategically effect on the companies and the fund can therefore be put in the category of credits giving a strategically and competitive advantage for companies. This is illustrated by the fact that 17 of the 19 companies have experienced a decrease in development time and 12 of them where in the highest two categories of the impact effect. Also the average direct effect multiplier of 3.11 and the average acceleration of 10.7 months are relatively high and are therefore confirming this picture. There should be noted that it was not possible to get solid figures for the indirect and induced effect multiplier as only very 5 companied could make an estimate of the effects for their suppliers and customers and only 1 company could say something about the effects for the sector and society. Also many of the interviewed companies affirmed that equipment and facilities are very important for the Life Sciences sector and that it was very difficult to finance them. So also the extra claim is confirmed in this report. Finally the main contribution of this report lies in the developed tool to measure the impact, including the multiplier, accelerator and impact effect. For further research it could be very interesting to develop this tool even more and check its range and shortcomings. Also it would be interesting to check the impact of other governmental credits to determine what the best tool is.

Impact measurement
Biotech equipment
Hire-purchase fund
Biotech startups
Government credit

http://resolver.tudelft.nl/uuid:1dce2820-2276-4817-80e7-de1e3580ac00

2013-03-29

Campus only

Student theses

master thesis

(c) 2012 Verschoor, L.J.A.