Internal venturing: sponsored corporate spin-offs in Sweden

Book chapter, 2007

This paper investigates how spin-off firms perceive support from parent firms. The question was addressed by administering a questionnaire to 51 firms listed on the new Swedish stock markets (NGM and Aktietorget) set up in the mid-1990s. Spin-offs were identified as new firms, where the founder had drawn on experiences with his or her previous employer when starting the new firm. The sponsoring of spin-off firms (financing and other resources) was compared to the sponsoring of other new firms listed on these new stock markets. We found that more than a third of all corporate spin-offs had received sponsoring from their parents. However, it was quite unusual that the parent firms became minority owners or contributed financially to spin-off firms. Instead, sponsoring with other resources, especially personnel and equipment, was more common. Even so, sponsoring from the founders’ previous employers was found to be at least as – if not more – common among other ventures listed on the new stock market. Especially ventures based on external ideas seem to attract resources from previous employers. The results suggest that there are two types of relationships between established firms and former employees starting new firms. The first type is where the relationship is based on a business opportunity originating in the established firm and where this perceived opportunity is embodied in the former employee. This is the logic for entrepreneurial spin-offs found in literature. The second type is where the relationship is only based on a business opportunity embodied in the former employee, but where the opportunity did not originate in the established firm where the founder used to work. The second type is relevant because of the finding that former employers sponsor new firms of this kind as well. Finally, we conclude that the spin-off mechanism is indeed important for generating new ventures. However, the results suggests that established firms still to a large extent ignore the potential of listing sponsored entrepreneurial spin-off ventures on the stock exchange, and instead focus such activities on relatively more mature spin-offs.