Editor's note: For the past year, Robert Phillips, has been working as an Enterprise Fellow at Manchester Science Enterprise Centre (MSEC). Phillips trained as a biochemist and worked in research through to post-doc level. As an Enterprise Fellow, he now teaches business-enterprise to university undergrads and postgrads. Part of his remit is assisting science postgraduates acquire the skills and knowledge needed to turn an innovative idea into a business. In this second article of a two-part series, Phillips gives an overview of the main routes for the commercialisation of academic research in the U.K.
In my last article, "Starting up a Start-up in the U.K", I looked at the first phases of the commercialisation of scientific research, filing a patent and deciding whether to license your technology or start your own company, and writing a business plan. In this article, I will address the financial aspects, including various funding options routinely used. I will also consider options on housing your enterprise, and explore the overall risks and rewards of a business-enterprise experience.
Money Makes the World Go 'Round
You need to start thinking of financial backing sooner rather than later. You can obtain the money needed to turn a business plan into reality in several ways; all have advantages and disadvantages.
The safest option is government grants. Take a look at Regional Development Agencies for England, and Wales, and Scotland. European Union (E.U.) grants are another attractive option, especially if your proposal meets certain non-scientific criteria. For example, projects with potential environmental benefits, or start-up companies housed in urban regeneration areas, may be given extra credits in the grant evaluation (these criteria also play a role in some U.K. grant applications). The big plus with grants is they don't have to be paid back.
Venture capital (VC) companies are another source of funding. VCs surfaced in the U.K in the early 1970s; more recently the government has given them tax incentives to encourage them to invest in start-ups. Scientists have traditionally been wary of VCs, because they generally strike a hard bargain. If you have no track record in business, they may want a very large (up to 80%) stake in your company, which can mean they have the power to sack you at any time, even if it was your idea! Attracting VC investment also poses challenges. Many VC companies don't have experience with science, and after being burnt badly when the dotcom bubble burst, these days most tend to stick to what sectors they know best. However, some VCs do specialise in science, such as Avlar and 3I, both of which are based at the Cambridge Science Park.
Another type of venture capital comes from the so-called "Business Angel clubs" (see box). In the North West, we have TechInvest, which specializes in high-tech companies. For a nationwide search, try the National Business Angels Network Clubs or do a Google search for "angels" in your field.
What are Business Angels?
Angels are wealthy individuals who have a personal interest in a certain technology or business area. Angels pool resources to fund companies in their "pet" areas. Angels seek profit, but they also enjoy the excitement of being involved in early-stage companies in trendy fields. The degree of formality/informality varies when dealing with business angels; the personal chemistry with a business angel is often a factor in getting backing.
Getting a VC or business angel on board is not always the best option. The best investor could be a potential customer interested in securing an exclusive supply of your product, or even a competitor. Potential customers know exactly what they want from the product, so their feedback can be invaluable. Big pharmaceutical companies often put stakes in promising start-ups.
When dealing with any investors--but particularly in the case of potential customers or competitors--always make sure they sign a well-designed confidentiality agreement, especially if you talk to them before the patent is published. In fact, it is a good idea to use nondisclosure agreements irrespective of the patent status.
Mix the Funding
Keep in mind that is not always possible or even desirable to acquire one big investor. Having multiple investors can be good as it dilutes control by any single group. Finding a "lead investor" early on, who invests an amount, however small, gives you enormous credibility, particularly if the investor is well known in the scientific area (e.g. a well known company).
Never let an opportunity to talk to a potential investor go by. It can be useful to have prepared a 2-3 minute pitch (the so-called "Guinness" pitch)--all jargon removed--just in case you bump into one. A number of events are run throughout the U.K. where inventors can pitch to a room full of potential linvestors. Examples include BEX (Business Exchange) in Manchester and Venturefest in Oxford. The more people you talk to, the better your chance of meeting someone who will back you.
Meeting Commercial Partners Early On
A good way of getting exposure to a commercial partner early on is doing a CASE (Co-operative Award in Science and Engineering) studentship. I was a CASE student myself while doing a Ph.D. at Southampton University, and this heightened my awareness of commercialisation opportunities. Postdoctoral positions--called knowledge transfer partnerships (KTP) --are also available, and they are designed to improve the links between academia and industry. KTPs are funded by research councils, and the post-doc spends time in the sponsoring company and university department working on a project of potential commercial importance.
Choosing a Location
When choosing a location to house your new venture, think carefully. This factor is crucial for economic costing. It is undesirable to be tied to a long or expensive lease; those nice big shiny labs may look great, but will be a waste of precious resources if you can't fill up that pretty space with hard-working employees.
The good news is that it is usually easy for entrepreneurial academics to find flexible housing. One option is keeping your technology in-house. This can be done in your lab or within commercial development labs maintained by large organisations such as the Medical Research Council's ( MRC-Technology) and Cancer Research UK's, ( CRTechnology).
Another option is to rent lab space in so-called "incubators." Incubators provide a gentler transition from the world of academia-to-business, and they're cheaper than going it alone. Tenant/clients can also benefit from centralised facilities, as well as less obvious perks like in-house marketing experts and advisors, and greater networking opportunities. Incubators are frequently part-funded by local authorities. Local universities may also have a stake. My experience is that it is quite easy to get a space in an incubator. Almost all U.K. universities have an incubator or a science park; U.K. science parks association is a good site to check.
One of the main disincentives currently for academics starting up companies is that patents and start-up companies are not recognised by the Research Assessment Exercise (RAE), a review that all U.K. universities research departments have to go through to get core government funding. Although this is about to change with respect to granted patents, it is proving difficult to decide how best to measure the value of a start-up, so start-ups are unlikely to feature in RAE over the next few years.
A Worthwhile Gamble?
There is no guarantee that your company will get off the ground. If it doesn't, what does this mean in financial and personal terms for the entrepreneur? The majority of university start-ups are registered as a limited [liability] company to protect scientists and other principles against personal financial liability. In any case, individuals don't normally invest much personal finance. In my experience, the maximum is around £2000, for example, to set up a Web site while funding is sought, though some people choose to invest much more of their own money in their companies. If the university is a shareholder in the start-up, support from university lawyers should be available if the company goes under.
In the U.S., where the fear of failure is not as acute as in the U.K., a failed venture is considered a great learning experience, and a success in its own right. In the U.K., failure is still viewed as failure, but I think the perception is slowly changing.
Would be entrepreneurs need to bear in mind that setting up a company is time consuming and can detract from research progress. But the career enhancing skills even from a failed business venture are sizable. Such "commercial experience" will be valued by employers for a variety positions, e.g. in a technology transfer within a university or a company, or in a young biotech company. If you have an idea in the future which you would like to commercialise, investors will respect your experience and what you have learned from your mistakes.
Going down the commercial road will never be the career choice for every academic researcher. But with today's increased in-house university support, and more examples of successful start-up ventures appearing, the future of the scientist-entrepreneur is indeed looking good.
Career Prospects: Being Hired by a Start-Up
Even if you don't see yourself setting up a company, what about joining a new start-up company as a postdoc? Working for a startup has good and bad points. Startup employees risk suddenly losing their jobs, or not receiving pay on time if things go bad. But in a successful growing company you may find yourself head of R&D or in some other responsible position in short order, and your "share option" might actually be worth some money! The job responsibilities are likely to be diverse, you may have the opportunity to work with investors, get involved in marketing and sales, run the website, or even being the company's health and safety officer!
Wellcome trust has a translational award to fund technology transfer.