There is no doubt that the exploitation of university generated intellectual property is important. One only has to look at the computing industry and at the world of biotechnology to see that many of the advanced companies have their origins in university laboratories. Not only is this exploitation important, it is also growing and supported by governments across the globe.

The universities themselves welcome the income generated from spin-outs and licensing deals, while individual academic scientists see that activity in this domain can generate improved facilities and funding for students. It is however very important for the universities to remember that their principal roles are teaching and research. Commercial opportunities are a welcome by-product and should come at the end of the research process. We have to be very vigilant to avoid redirecting research and to prevent a distorting of the prime mission. There are dangers.

The Dangers

The essence of universities is that they are open and knowledge is freely disseminated. How does this sit with protecting and exploiting intellectual property? The answer is that there is some discomfort, but workable compromises have emerged. When research is funded by industrial corporations, most academic institutions will agree to short delays in publication so as to protect inventions, and the same thing is found to work when the intellectual property belongs to the university. These delays must not extend beyond a period of months and thesis examinations should not be distorted by commercial considerations. Research students must be protected from exploitation and access to some form of conflicts of interest scrutiny is essential.

It is often helpful for the early stage of a start-up to be housed within a university department, but as soon as possible it is wise to seek external premises. Similarly the role of the academic must be clarified and in general he or she should not be an employee of the company, but rather a technical advisor or non-executive director. Even the latter may become inappropriate as the company grows.

Many of the dangers are subtle. Academics rightly want to research on questions that interest them. Institutions need to be aware when recruiting new staff of the dangers of hiring faculty because their research looks particularly marketable. There are those who take an absolute view that universities and commercial considerations do not mix – that money is the root of all evil. In the modern world such attitudes are not sustainable, but it is equally foolish to be blind to the possible conflicts. Most academic institutions have a “conflicts of interest committee” for this very reason, and it can rule in difficult cases.

The Science For Spin-Outs

Experience has shown that most of the really successful spin-outs have been based on research that was not seen originally to be a likely source of profitable intellectual property. The so-called “blue skies” research is a far better source than that which appears obviously exploitable for profit at the outset. In my own case, when we started working on the application of quantum mechanics to biological molecules, the research seemed esoteric and even dotty rather than commercially orientated. Who would have dreamed that the World Wide Web should have emerged from a particle physics environment?

Of all the prerequisites for successful spin-outs, the easiest to satisfy is that of suitable science. There is so much good research in all countries that is capable of exploitation. All that is required is someone who can recognise the potential. Best of all, this person is the individual who is doing the research and then only needs advice from someone with an understanding of the commercial process, probably the technology transfer professionals.

Management

In much shorter supply are the potential CEOs for the new venture. Here there exists the classic chicken and egg situation. If there have been a lot of spin-outs, management is easier to find. One of the reasons for the great success of spin-outs in California is that there are a lot of people who have done it before. There has been sufficient activity for individuals to recognise that they are the ideal people to get a small company off the ground and possibly to leave when that has been achieved and to repeat the process. The USA has an admirable view of people who have tried and failed. They are not damned for all time, but rather are seen as people who have learned valuable lessons so that they will not repeat old mistakes.

For countries that do not possess the pool of experienced start-up executives life is more difficult. One source of personnel that is expanding is folk from major companies, particularly in the pharmaceutical area, which are restructuring and shedding staff. Such people have the advantage of having good contacts with big companies that can help sales and joint projects, but they have to learn very quickly how to operate in a small team where they have to do their own photocopying and make their own coffee.

Such is the vibrancy of the world of spin-out companies that business schools are increasingly training potential CEOs and giving courses in entrepreneurship. Science graduate students and post-doctoral researchers are more and more showing a preference for working in a spin-out rather than a major company. The latter have had a lot of bad publicity and the young researchers can increasingly see how some of the people in start-up companies have grown rich as well as being able to live and work in desirable surroundings, often close to the universities where they retain friends and useful contacts. Happily, cooperation between business schools and science departments is on the increase – business schools are providing more courses that instil science graduates with basic commercial skills, enabling them to become suitable as executives in spin-outs.

Funding

In addition to some good exploitable science and management the new spin-out will require funds, probably less than typical venture capital organisations like to consider. As discussed earlier, business angels, family and the few specialist sponsors are the main sources, although the growth of university funds is a notable feature, often in part from governmental sources.

As in most commercial activity the availability of funding is cyclical. There have been periods when money is easy to get and people were fighting to be able to invest. Currently we are at the opposite end of the cycle. Venture capital funds that did consider start-ups have withdrawn and in particular the areas of drug discovery and biotechnology are struggling. For the past few years the Alternative Investment Market, AIM, was not only an avenue for exits, but also very newly formed companies were floated. It was possible to have an IPO of a company long before it became profitable and in so doing raise sufficient cash to see the company through several years. At present there is little activity on AIM and the other markers for small companies. Times are hard, but this does provide real opportunities for wise entrepreneurs. Anyone with cash to invest can find some real gems and also take-over some of the companies that are struggling to find second or third round funding. Such entrepreneurs are also starting to amalgamate some of the spin-outs in specific areas to form larger more viable units. As always, times that are difficult for some provide opportunities for others.

The Global University IP Industry

Since it seems most helpful to base this book round a single case study, the emphasis has inevitably been on the situation in the UK. That experience should translate to any other country though, since the essentials are universal. What is more the activity, as with so much in commercial life, is becoming global. The companies which specialise in supporting spin-outs are becoming ever more multinational, with arrangements involving universities in several countries, particularly those where the ownership of intellectual property is clear-cut. There are obvious advantages in involving several countries in any spin-out, notably future sales and tax regimes. In the past the most successful spin-outs have originated in the US, with the UK perhaps the second most fruitful source. Continental Europe is catching up and keen interest is being shown in China and India. I have given lectures on the topic in Japan, Brazil, South Africa and Singapore, and these countries too are eager to embrace the concept. Just as companies look to the Middle East for funds, the rulers of those countries are conscious of the opportunities to foster spin-outs in their own countries as a way of reducing future dependency on oil, but also as a way of exploiting the wasted resources – such as the burning off of low molecular weight hydrocarbons, to say nothing about future needs such as desalination. Science is a universal subject and so too is the exploitation of research for the common benefit of humanity and the welfare of our planet.

People

The universal truth that in the end all endeavours reduce to the skills of the people involved is as applicable to spin-out companies and the exploitation of university generated intellectual property as to all other activities.

The formation of spin-outs demands the interaction of three different groups and has been described as working in a three-dimensional space where the three orthogonal axes are:

• 1. The academic axis where the researcher wants to fund his or her research.
• 2. The commercial axis where the intention is to turn the research into products or services.
• 3. The financial axis where backers want to generate cash.

Spin-out companies, in their creation, require all three and ideally involve individuals who are at least sensitive to the other two axes apart from their own. In the end all these activities come down to people. The short account given in this book has in a sense highlighted three people who have proved to be sufficiently adept at understanding all the aspects. Tim Cook has brought clarity to university technology transfer, Tony Marchington epitomised the type of management required for the start-up and David Norwood had the financial skills to provide funding.

All those qualities are essential ingredients but, from one who has also been involved in this type of activity for many years, it must also be added that creating spin-out companies can be not only hard work and profitable – it can be fun too.