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29 July 2014

Universities, spin-outs and the relationship with the wider business community

Darren Gowling is the Investment Director of UCLan Ventures and an experienced venture capital investor in seed and early stage technology businesses...

Darren GowlingUniversity spin-outs, proof of concept, seed funding, start-up funding and early stage - all terms that venture capital and private investors associate with high risk and high failure rates. Businesses at these stages represent a sector of the risk capital, investment market that has historically been under-represented in the UK and one that requires more rather than less expert intervention.

It is difficult for founders and entrepreneurs to access the funding required to develop and transform their ideas, technology and intellectual property into new, potentially valuable business opportunities.

This is for good reason, the risks are high and the returns uncertain and exacerbated by a difference in perceived levels of risk and value associated with business at these stages. Founders have no doubt that their new business will be successful and investors, bearing the scars of failed opportunities, are often at the opposite end of the spectrum.

However, there are ways to mitigate these risks and to agree on sensible valuations, without resorting to convoluted deal structures and that famous negotiation fudge - the ratchet!

One of the most obvious ways to bring seed and early stage businesses and investors
closer together is commercial validation of the opportunity and this is where interaction with "the real world" can benefit both sides and demonstrate market need. There will always be gaps in management teams, quality and security of intellectual property and USPs, questions about financial projections and funding requirements but these are relatively easy to overcome if investors are convinced of market need and size.

Collaboration with potential customers, resellers and existing market incumbents can make the task of de-risking a university spin-out proposal so much easier and so much
more interesting to a potential investor.

Confirmation of market need and appetite is one of the key investment criteria of UCLan
Ventures -we believe that there is no reason why potential spin-outs should not be subject to the same degree of rigour of any other risk capital investment.

UCLan Ventures is the commercialisation business of the University of Central Lancashire and appraises, structures and funds spin-out opportunities once those opportunities have undertaken a venture capital-led investment readiness process and have engaged with commercial partners and third-party funders and investors.

Spin-outs via UCLan Ventures are required to be in-market or imminently in-market at the point of investment. Our approach is that unless opportunities can demonstrate that they are at this point in their development then the opportunity is still a research project and is fundamentally not ready to be incorporated as a new business.

Interaction between the potential spin-out and the business community is vital to reduce risk, demonstrate potential and provide confidence to all parties contributing to the commercialisation process.

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