Author: Holly Reeve Edited by: Luiz Guidi
When it comes to building successful spin-out companies, Brian Graves has seen a lot and he has fine-tuned a recipe for success. At the 4th SIU360 event, he shared some of his knowledge with us.
Brian has been at Imperial Innovations for about 15 years, and before that he worked in the marketing department of an international engineering company. He says ‘‘whatever fancy label is put on technology transfer, it’s just product development’’ - this means that ‘‘there are distinct steps involved’’. For anyone that has found themselves in the world of technology transfer and commercialisation, it might be reassuring to know that hidden somewhere, there is a logical path to follow to build a successful company.
He cites three ingredients to achieve that: business idea/product, management team, and investment/operating cash. This sounds familiar, but Brian put a new spin on these points.
Business idea / product
It seems like the obvious one, and in some ways it is. However, Brian made us think further into this. Yes, you can have a great piece of science. You might even get to the point of deciding on a great product. But we are reminded of the customer:
· Is there someone willing to pay, preferably now?
It might be that your ‘product’ is aimed at a very hard-to-change consumer. Brian gives the example of the aeroplane industry – even if you make a big advance in something like wing design, new planes only come about every 40 or so years – is this a viable customer for your fledgling company? It’s likely that the timings are wrong and that your new early stage company doesn’t have enough resources to wait for this customer.
· Is the customer actually the customer?
Things are often complicated by the supply chain. Perhaps a company is really interested in a benefit your technology can offer, let’s say, you have a better coating for a metal part. But actually, they usually buy that metal part from another company. They can’t make a new one, with your coating on. Who should you be selling to? And who should be investing in the process? Innovate UK - an executive non-departmental public body sponsored by the Department for Business, Energy & Industrial Strategy - often injects money into this area to bring companies in the supply chain together.
· Have you found a new customer?
Perhaps your initial product doesn’t work out. More often than not spin-outs are able to find a new application for their technology and can approach a whole new set of customers. But is the technology actually proven in a way that is useful and specific to this new customer? If not, who should fund the further research required?
· How does the customer think about cost?
It’s useful to work out what phase your potential customer is in. Are they in decline? Or are they growing? This is likely to change their needs and therefore change what they expect from your technology and what they are willing to pay. Understanding how the customer thinks about cost is essential.
A lot of the other SIU360 sessions have started with the phrase ‘academics can’t be involved with businesses’. We understand their point – often, academics are tied up with the tiny details, and often they aren’t the best placed to drive a company forwards. Brian did not disagree with this (in fact, he also said it). However, again, he delved a little deeper.
Actually, no one is well placed to manage a company throughout its entire lifecycle.
It goes back to the 'logical path' Brian described at the start. Each step requires a different set of skills and this often means a new management team. Most of the successful companies he talked about at the SIU event have had multiple CEOs and Chairs; one is on its 3rd CEO. Brian also reinforced the point that management is a skill and a profession and that hiring a great management team can have a huge impact on a spin-out's success.
A really important job for the early founders and academics in a spin-out is finding a way to articulate their product in a way that attracts professionals with the required management skills. Investors are looking for a team, and the management team is as critical as those developing the technology. Another thing you need is a network to reach out to customers and people who are experienced at understanding them and their needs. Technology transfer companies can often help with this, and are also well placed to help a spin-out assemble a management team.
Investment / operating cash
This is a fairly obvious ingredient. But how you go about it has a huge impact on your spin-out company.
Venture capitalists generally don’t understand the technology they invest in and expect a return on their investment, and fast. Usually, too fast for companies in biotech and medical sciences where money (lots) and time (even more) are required for clinical trials and approval. Add this to the fact that most companies take more than 10 years to get a product to market and that the final product is often completely different to the product described in the initial plans – having VC investment can prevent a young spin-out from reaching its full potential in some cases.
In contrast, Imperial Innovations and other technology transfer companies, offer ‘patient capital’. They wait until they have made back their investment and then exit. They don’t control the company, although they often help assemble the all-important management team. They are willing to wait those 10 years it often takes for a company to become a success.
But Brian also told us about two companies that had ‘bootstrapped’. They sold initial products, made money, reinvested, and grew. Again, this takes time. But there are no investors holding you to making a return in 1-2 years. He mentioned a company called Permasense who found the right customer. In fact, the customer ‘invested’ by licensing the technology but also set goals and milestones. They agreed on an exclusive license for a short amount of time. During this period, the customer wanted more and more product and, through their licensing agreement, the start-up could afford to grow and accommodate this. At the end of the deal, the exclusive licence ended and the spin-out has been recently sold. A success!
A final point to mention is access to facilities and resources – this has drastically improved over the last 10 years with incubators offering support and resources springing up. Combined with experienced technology transfer companies and ‘patient investment’, this may mean that now is the time to spin out a company. Brain concluded the talk with an inspiring line. If you do it right, you can do fantastic things.