Considerations for a Spin-out Company
What is a spin-out company and why choose to create one?
A spin-out is a new business entity formed to commercialize one or more related inventions. Forming a spin-out company is an alternative to licensing the IP to an established business. A few key factors when considering a spin-out company are:
- development risk (often companies in established industries are unwilling to take the risk)
- development costs versus investment return (can the investors obtain their needed rates of return)
- potential for multiple products or services from the same technology (few companies survive on one product alone)
- sufficiently large competitive advantage and target market
- potential revenues sufficient to sustain and grow a company
UCC Innovation can help evaluate these and other factors.
Who decides whether to form a spin-out?
The choice to establish a new company for commercializing IP is a joint decision made by UCC Innovation and the inventors. If a new business spin-out is chosen as the preferred commercialisation path, your assigned Commercialisation Case Manager and UCC Innovation’s Spinout Manager will assist you in planning and executing the process. These staff members act as business formation consultants, providing hands-on assistance and access to UCC and outside resources.
What assistance and resources are available to the inventor?
The Spinout Manager serves as coach, advisor, resource locator and project planner to help fill the gap between the technology and the formation of a spin-out. This may include locating prospective management talent, developing a funding strategy, making introductions to probable investors, reviewing business plans, and engaging experts to work on key gating issues. Our Spinout Manager can also draw upon an extensive network of resources and experience to assist you.
UCC Innovation has also established the Sprint Accelerator Programme, run by GatewayUCC, our incubation service. Sprint is a support for the pipeline of Spin-Out and Researcher-Led start-ups seeking accommodation in the GatewayUCC Incubation Centre. Each participating company is assigned a dedicated mentor and at the end of the accelerator, participants have a business plan and road map strategy for their 1st year, combined with a network of entrepreneurial supports.
What role does an inventor usually play in a company?
UCC academic staff typically serve as technology consultants, advisors or in some other technical developmental capacity. Rarely do academic staff choose to leave the UCC and join the spin-out. In many cases, the academic staff role is suggested by the spin-out investors and management team who identify the best role based on the inventor’s expertise and interests. As the company matures, and additional investment is required, the inventor’s role may change. Staff involvement of any kind in a spin-out is also reviewed under UCC’s Conflict of Interest policy. Student inventors and post-docs may choose to join the spin-out upon graduation but rarely have the experience or business skills to serve as the company’s sole management.
How much of my time and effort will it take?
Starting a company requires a considerable amount of time and effort. Until the spin-out team is identified and engaged, the research team members will need to champion the formation effort. After the team is in place, effort is required for investor discussions, formal responsibilities in or with the company, and UCC processes such as conflict of interest reviews.
Can UCC accept equity in the company?
UCC can accept equity as part of the financial terms of the license. Equity may be substituted for other cash considerations that are often difficult for spin-outs. It is also a way for UCC to share some of the risk associated with the spin-outs.
Will UCC pay for incorporating a spin-out company?
No. As a separate entity, the spin-out should pay for its own legal matters, including all business incorporation matters and licensing expenses.
What legal assistance is needed in creating a spin-out?
In addition to legal counsel, the spin-out may have its own intellectual property counsel to assist with its patent strategy, especially if the company will be involved in a patent-rich area. The spin-out’s legal and IP counsel must be separate from UCC’s, though it is advisable and recommended that the corporate IP Counsel and the UCC Patent agent coordinate activities. Also, it is wise for inventors to have agreements regarding their roles with the spin-out reviewed by their own counsel to ensure that all personal ramifications—including taxation and liabilities—are clearly understood.