Good practices in spinoff companies

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Good practices in spin-off companies Isabell
Majewsky Tempus Visit to Moscow State University
2003
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Warwick Ventures

• Located on the Science Park, clearly
  distinguished from the University administration
• Technology-transfer department
• Created 120 commercial opportunities since 2000
• 20 spin-off companies raising over 2m
• 25 new patents
• Licensees for 4 inventions

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Creating spin-off companiesMyths and Pitfalls

• Most universities barely do it at all
• but leading UK and US universities are now very
  active
• Now we are beginning to see which ways really
  work and which are barely worth the effort
• I am going to try to demolish some myths and
  point out some pitfalls

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Myth 1 Licensing is best

• US universities are held up as prime examples, as
  they make 1 billion in licence fees
• but this is only 3 of their research income, a
  minimal return, and
• 90 of it is in the Life Sciences, so what
  happens to all the computing, engineering,
  chemistry and physics inventions?

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Myth 1 Licensing is best

• Most technologies never get licensed
• This is because most are too under-developed
• Even when they are licensed, the average up-front
  payment in the US is only 35,000
• So spin-off companies are a worthwhile
  alternative route

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Pitfall 1 We could do the Development in the
University Lab

• Not recommended as
• Development costs 10 times as much as research
  is risky
• The University would have to pay
• A positive outcome is very uncertain
• Better to set up a company to do the development,
  and spread the risks

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Conclusions on Development

• University inventions nearly always need
  expensive development. So who pays?
• The University. Bad idea!
• The Licensee ...If you are lucky!
• An Investor ...Often easiest

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Myth 2 Creating Spin-offs is Complicated

• No it isnt. It costs us 150 and takes a week.
  Anything more than this is unnecessary
  complication.

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Myth 3 But nobody every made money from Spin-off
Companies

• In the UK, more than a dozen universities have
  made 13 million or more from company shares
• For example, Imperial made 13m cash and 40m in
  shares from just one company, Turbogenset

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Pitfall 2 The University should invest in the
spin-offs

• No, no, NO!
• If it is a good opportunity, then investors can
  be found.they are better accomplished at
  assessing markets, cash flows, management teams
  milestones
• .. And if no investor can be found, then that
  probably means that it is not a very good
  opportunity

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Connect Midlands

• In order to help our spin-off companies to find
  investors, we run an investment network called
  Connect Midlands

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Connect Midlands ObjectivesTo nurture the
development and growth of technology related
enterprise in the British Midlands, by connecting
entrepreneurs with the resources they need to
succeed
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What is Connect?

• Started 1985 - University of California, San
  Diego
• Nurtures development and growth of technology
  enterprise
• Connects technology entrepreneurs to the
  resources they needmoney!

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• Focused on technology entrepreneur
• Provide access to expert network
• Develop investor-ready companies
• Create virtual resource
• Broad support base
• Independent

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Connect Midlands Summary

• It helps high-tech companies across the region,
  not just our own
• but this creates an effective marketplace, to
  everyones advantage
• and by being at the core, we can make best use
  of it

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Mercia Fund

• 4 million fund - donations from Government,
  charities, European Union the universities
  themselves
• Managed by West Midlands Enterprises (independent
  fund management company).
• Maximum investment 250k per company
• Gets 20 40 of the equity in return
• Has now invested in three Warwick spin-offs and
  two projects (over 800k in total)

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Pitfall 3 The University should carefully assess
potential spin-offs

• Extra assessment might reduce the rate of
  failures.
• but probably not! Prediction is hard, and the
  extra effort may add little value
• Better to launch lots of companies and let the
  market decide

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Pitfall 4 Spin-offs should stay close to the
University

• On a nearby Science Park, fine!
• but not in the Department
• and there should be no free facilities
• and the University should not help with
  administration
• and the staff must be in the company

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Myth 4 Lots of spin-offs will create a big
administrative load for us

• Not if you force them to become independent
• We concentrate all our effort in the spin-off
  phase
• So our load is governed by the annual spin-off
  rate, not the cumulative total

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Myth 5 The University should help struggling
Spin-offs

• No, no, NO!
• Let them sink, and concentrate on the next
  generation.
• Minimal investment and minimal administrative
  linkage will mean that the Universitys losses
  are minimal

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Pitfall 5 The University will have liabilities
for failing Spin-offs

• We ensure that we do not by
• Keeping our shareholding low (lt25) and taking
  any extra as share options
• Not appointing a Director
• License IP
• Forcing the company to manage its own finances

