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.
For more information Contact Us.