Chemical science spin-out companies

Spin-outs share characteristics

The final report identifies over 100 chemical science spin-outs in the UK. Analysis of the geographical spread identifies major clusters of activity, predominantly around research intensive universities such as Oxford, Cambridge, London and Manchester. However, there is clear evidence that other chemical based clusters are developing. 

In general, chemical science spin-outs remain close to the university from which they were started. This enables the new venture to maintain close links with the initiating institution which provides direct access to supportive research, skilled graduates, specialist equipment and effective networks. 

Whilst each cluster is fostered by its local Regional Development Agency, the report recognises that all spin-outs have similar interests and a national strategy would help make the most of the limited resources available. 

Key recommendations

• More needs to be done to share best practice between TTOs. They need experienced staff with industry / start-up 'savvy'.
• The realistic provision of resources for IP filing and protection needs to be addressed. At present, no university or spin-out could realistically finance the prosecution or defence of patents.
• The UK needs more science parks with multi-occupancy buildings where 'wet chemistry' facilities and specialist equipment can be shared cost effectively.
• Lack of experienced business management undermines spin-out activity. Schemes such as the secondment of commercial managers and mentoring from successful CEOs should be considered.                   

Lack of experience in TTOs

The report also calls for university technology transfer offices (TTOs) to share best practice. Knowledge transfer is a
complicated process which is influenced by several, often conflicting factors. There are some excellent TTOs in UK universities but some lack credibility due to insufficient industrial experience amongst their personnel. Many TTOs feel the commercialisation process is significantly constrained by lack of resource and that with more funding they could achieve more with the Intellectual Property (IP) they have at their disposal.

More science parks are needed

Among the key messages in the report is the need for suitable UK-wide science parks, with multi-occupancy buildings. These would offer companies access to ‘wet chemistry’ facilities and shared specialist equipment that they could otherwise not afford. A science park address will also increase a company’s credibility as a viable business to outside investors. There is a significant cant shortage of such facilities in the UK and this ultimately affects how quickly university spin-outs can progress. 

Crisis in IP management

Universities show a general lack of realistic financial provision for IP filling and protection. In almost all UK universities, ownership of IP is held by the institution, rather than the academic and this means that the costs of maintaining and defending patents will fall on the shoulders of the university. This should include ongoing monitoring to ensure that patents are not being breached and the funds to defend patents held by the university if they are challenged. 

The report concludes that the need for long term resources to properly administer a growing portfolio of patents is not understood by some universities. A crisis of IP management is in the making. 

Likewise, new spin-outs are almost inevitably in the pre-revenue phase of their life. They are in a poor position to carry the costs of prosecution or defence of patents and may be forced to restrict the geographical coverage of patent fillings to match their financial means. In the long run, with industry evolving globally, this would prove a liability. 

Weak business management 

A lack of experience in business management among academic spin-outs significantly undermines their prospects for success. This business management expertise is generally needed in the early stages of development. Inventors with academic backgrounds are not always equipped to deal with the range of issues faced by a start-up venture. In the USA, the business angel investing community often performs this role. 

The report proposes the secondment of commercial managers into university spinouts as one possible solution.

Sparse funding for new ventures 

A major hurdle to spin-out creation is the lack of ‘seed capital’ funding. Most universities have now invested their 1999 ‘University Challenge’ seed fund monies, awarded by the Office of Science and Technology. They now have no mechanism for seeding new companies after the proof-of-concept stage. This is exacerbated by the difficulty in attracting private investment for spin-outs. In order to alleviate the situation, some universities have formed a preferred relationship with a single venture capital organisation. Early indications are that this approach may work well. 

As they mature, some companies also find it difficult to raise ‘intermediate’ size follow-on funding; around the £0.5-2m mark. There are also substantial differences in funding available for different technology segments. Chemistry/materials related businesses have particular difficulties in this respect.

Future RSC actions

The workshop following publication of the report, addressed how to move forward in light of the recommendations made. Over the coming months the RSC will consider what more it can do to support spin-outs.