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Myth 6 Academics make bad Entrepreneurs

• Not all of them. They often have excellent sales
  skills as well as technical expertise
• We can introduce them to others, to build a team
• But sometimes, a new CEO is needed

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What should be possible

• One commercial opportunity per 1 million of
  research
• One spin-off per 5 million of research
• Investment raised for about half of spin-offs
  (the rest grow organically)
• A multi-million windfall every few years

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Conclusions

• University should take control of IP.
• Concentrate on company formation, not company
  management
• After 1years, cut the umbilical cord, phase out
  university involvement
• Make the new companies stand on their own 2
  feet, financially
• Look for outside investment funds early
• Dont expect much financial benefit in first few
  years

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Ya chrezvichaino rada vozmozjnosti posetit
Moskovsky Gosudarstvenny Universitet
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• Creating an enterprise culture

Isabell MajewskyTempus Visit to Moscow State
University 2003
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Overview

• The UK experience
• Key ingredients
• Enterprise culture
• Support infrastructure

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Research at the University

• Ranked 5th in the UK for research quality
• Over 500 research staff in Biology, Medicine,
  Engineering, Chemistry Physics
• Over 45 million spent p.a. at the University
• Strong applied research, especially in the
  Warwick Manufacturing Group

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The Flow of Innovations

• UK Universities generate about 1 potentially
  exploitable innovation per 1 million of research
  spend
• Warwick should generate about 45 a year
• In 2002, we identified 46, up 30 from the year
  before

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The Fate of Innovations

• This varies enormously depending on the support
  structure
• Best practice is that about half can generate a
  positive result
• But in many universities, 10 or less are ever
  exploited

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National Success

• UK universities spun off 199 new companies last
  year
• 9 of the the Deloitte Fast 50 were university
  spin-offs
• A number of quoted companies started as
  university spin-offs (Filtronic, Turbo Genset,
  Powderjuct, Oxford Glycosystems, Peptide
  Therapeutics, Autonomy, etc)

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Achievements in the last 2 years

• 126 innovations identified so far
• 96 have been exploited or are still in the
  process
• 18 current patents and 40 in process
• 16 Spin-off companies trading, and 4 more formed
  but not yet trading
• 12 Business Plans for potential companies

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Key Ingredients

• Creating an enterprise culture

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• Education in Enterprise
• The Mercia Institute promotes enterprise and runs
  enterprise courses in the eight universities of
  the West Midlands

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Aims

• To change attitudes amongst scientists, engineers
  and technologists
• To offer all students the opportunity to learn
  about Enterprise and set up their own business

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Enterprise Fest

• A 2-day conference and seminar programme takes
  place every year
• To raise awareness of the opportunities and
  funding available to set up, or spin out
  businesses

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Creating an Enterprise Culture medici The
Medici Project, involving 5 Midlands universities
with Medical Schools will appoint 20 Enterprise
Fellows to spread the enterprise message, and
find commercially exploitable research
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• Assisting in Businesses Start-up
• The Enterprise Fellowship Scheme will help 134
  staff, students or alumni start a business.
  Loans, accommodation, mentoring and training are
  provided.

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Aims objectives

• Based on a formula that works!
• Create high-growth technology-based businesses
• Transfer technology from University to local
  economy

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Whats offered

• Up to 10,000 interest-free loan
• repayable after 2nd year, over 5 years
• Front-office accommodation on Science Park
• fully equipped
• access to Universitys IT suite
• Training development programme
• tailored and specific to requirement

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Whats offered

• Mentoring
• business mentoring - specialist commercial
  expertise networking benefits
• academic mentoring - support RD
• Placement
• EFS extra-net
• resource facility and communication tool
• Honorary Enterprise Fellows status
• access University facilities

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Key ingredients

• The right support infrastructure

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• Exploiting University Research
• The Spinner project will increase the number of
  spin-off companies based on research in the eight
  West Midlands Universities from 10 p.a up to 30
  p.a.

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Creating Support Networks Connect Midlands is
creating a support network for early-stage
technology companies in the region, assisting
them particularly in raising investment funds
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Lessons to take away

• The main limiting factors are
• The amount of research in the university
• Clear and sympathetic university policies, with
  clear IP ownership, delegation of decision making
  and good control of risk
• Staff with a business, not an academic background
• A source of seed corn funding
• The right support infrastructure

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• Ya chrezvichaino rada vozmozjnosti posetit
  Moskovsky Gosudarstvenny Universitet