Big Tech & Farming Unicorns…

What connects these four, very well known, very successful businesses….apart from them all being from the US?

Europe as a region, has not produced a Microsoft, Google, Apple or Facebook and over the last few years has not been the hotbed of the so called ‘unicorn’ business, even with the many €billions spent on R&D and SME development.

However, it is true that the European region has produced, in the past, companies that today would most certainly be considered a unicorn.  Indeed Europe has been the lead in many common technologies, from the steam engine to the automobile, with European car companies being some of the >$1bn entities that would easily qualify as a unicorn today…just don’t mention Tesla!

Value or worth is not the common factor which connects the four US giants above though, what you may be surprised to learn is that all of their founders were university drop outs!

Bill Gates dropped out of Harvard, as did Mark Zuckerberg in their sophomore years, Larry Page and Sergei Brin both dropped out of Stanford and Jobs and Wozniack dropped out of Berkeley!  

All of them had worked on their technology during their degrees and, in some cases their masters or equivalent, but all dropped out of pursuing their PhD to achieve their personal business goals.

So what does this say about the role of the university in the development of unicorn businesses in the USA or generally, or the failure of the European region to really produce these outcomes?

Given that universities across Europe historically (and continue to) have access to really significant & eye watering (in the tens of billions € & £ of) EU or Government monies to drive R&D, and post-Covid ‘Build Back Better’ opportunities, where does this leave European innovators, students and academics?  How are these institutions going to develop and evolve the much needed unicorns of the future and become a truly global powerhouse for innovation and value?

Increasing the flow of capital to universities will not, necessarily, produce more in the way of commercially viable innovation, although it will broaden the scope of discovery and increase project disclosure.  This is undoubtedly a good thing for the university and academic, but is it the best thing for European regional economies and their tax payers!  

One solution that may evolve, will be to focus R&D and innovation in specific areas or silos as has happened with the Covid-19 vaccine development effort.  However, if money is targeted to specific areas, this will stifle research in other, equally as important areas.  In addition, universities and academics are not historically money orientated and whilst more money will allow more R&D and thus more project disclosure, this will not necessarily produce more commercial opportunity for regional economies.

Having said all of that, Bill Gates, Mark Zuckerberg, Steve Jobs, Steve Wozniak, Larry Page and Sergey Brin did not build what they built because there was money for the research, they built what they built as a side effect of their research.  

The outcome they realised was because they were given the space, equipment and time to carry out what would have seemed like crazy academic exercises!  Parsing and indexing the entire world-wide web for example was simply an academic challenge for Page and Brin.  It was only after they had done this they realised the floor in their indexing and created ‘Page Rank’ the algorithm that prioritises content based on its perceived value to users, something which is still true of Google today. 

Their respective universities almost certainly opened their eyes to the possibilities of technology, but the academic pathway did not facilitate the opportunity for these projects to be anything more than an academic exercise, a paper, a dissertation or a citation in an academic journal.  Of course, this kind of publicity is great for universities and academics who wish to follow the pathway from undergraduate to professor, but what if?

What if, in the examples above, Harvard, Stamford and Berkeley had realised what was going on under their roof?  What if the university had an additional ‘Pathway Process’ to move research projects out of the lab and onto an IPO?  What if the global technology superpowers of Microsoft, Google, Apple and Facebook had evolved with some of the additional governance afforded to them by a considerate university and with input from a experienced and respected public facing institutions?

There is no reason to suggest that these companies would not have been as successful or potentially even more so if they had continued university support.  It is a fact that university based projects perform 400% better in their first 4-5 years, than non-university counterparts…so that’s one statistic that could be applied.

In addition, the drive for early profit when backed by a VC may have forced the whole advertising model for free to use software, the preferred business model of Google and Facebook.  This in turn has lead to the growth of algorithmic modelling and the Cambridge Analytica issues and global push back on the use and value of content.  The need for companies like Microsoft to own the entire value chain, created issues with anti-trust, again, driven by the need to meet investor goals.  Sadly his is also true for Apple, who this year face anti-trust legislation in the EU.

Of course these companies make billions, produce returns for shareholders (mainly) and are global superpowers…and maybe that’s all they need to be.  BUT..what if they were more than this, what if, when they were at their most vulnerable in the first 2-3 years, they were supported, encouraged, given the space to develop, refine and evolve without fear of underperforming in any one quarter.  Something we glibly call ‘patient capital’ today.

What if they had developed and defined a more open, honest and fair commercial model, would they be better today, more respected, more profitable, more inclusive?

