University spin-outs are the world experts in their own technology. “They’ve been working on it for twenty years - if they can’t make it work nobody can. And if it doesn’t go right, they’ve got a whole lab they can get back into to reinvent the business,” says Tony Raven, CEO of Cambridge Enterprise, the technology commercialisation arm of Cambridge University. “For a start-up in the outside world, if the technology doesn’t work, it’s game over,” Raven said.
But technology alone is not enough. Spin-outs need to make business-sense and understand their potential markets. Raven and other experts from some of Europe’s technology hotspots shared their formulae for cracking this code at a Science|Business Network roundtable, “Sharing Best Practices in Spin-Out Formation” held in Brussels on 4 June.
Nurturing entrepreneurship starts early
With an average success rate of ninety per cent after five years, ETH Zurich has become a breeding ground for spin-outs, creating on average twenty every year, noted Roland Siegwart, Vice President of Research and Corporate Relations.
Zurich has incorporated entrepreneurship into its teaching with the undergraduate programme ‘FocusProject’, in which students “develop something they have been dreaming of from vision to prototype,” said Siegwart. Students are given coaching and hardware support but are responsible for raising the finance themselves. “This is the first point where young people realise they might become entrepreneurs,” he said.
In a more advanced Masters and PhD level programme ‘Pioneer Fellowship’ students receive early seed money of between CHF100,000 and CHF150,000 for one to two years. The fellows are based in the Innovation and Entrepreneurship Lab, where they mix with market experts and former start-up founders. It is hoped that by the end of the fellowship, they will have built, “a team that is not only technology-orientated but willing and ready to build a business model,” Siegwart said.
Silicon Valley effect
An alternative approach by Aalto University in Finland sees students offered the opportunity to intern in Silicon Valley. This has both immediate and more widespread effects, said Will Cardwell, Senior Advisor for Global Alliances “Out of last year’s batch of fifteen, several have started new companies, while most of the others are working with local start-up companies.” Aalto has also witnessed what Cardwell referred to as “reverse-mentoring” in which students’ experiences rub-off on Aalto’s senior researchers and on business people visiting the university’s ‘Start-up Sauna’.
Meanwhile, students at Cambridge benefit from contact with the high tech cluster surrounding the university, which comprises approximately 1,500 companies with a turnover of about £12 billion a year, said Raven. The success of previous university companies has created a cadre of Business Angels, “who are very connected to the university and give a lot back in mentoring and money,” said Raven. A recent student spin-out raised a €20 million round in which, “the biggest investor was an angel who was also student entrepreneur of [what is now] a $1 billion company,” Raven said.
One size does not fit all
Karl Klingsheim, Managing Director of Technology Transfer at Norwegian University of Science and Technology, cautioned against a one size fits all approach. “Within IT, clearly Silicon Valley and Shanghai are still the places to be,” he said, “But life sciences, biotech and medtech are something entirely different. Energy again, is a different area, as are nanotech and the creative industries. I wouldn’t send those people to Silicon Valley; I would send them somewhere else.”
In short, the talent, culture, motivation and financing needed for spin-out success varies according to the discipline, Klingsheim said.
Raven agreed with the assessment, having experienced this misconception at first hand. “People ask us every week to come and tell them how to be like Cambridge. We tell them ‘you can’t – you need to work out how to be yourselves because your locality, your ecosystem, your culture, everything about you is different and it won’t apply’.”
Raven pointed out that world leaders in spin-out formation and technology transfer like MIT, Stanford, Imperial College London and Cambridge, “Are all very different universities with very different cultures and yet have equal success rates.” This points to entrepreneurship being robust and resilient. “It’s not a delicate little flower that only blooms in certain, carefully controlled cultural conditions. It will bloom in a whole variety of habitats,” Raven said.
Contact with business
A recent study by ETH highlighted how striking early partnerships with leading customers is a crucial factor for the growth and success of spin-outs. “Spin-outs with early leading customers often do not need venture capital and grow much faster because leading customers know the market,” said Siegwart. By comparison, Siegwart has seen companies with plenty of venture capital investment that ultimately failed because, “they had no clue about the market.”
This market expertise can also be implanted within the company believes Tony Hickson, Managing Director of Technology Transfer at Imperial Innovations, the technology transfer arm of Imperial College London. “Matching up a strong scientific team with good management is one of the most effective things we can do as a tech transfer office to create success."
Future of spin-out investment
While Klingsheim sees the venture capital model as “fundamentally broken”, Michael Collins, Public Affairs Director at European Private Equity & Venture Capital Association (EVCA), sees a future for VC in Europe. However, the fact that around 40 per cent of the venture capital raised in Europe now comes from the taxpayer in one form or another is one of the biggest challenges for the industry.
“EVCA would like to see public policy at both national and EU level orientated towards encouraging private sector money to come into venture capital,” Collins said. A worrying trend is that a lot of EU regulatory policy is going in the opposite direction, with much higher capital charges for banks, insurers and potentially for pension funds, when they invest into venture capital. “By trying to solve legitimate concerns around financial stability, we risk stifling the flow of money into venture capital,” said Collins.
EU-Funding for spin-outs
A recurring theme in the debate on EU R&D policy has been the need for a greater return on public investment. This has been a spur to the open access published policy in Horizon 2020, and is also reflected in the Proof of Concept grants launched in 2011 by the European Research Council (ERC). “The ERC was established in 2007 to fund basic research in the belief that there was a need to support and strengthen research excellence in Europe without expecting any immediate technological [out puts],” said Laura Pontiggia, Policy Coordinator at the ERC.
“We know, however, that the greatest innovations come from basic research,” she said, “But it can take a long time and while some research will never lead to any applicable results, some will.”
Proof of Concept grants of €150,000 over twelve months, are awarded to support the first steps towards commercialisation of ERC-funded research. “During this time, the recipient establishes a proof of concept plan, identifies a development path and an intellectual property rights strategy for the idea emerging from the original grant. It gives the researcher an opportunity to find out very quickly if the idea makes commercial sense,” Pontiggia said.
Interest in the programme has been strong, with data from the end of 2012 showing that from a pool of 3,000 existing ERC grantees, there were 260 applications for Proof of Concept grants, with 111 awarded to date.