Call yourself a spin-out? Well, don’t

Image courtesy QinetiQ.

Universities need to change their approach to commercialising research if they want to maximise the financial returns. They could learn a lesson from technology companies like QinetiQ, Sharpe told the World Universities Network meeting in Leeds, UK, this week.

“Initially we followed the political agenda of research commercialisation for the knowledge economy born in the mid 1990s. But since this agenda has been adopted as mainstream, our focus at QinetiQ has shifted to playing directly to financial opportunities and methods of maximising our offer to [the capital] market.”

Sharpe told delegates that QinetiQ’s original corporate venturing model was strictly traditional – creating, incubating and grooming ventures internally, funding them through consultancy activities, until they reached a point where they had equity value, and then looking for external partners and finance.

“But this is quite a laborious and often fraught process, with internal funding levels at the mercy of the organisation’s profit margins, and dealing with accountants who considered investments as losses,” said Sharpe.

QinetiQ, a specialist in security and defence technologies, realised that it needed to adopt a more sophisticated approach. In 2007, the company shifted its focus, packaging seven ventures together and putting them into an external fund under a limited partnership agreement. This was supported by a £20 million investment from Coller Capital Private Equity and a further £20 million from QinetiQ. A dedicated fund manager was appointed to drive all the individual companies forward.

QinetiQ’s ability to restructure its approach was underpinned by the flotation of the former UK government defence research laboratory on the London Stock Exchange in February 2006.

“This approach makes for a more attractive offering to venture capitalists and the market, and improves chances of earlier exit,” claims Sharpe. Recent financial reports show that QinetiQ’s venture activity now accounts for 20 per cent of the company’s share value. “I believe it’s our way forward,” said Sharpe.

Packaging up related technologies is just one model that universities might consider, Sharpe told representatives of WUN, a partnership of 16 research-led universities from Europe, North America, South East Asia and Australia.

No quick fix

“Of course, every university is different; there’s no quick fix, and no one-size-fits-all solution to successful exploitation, but there are lessons to be learned both from QinetiQ’s successes – and failures,” noted Sharpe.

Universities must have a clear objective – a mixed model won’t work. “Buy out academic entrepreneurs’ time from teaching, to let them focus. Insulate ventures from mainstream activities, use incubators and get the entrepreneurs out of the laboratory and into a more business-like environment, recommended Sharpe adding, “It makes a big difference to how people behave,”

Making a venture stand on its own two feet, with a distinct brand, and as soon as possible, is also important. “And lose the ‘university spin out’ tag,” Sharpe said. “It makes them look vulnerable to the market.”

Another approach that universities should encourage is the use of what Sharpe terms “Open Innovation”. “Expand the intellectual property [on] offer by finding others working in similar areas, and partner with them to create a more attractive offer and outcome.”

Sharpe recognises this may be counter-cultural for academics, but he argues, “It’s a pragmatic and growing approach that can work really well.”

And what does Sharpe consider his most important piece of advice? “Recognise and build in a process that attracts and nurtures innovators rather than inventors,” he says. “Inventors turn money into ideas, but true innovators turn ideas into money. The bottom line is that all our most successful ventures were headed by innovators, with drive, vision, flair and passion.”

Not that Sharpe claims to have all the answers. “I’m still learning what works and what doesn’t here at QinetiQ,” he concluded.