Nobody can say for sure.

The truth is universities in Europe are full of students and academics working on ideas, concepts and possibly the unicorns of the future.  What is needed is a mechanism or pathway to help those with the best ideas get the support they need to understand how their research is applied in the real world, how it is realised and how the value can benefit society, industry, commerce and the environment.

Universities are places that educate and teach, so we need to help them to understand the value of their impact outside of education.  The university cannot be expected to deliver world class teaching and deliver world class commercialisation of new ideas.

This is where the university and PIPE meet, where they teach and educate, we validate and commercialise.  The world needs universities to produce the people who will develop the potential solutions for the future, but the world also needs to realise the value of those solutions and how best they can be realised for the benefit of all.  This is what PIPE does.

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The intangible value of the IP asset and how best to add value…

Or, if you show me yours, I’ll show you mine!

When an academic produces research and develops a proposition, there comes a time when the commercialisation of that work needs to be considered.  At this point, the academic may seek support from their university Technology Transfer or Licensing Office (TTO/TLO – if there is one), the university innovation team or some other group or individual within the university.

At this point there is a consideration as to the viability of the R&D in terms of its impact on society, industry, commerce and the wider world and an attempt to identify the potential opportunity this R&D provides.  This is where the first potential problem arises, how do we validate the R&D?

A search of the Intellectual Property Office or a Patent Search will often be inconclusive or vague given the early stage of the R&D, but this early search could help the academic consider the direction their research should go and this is an important step for the TTO/TLO, academic and university.

The initial consideration as to the IP position is a critical role that the TTO/TLO carries out and is invaluable in terms of the future validation and viability of the R&D as a commercial opportunity.  Therefore it is a priority for the TTO/TLO to search the IP position and understand if and how the IP can be protected, possibly through a patent application, as soon as possible.

However, it is important to note that the value of the R&D/IP is still unquantified and intangible and will remain so until further, external work is carried out.

Therefore the academic, TTO/TLO and university need to ask themselves some key questions, they are:

  • Is there a market need for this R&D?
  • If there is a market need, is it being addressed and how does this affect our IP?
  • Does our R&D require specific complimentary assets from partners?
  • Are there complimentary partners available to us?
  • Are there competitors with better positions in the market?

The last three bullets above allow the academic, TTO/TLO and university to make suggestions as to the commercial direction of the R&D/IP.  For example:

  • If the R&D requires specific complimentary assets from a partner then there is an opportunity to negotiate a licence agreement.
  • If there are complimentary partners available, then the opportunity may be a Joint Venture agreement.
  • If there are competitors with better positions in the market, then there may well be the opportunity for a strategic alliance.

However, all of these options relating to partnerships, licensing, joint ventures and alliances have the need for significant planning, negotiating and will be extremely time-consuming for the academic, TTO/TLO and university.  

In addition the royalties will not be extensive and on average provide between 0.5% and 5% of revenues over a set period.

As such the entire process can be time-consuming, expensive and only financial rewarding IF the revenues are achieved AND the royalties received.

By comparison, a spin-out of a protégé company from the university is a possibility if either a) the answer to the last three bulleted questions above is always ‘No’ or b) the academic, TTO/TLO and university wish to deliver greater overall impact.

Impact can not be based on the intangible value of the potential for IP under a licensing agreement, but can be quantified on outcomes.  IP can not be valued or quantified as adding value until it is being realised.

The consideration of impact in terms of future contracts for research, regional economic development, jobs etc is significant and auditable when a spin-out is created.   The equity position of the academic and university has significant upside value if dividends are paid and there is an exit at some point in the future.

The problem is however, that to get to any point where a decision can be made as to the commercial direction and/or opportunity the R&D/IP can generate, is time consuming, costly and often very disjointed.  This is why we developed the PIPEworks pathway, from ‘Lab to IPO’ and to support the academic R&D/IP commercialisation process.

PIPE values the work the academic does, supported by the TTO/TLO or university and works in partnership to identify, validate, commercialise and fund R&D/IP projects.   

Our focus is on working with the academic team to make a difference and through our systems and processes, to work on multiple projects , across various topics,  universities and geographies to add value to the R&D/IP commercialisation process.

For more information, get in touch.

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University spin-out v Private sector start-up

Or, why one is four times more likely to succeed over its’ first 4-5 years than the other!

When you consider that start-up Angel Investing carries a failure rate of up to 3 in 4 new companies, you would expect Angel Investors to seek out opportunities that improve their chance of success by 400%!

