In a spin
Mention the word “spin-out” to most people, and they will think of white-coated boffins in university research labs. The UK government seems to agree: over the past five years there have been a raft of initiatives to promote knowledge and technology transfer. Universities and other Higher Education Institutes (HEIs) have responded by becoming more aware of their commercial potential: creating Technology Transfer Offices (TTOs) and developing links and partnerships with externally facing sources of advice and business development support, such as the Enterprise Hub Network.
Marilyn Huckerby, Surrey Enterprise Hub Director, has specific experience of working on spin-outs with the Higher Education Sector,
“HEIs and the Hub Network work well together because we can provide a bridge between the enterprise activities and expertise inside the universities and the businesses and resources outside. In our Hub Network we have some businesses that have spun out of university research but we have even more that have been started by university alumni. These latter entrepreneurs have gained some business experience and have then spotted a market opportunity. They come back to the enterprise or technology centres close to the universities to access knowledge, recruit staff and bounce their ideas off interested people in the TTO and Enterprise Hub teams. There are also a number of programs and funds that encourage HEIs and smaller companies, such as those in the Hub Network, to work together on commercial opportunities. For example PoCKeT, which is a proof of concept fund available in the SEEDA region and managed by Finance South East. Applicants are SMEs who have a product or service concept, which needs to be proved. They identify an HEI partner with the expertise to help them develop the proof of concept. If they are successful with their application to PoCKet they receive a loan to cover the costs of the work to be carried out by the HEI, develop prototypes and move to the next stage of funding or revenue generation.”
Rather than spinning out, some businesses “spin-in” to the universities. With a spin-in the university will negotiate an equity stake in the business and then help the company to access the seed or venture funds that have been created to commercialise IP from the universities. Tony Greenwood, Director of Research and Enterprise at Royal Holloway College, University of London comments, “Whilst we are still working on our spin-outs we are very keen to work on spin-ins. We’ve recently worked with three spin-ins, helping to shape their business plans, obtain seed finance and provide space in the Enterprise Hub.”
Marilyn adds, “The great advantage that these “spin-ins” have is that the founders have identified a market opportunity and they come looking for technology, but armed with commercial experience.”
The need for business experience is borne out by research conducted in 2004 by the Library House for the British Venture Capital Association. The research focused on 435 technology spin-outs from the 36 leading research universities in the UK. The survey found that 60% of spin-out companies and 80% of TTOs thought that the founders needed help most critically at the ‘validation’ stage – testing the concept with potential customers. Ideally, all felt, this help would come from an experienced entrepreneur with prior knowledge of relevant customers and markets.
The BVCA survey found that TTOs and university spin-out companies placed recruiting experienced entrepreneurs and managers at the top of their wish-list, and highlighted the difficulties they faced in achieving this.
But the spin-out story is a little more complex than simply putting entrepreneurs together with researchers. As Marilyn comments, “HEI’s are doing really excellent work in promoting the commercialisation of the more applied end of the knowledge and technology they are developing through research. But the notion that every academic is a successful company waiting to happen is unrealistic. Increasingly the Hub Network has other sources of spin-outs to work with.”
The “other sources” are found in established industry. Mark Brunet, Crawley Enterprise Hub Director takes up the story, “One promising route for new businesses is to explore the intellectual property developed by larger companies, which fails to meet their expectations of rate of return, but which offers potential to a smaller business.
“Large companies have a real issue about understanding their intellectual property portfolio. The more sophisticated companies recognise that there is a potential benefit to them in allowing their employees to develop ideas that they do not wish to develop themselves. This can help them to understand developments taking place in areas of interest to them without being exposed to the risk of developing those ideas themselves.
SEEDA is able to support this activity through the agencies of both the Enterprise Hubs and the new Innovation Advisory Service.
In terms of the advantage corporate spin-outs have over their academic equivalents, the BVCA report had this to say: “It is clear that there are significant differences between corporate and university spin-outs. Typically, a corporate spin-out is founded with the explicit aim of satisfying a known customer need. Frequently, the technology is already proven, customer needs have been established and team members with a mix of technical and commercial experience can be identified, recruited and incentivised.”
In other words, corporate spin-outs are launched at a much later effective stage than their academic counterparts, and usually with far greater commercial experience already embedded.
