Blog – How do you create a university spin out?

Earlier this year I formed a university spin out company with another academic at the University of Birmingham. It was an equally exciting and daunting prospect but things are settling down and we are now getting into the groove of running a business. I get asked a lot of questions about our journey but the one I get the most is ‘how did that happen?’

Since it’s innovation week it feels like the perfect time to tell you our story and cover how you could form your own university spin out (if that’s what you want to do, of course).

1 – It all starts with an idea

Every business starts with a single moment of inspiration. For us, that came 14 years ago when my co-founder Gowsh found a new way to process a material that had been in clinics for many years. When he showed it to his PI at the time, the response was ‘push forwards with this… it will definitely take you somewhere’. He certainly wasn’t wrong. But how do you know if your idea has potential as a business opportunity? It might not seem like it does right away. It took 14 years to spin a business out of our technology but I’m fairly certain that Gowsh (that’s the guy who invented it) had an idea early on. When you create something that excites you, take a look at what is out there on the market already. Is there anything similar to what you have created? Can you honestly tell yourself ‘this idea meets a need that currently remains unmet’? Even if you are only 5% sure that it could have potential… its time to proceed to step 2.

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2 – Tell the right people

Its wise to keep ideas close to your chest. Plenty of people out there make money from stolen ideas but you will never get anywhere if you keep it 100% to yourself. It is about telling the right people. But who are the right people? Well… your university has a whole department purpose built to only house staff focussed on getting ideas like yours to market. It is often called the technology transfer office and their job is to help turn the ideas of academics into viable businesses. If you give them all the details about your idea, they will connect you with the best technology transfer officer (i.e. the one who knows the most about the field you are working in). That person will then help you scour the market to find a gap that your idea fills perfectly. At that point, it is time for step 3.

3 – Speak to an IP attorney

If you truly have an idea worth selling, it is time to protect it. Your technology transfer officer will likely have a recommendation; somebody they have worked with on projects before. It is important to get to this step as early as possible as the attorney will be able to run searches to determine if what you have does truly bring something unique. The university will also pay for this and that is something you cannot undervalue. Patent attorneys are expensive so definitely capitalise on the fact you can get this for free (from your end).

The other thing worth considering is whether you should patent your idea. This is, again, something to speak with the attorney about. Not every idea should be patented. Our company does not have a patent attached to it and that is in no way off-putting to an investor. There is no patent for coca cola. Why? Because every patent is published. If coca cola was patented, their secret recipe would be online for all to see. Because our novelty comes in the way we make our material, a patent would reveal our secret. Someone could simply tweak it slightly and essentially remove our space in the market. Make sure you get this strategy right and seek the best advice before moving to step 4.

4 – Apply for a commercialisation program

Why do most businesses fail? Because they don’t have a market for their product. They might think they do but reality had other ideas. We are confident of our idea because we went through an Innovate UK programme called ICURe (innovation to commercialisation of university research). This funded me to travel the world and speak to 130 different people about our technology (non-confidentially of course). That meant that within 3 months, we had the opinion of 130 people and knew that the market wanted our product. It is called market discovery and 90+% of the companies that go on this program are still in operation after 3 years. That is a really impressive claim. Once you have the support of your tech transfer office and your IP attorney is helping you protect your idea the best way, start looking at programmes like that. Do not even think about spinning out your idea without testing it in the market first.

5 – Negotiate with the university

Once your idea is market tested and is ready to move into a spin out, its time to negotiate with the university. They will still own your idea and will want to take a % stake in your company to transfer it to you. This may sound unreasonable but remember that every step of your journey was funded and supported by the university in some way or another. Every university will start at a different number in negotiations but you want to get them to 20% equity or less. Anything above 30% will scare off any potential investor and ultimately kill your business. If you aren’t sure how to negotiate, speak to investors and get them to tell you what % they want the university to take and lead with that. They don’t want your business to fail so show them what the terms need to be to ensure it succeeds.

6 – Get your funding sorted

Alongside this, work out how to fund your business. It will be AT LEAST 3 years before you are selling and making profits. Until then you will rely on grants and investments to fund you. Innovate UK is an absolute gem for funding startups. A lot of other countries really envy that we have something like that in the UK so take advantage. Look at the funding calls and see if one suits your tech and apply. At the same time, speak to the angel investor network in your region and get the ball rolling on bringing private equity in. You have to sell your business. Its hard work and I will probably do another blog in the future about how to pitch your business. Until then, lets assume you have your funding and move to the final step…

7 – And away you go…

This is where the fun starts. You are officially a spinout company. Your job now is to develop your product through to commercialisation and ensure you never run out of money. It can be stressful but it’s a ton of fun and incredibly satisfying each time you hit a milestone. Every company is different so the challenges you face are likely to be specific to your company. However, as long as you surround yourself with good people and mentors, you give yourself the best chance of success. All that’s left is for me to say good luck and dog speed (yes… I said dog).

Dr Sam Moxon

Author

Dr Sam Moxon is a Research Fellow at the University of Birmingham. His expertise falls on the interface between biology and engineering. His PhD focussed on regenerative medicine and he now works on trying to develop 3D bioprinting techniques with human stem cells, so that we better understand and treat degenerative diseases. Outside of the lab he hikes through the Lake District and is an expert on all things Disney.

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