University Spin-out companies perform better than private sector start-ups, as backed-up by research carried out by Anderson Law and documented by Forbes.

But why is this the case and how can an Angel mitigate their loss?

At The PIPE Company, our team have worked with both private start-up companies and university spin-out projects over a number of years, and there are some major differentiators.

Firstly, the private sector start-up.  In the private sector the development of a proposition for market relies on the founding groups experience and their own funds.  Often this group will spend months in pre-launch or ‘stealth mode’ developing ideas, talking to others and refining their proposition.  The group will find others to form a founder team and they will collectively work on the proposition either full or part-time.

Eventually, after months or years, the founder team will be confident enough to try and deliver their proposition to market.  To do this, they will invariably require funding and this initial funding or ‘Pre-seed’ will come from their own pockets, friends and family or even specialist angel investor groups.  To sell their pitch to friends and family or angels, the founders will need to have developed a compelling story.  They will know clearly their vision, mission, objectives, strategy and tasks needed to move their project forward.

As such, the private sector project knows how to sell itself to the market and the investors.

In our experience, the private sector project will lack physical and tangible deliverables and instead rely on a development roadmap that will show what they will develop to realise the market opportunity stated.  They can sell their proposition based on their target market and the value proposition into that market, but they may not have developed any of the underlying product to do so.

The opposite is true for university spin-out projects.  University projects are steeped in research and development, they have spent their formative months and years developing the actual solution itself.  They know what works, what doesn’t and what is required to develop on further from a technical and engineering perspective.  But they may not know where their market is, who their customer is, how big the opportunity is or how to exploit the solution they have developed.

As such, university projects are well engineered, considered and peer reviewed.  In fact they are often over engineered!  Whereas the private sector project is well sold, pitched and designed but may have very little proof of concept to back it up.

Therefore, the risk profile of a project that has a nice pitch deck, respectable founder team and a good idea…on paper, is higher we believe than the project that has worked through the delivery challenges, had them peer reviewed and understands, fundamentally, the technology, but which needs help identifying the market and selling the idea.

PIPE ‘sees’ thousands of R&D projects every year from across the EU, qualifies the commercially viable, prioritises those projects that create the greatest impact, work with academics and universities to incubate very early stage solutions and develop new spin-out companies and teams. PIPE also finances and manages these projects during their formative years.

This is why university projects perform 400% better than private sector start-ups and why The PIPE focuses on the ‘Lab to IPO’ support of the TTO, academics and universities across the EU.

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Unconventional wisdom of the Technology Transfer Office – Part II

Or why a bird in the hand is worth less than two in the bush….

In Part I of this blog, we suggested that academics, universities and TTO’s may see licensing a project as the easier route to commercialisation versus spinning out a new company.  In this follow up, we point out the differences as we see them in the approach to commercialisation options and why we believe spinning out a company has longer term value and potential upside for the academic, university and TTO.

In truth, both licensing and spin-out options can be complex and time consuming and, as such, it is worth considering the potential upside of both as opposed to the known downside in relation to effort and cost – see the table below:

How much work is required?Significant support required from the university/academic to define the development of a product suitable for licensing – eventually all this work may lead to nothing.The university/academic can be more passive, although it is preferable for the academic to be involved in Q&A supported by industry/commercial experts.
How long will it take?It can be extremely hard to find a partner company and evaluate them, the deal and the profile of the license deal – this can take years and ultimately fail.Without a clear understanding of the requirements this can take years and ultimately fail. At PIPE the process is 120-days from project kick off to new company investment.
How expensive is it?This is an unknown as patent costs can be significant and each license arrangement will have a different set of terms – overall costs are unknown and potentially significant.At PIPE there is a fixed fee to cover 4 x 30-day tranches of work.  This means costs are known, budgeted and stable throughout.
What will we get back?That depends on the deal, although it is often single-digit percentage points only.At PIPE the academic and university are stakeholders in the funded company and are treated as all stakeholders in regard to dividends and commercial value.
What does the academic have to do?Provide significant technical support up to the point of licensing and possibly beyond.At PIPE the academic is supported by an industry associate and team to define the key development tasks to move the project forward – long term involvement is a choice not an obligation.
What kudos does the academic receive?Their name on the license.At PIPE the academic can choose to join the core team as a founder or take an advisory position on the board, or even take a back seat if they wish as a shareholder only.
How much risk is involved?The risk can be very high with warranties, indemnities and assurances.At PIPE, the new company takes the commercial risk, not the individuals.
What about the long term?If all goes well, you will see the company that owns the license make significant gains, whilst you may feel bitter receiving a fraction of those royalties.AT PIPE as a shareholder benefitting from the overall performance of the company and possibly being involved with the company, you will have far more satisfaction.