Marilyn Huckerby concludes, “Understanding customer’s needs, assessing market demand, proving the technology, distinguishing clearly between technical features and real business benefits, managing the human resources and finding the finance are all areas in which academic researchers have limited experience. But they need to do all these things just to arrive at the same point from which a typical corporate spin-out is launched. The time, energy, money and risk involved are obvious. And so too is the need for mentoring, advice and business support.”
Spin doctored Three different companies, three different spins The corporate spin-out i-TRAK
i-TRAK is a unique luggage tracing device. The i-TRAK system works through specially designed tags attached to users’ luggage. If a bag with i-TRAK tags is lost, once i-TRAK has a report that the bag has been found, the system will trace the registered owner automatically by both SMS and email, making finding that misplaced bag simplicity itself.
Adam Dalby, Founder of i-TRAK describes i-TRAK as “a definite spin-out from my day to day job working in the airline industry lost luggage sector.” Back in 1996 on a particularly bad day under a mountain of luggage that had become separated from their owners he thought “if all luggage had a permanent registration number could use that to match them with the owner.” In 2000 Dalby formed a company – Ilutra Systems – to market the i-TRAK system.
Dalby’s experience was that his years of working in the industry gave him not only the initial idea, but also the right background to make his business succeed. “My advice to anyone sitting in a job thinking there’s abetter way of doing what they do is to take the plunge and give it a go. Definitely make use of support networks like the Surrey Enterprise Hub, as there is huge amount of help available, and without them we wouldn’t be where we are today.”
Surrey Enterprise Hub Director Marilyn Huckerby commented, “i-trak is a good example of the type of business where the support of the Enterprise Hubs can really add value. Here is someone with business experience who has spotted a problem in the real world and has then designed a solution based on a good business model to solve it. The Enterprise Hub has been able to provide expert advice, encouragement and contacts to help the team fill the gaps in their knowledge and to save them precious time.”
Contact www.i-track.co.uk
The spin-in
Temporal S.
Information security company Temporal S. is developing a tool-kit to manage digital identities on documents such as passports and tickets, and for IT systems in large corporates to defend against data attacks. Its solutions can be used to address the growing threat of data attack (internal and external) and provide ID-based mechanisms to enforce, audit and prove compliance with regulatory requirements.
CEO Simon Lofthouse explains how they decided to spin-in to Royal Holloway, University of London. “As part of its management strategy Temporal S. has been involved with the Surrey Enterprise Hub from an early stage, initially via our relationship with the Information Security Group (ISG) and Royal Holloway, University of London, where a number of the company’s founders studied on the Masters Degree course.
“Working with the Surrey Enterprise Hub has provided a range of benefits, including access to office space on flexible terms, market research support and support from business mentors. One of the important benefits has been access to investment opportunities that has helped the company secure critical Seed Funding, which kick-started our growth.
“As a result of one of these investments from the Cascade Seed Fund, Temporal S. became a ‘spin-in’ with Royal Holloway, University of London, with the University taking a minority equity stake in the company. This has proved very successful and has provided a number of mutually-beneficial business opportunities.
Surrey Enterprise Hub Director Marilyn Huckerby commented, “The Enterprise Hub and Royal Holloway, University of London have worked in close partnership to support the development of Temporal S. The University has been able to provide the links to the internal resources including technology experts and access to seed funds. The Enterprise Hub has brought along contacts and expertise from the business world. This is a good example of joined up business support for a young technology business that needs to build its credibility and bring a complex product to market quickly.”
Contact www.temporals.com
The academic spin-out
Mesophotonics Mesophotonics
Founded in 2001 a team of seven founders (four professors and three post docs) from the University of Southampton. The company develops “photonic crystals” – high-density optical silicon chips that can bend, route and process light. The outcome of this could be the low-cost, high-volume production of integrated optical devices.
CEO James McKenzie commented, “The company received £2.8 million in spin-out funding in 2001, followed by a £5.5 million second round lead by Quester in December 2003. It is always a challenge going from academia to business, and the challenges often come when moving a research-based group to an engineering operation. In my experience, often the academic team in a spin-out lack many of the key skills to help the company succeed commercially. The smart companies recognise this and embrace the change.
But to do that you need to bring in the right team to complement the founders’ with skills in product development, manufacturing, business development, and sales and marketing. Meso is now at the stage where products are in production and sales are growing rapidly and the emphasis is on sales and marketing to grow the business. As a business we have changed out of all recognition from when I joined we have adapted ourselves to the markets we are addressing with people experienced in those markets.
Contact www.mesophotonics.com
Author: Marilyn Huckerby
Created Date: 23-08-2006
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