At PIPE we believe there is much greater risk and potential for increased and unknown cost when licensing IP to a 3rd party versus spinning out a new company.  We have seen many examples of licensees failing to deliver commercial value either through delays in going to market, delays in development and manufacturing, increased costs thus reducing or removing license fees from the project and increased reliance on the university and academic around the provision of IP protection and evolution. 

At PIPE, we believe the true value of R&D/IP can only be realised over the longer term when a spin-out company is formed with a strong management team, defined business plan and adequate funding to move the project from the ‘Lab to IPO’.  This is why we developed the PIPE, to formalise the process, fix the cost and drive projects toward team development, funding and long-term financing.

A spin-out company allows the academic to involve themselves as much as they wish or to take a back seat, it allows the academic and the university to have a stake in the future value and direction of the company as shareholders and it increases the overall value of the university R&D/IP balance sheet.  It also means the risk is managed by the company and as a shareholder, the university, TTO and/or academic has visibility and input to board decisions, actions and motivations for commercial decision making.

Having a partner, such as PIPE to manage the entire ‘Lab to IPO’ process on a fixed fee that includes incubation, due diligence, team building, planning and financing as well as on-going support, on-going funding (up to €2m) allows the university, academic and TTO to progress projects efficiently and with significant support.

By developing spin-out companies,  the university is taking a significant position, alongside their academic and the PIPE company, in the significant financial upside of the PIPE process and the PIPE Exchange and will realise significantly greater returns on R&D/IP and TTO output than through any form of licensing.

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Unconventional wisdom of the Technology Transfer Office – Part I

Or why a bird in the hand is worth less than two in the bush….

Unconventional wisdom of  technology transfer suggests projects are easier, cheaper, quicker and less risky if in part or whole, they are licensed to a 3rd party rather than becoming a spin-out company.  This is akin to the early days of Google, when Larry Paige and Sergi Brin stomped around Silicon Valley trying to sell their (Page Rank) algorithm for $1m on a licensing deal only to be turned down by everyone, including Yahoo!

Hindsight tells us this was extremely naïve of Larry and Sergi, but at the time with high debts and no revenue, it probably seemed like the best idea.  Fortunately for them others saw the value in Page Rank and Google and the rest, as they say, is history.

Universities  have a quite different raison d’être with their main focus being delivering the best academic outcomes for students, and rightly so.  This is how they (in the main) are measured and funded and so focussing on being an educator makes sense.  

However, an upshot of education is research and development (R&D) and the value of R&D is in the intellectual property (IP). This raises the question: “if your focus is on being the best educator that you can be, but you have a by-product in the form of R&D/IP, how do you best manage the expectations of your academics who have developed this R&D/IP without committing scarce resource that could and should be focused on teaching?”

The university innovation team or TTO assist academics to realise their aspirations for the R&D/IP, however, with their resources in terms of personnel and finance are often quite limited.  This can result in finding the quickest and lowest cost method of validating the commercial value of R&D/IP and moving projects to a commercial outcome, which is where licensing becomes an attractive option.

It is true that licensing an R&D/IP project:

  • is relatively easy
  • can be relatively quick
  • is essentially low cost
  • low risk 
  • requires little involvement from the academic.  

All in all, it feels like a quick win.  However, commercial arrangements of this type can turn out very differently indeed.

Licensing deals can take many, many months and sometimes years to conclude.  Often the initial deal requires re-negotiation because the commercial party has to invest more in development than assumed and any royalties that may be expected can be offset against costs for years on end, meaning the academic and the university receive very little commercial reward.

When considering spinning out R&D/IP as a funded company the university innovation team or TTO may see:

  • the “huge” amount of work required
  • pitching to investors
  • setting up companies
  • managing shareholders
  • legal arrangements
  • building management teams and so on.  

The process may seem painfully difficult and slow, often taking many months, costing large sums, requiring significant academic input, high risk and potential pain.

However, with the right approach, these spin-out companies can evolve, thrive and produce significant value without the need for excessive cost, academic input or involvement and go on to generate significant shareholder value and exit opportunities for the university.

At The Pipe Company our clear systematic process ensures universities generate the best return on investment for their R&D/IP in a timely and cost effective manner, please contact us to explore how we can help you achieve this.

In our next blog we will compare and contrast the different approaches.  Sign up to our website in order to receive notification of when the next blog is available.

Part Two – Here: