2016.11.22 start-ups and spinouts: the fuzzy front-end & the hard yards… is it worth it?...

Start-ups and Spinouts: the Fuzzy Front-End & the Hard Yards…

is it worth it?

…confessions of a Start-up junkie…

and Spin-outs, but…

Place…

Angel Deals By Region (2013/14)

Not every region

suffered a decline. Deals were up 100% in

the North East

Context: Northern Ireland economy …

Lag in growth … Dependence on public sector …

Low levels of start-ups …

Belfast bottom of the league …

Low levels of start-ups …

Centre for Cities

Northern Ireland bottom of the league …

Knowledge Economy Index

Low levels of Knowledge based start-ups …

…correlation does not = causation - right!

Does a weak economy leads to low rate of startup

…or do low startup rates lead to weak economy?

i.e. do we make any difference?

Director of Innovation Queen’s University Belfast

Now

Brian McCaul

Queen’”⁹s Number 1 for IP Income (2014-15)

Performance Area UK Ranking

IP Income (equity and license) 1st

Sale of spinout shares 1st

Current spinouts turnover 5th

Current Spinouts Active 8th

Performance compared for all UK Universities

not a ‘one-off fluke’…

…but is it worth the candle?

So should we strive to create more? Why?

Who’s we? What is a Start-up or Spinout?

How do we do it?

Because they create jobs…

“systematic empirical case that virtually all net job creation was in fact due to younger firms” (Davis,

Haltiwanger, and Shuh, 1996)

Younger firms grow quicker and provide most jobs...

“[neither] SMEs and the startups… are .. particularly valuable to the economy -

whether measured by jobs, productivity or innovation”.

British government spends … £8 billion PA on SMEs - more than .. on the police and close to the amount it

spends on universities.

Research at the University of Cambridge (Hughes 2008) suggests that the

No they don’t create jobs..!

So what is a Startup?

“A startup is a temporary organisation used to search for a repeatable and scalable business model”

Steve Blank

“A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty”

Eric Ries

“The typical startup isn't innovative, doesn't intend to challenge existing companies, lacks a single competitive

adverting, and is not intend to grow” Scott A Shane

“six per cent

of businesses with the highest growth rates generated half of the new jobs created by existing businesses between 2002

and 2008.”

They pay better…

They are more productive…

And they export more…

We should drop the term ‘SME’…obvs!

Policies that treat all firms as equally candidates for growth are likely to expect “too much” from the vast majority of firms with relatively low growth

potential…

So if not all ‘Startups’ are the same …

What do we call those that have growth potential? > Scale-ups

> High Growth Firms > Gazelles or

> Knowledge Economy-based Startups…

What - crucially - are the characteristics that differential them?

MIT Jorge Guzman & Scott

Stern

Thiel Peter

Scale-ups Coutu

Lean Start-up Blank

Registration Propriety Tech AmbitionProduct-

Market Fit

Ambition BrandEffective

ManagementChannels

Not Eponymous

Scaleable Economics

Partnerships Key Resources

ProtectionNetwork Effects

Competencies Customer Acquisition

Early-stage “digital signatures” of high-quality ventures?

what can be done to influence Growth?

Great … but you can’t drive looking through the rear-view mirror …


Stern

Thiel Peter

Scale-ups Coutu

Lean Start-up Blank


Market Fit


ManagementChannels

Not Eponymous

Scaleable Economics





all about shots on goal?

“The problem is that it is very difficult, if not impossible, to

know at the time of founding whether or not firms are likely to survive and/or grow.”

(Hathaway and Litan, 2014b)

Can we imprint those digital signatures..?

If startups are really just ultimately experiments…

Can we bake growth into the company when designing that experiment ..?

Preferably with Social and Economic Impact..!

“Monopoly is the condition of any every successful business”

“Every monopoly is unique, but they usually share some combination of the following

characteristics: proprietary technology,

network effects economics of scale

and branding”

Peter Thiel - Zero to One

“Proprietary Technology is the most substantive advantage because it make you produce difficult or impossible to replicate”

“Properly understand any new way of doing things is a technology”

A complex combination of proprietary technology

Serious scale cost advantages.

Ecosystem provides the network effects to lock people in.

Apple has all these things.

So what does this all have to do with spinouts?

University spin-offs transform technological inventions developed from university research that are likely to remain

unexploited otherwise.

A research spin-off is a company that falls into at least one of the four following categories:

Companies that have an Equity investment from a national library or university

Companies that license technology from a public research institute or university

Companies that consider a university or public sector employee to have been a founder

Companies that have been established by a public research institution

“Proprietary Technology is the most substantive advantage because it make you produce difficult or impossible to replicate”

“Properly understand any new way of doing things is a technology”

Recent NI IPOs

50% 50%

QubisNot-Qubis

Kainos

Andor

UTV

First Derivatives

Feeders … and Leaders

It will be led by entrepreneurs …

Spinouts can contribute to the 6% and can create the game changers

Because spinouts can be critical for ecosystem development …

“you cannot create something out of nothing … entrepreneurial ecosystems are based on pre-

existing assets”

not one size fits all

“Are US Spinout processes really better than those of UK Universities” - Dr K Ku & Dr L Nelsen - for HEFCE

Spinouts can play a role in stimulating the Innovation

ecosystem …

What I believe should be emphasised is not startups or entrepreneurs in and of themselves, but the innovation ecosystems within which they operate and which they depend on if they are to become what

does matter: high growth innovative firms (of any size) within that system.

Spinouts can play a role in stimulating the Enterprise

ecosystem…

Because they are critical for innovation …

I wouldn't start from here if I were you…

Innovation

THE ANTIBODIES TO INNOVATION ARE STRONG IN MOST ORGANIZATIONS

Big companies with a few exceptions (fewer than 5) are not equipped to experiment at this volume.

• Process - Structure to identify & develop experiments doesn’t exist

• Culture - These experiments will mostly fail. That is not often easy to do in large organizations

• Resources - Large volume of experiments require big money

• Ideas - Big companies are not always well-suited to develop these

experimental ideas. Thinking of them is not easy.

CBInsights

Moving from the periphery to the centre…

From selling Beanie Babies then ultimately moved up into cars and art

CBInsights

As the life cycle of a corporate drops - and as the cost of a start-up drop…

Even if most do fail…

CBInsights

They short cut painstaking corporate planning cycle That’s inherently biased toward incremental improvements

And nurture disruptive technologies & radical business models

So yes it is worth the candle Yes it can help seed the Innovation and

Entrepreneurial eco-system

SO what more can we do?

Research Development

Tech transfer

Commercialisation

Market Entry

Valley of Death

Prof

it / L

oss

time

Funding is difficult to access in most start-up eco-systems

There is no product - never mind product market-fit

Requires lots of experimentation engagement without revenue case to support…


Stern

Thiel Peter

Scale-ups Coutu

Lean Start-up Blank


Market Fit


ManagementChannels

Not Eponymous

Scaleable Economics





Early Validation & Fast Failure Lean Startup Approach and Launchpad with Ulster.

What is a Startup?

Not smaller versions of large companies Large companies execute Known Business Models

Startups search for Unknown Business Models

Startups Fail because they Confuse Search with Execute

Startups are a temporary organisation designed to search

for a repeatable and scalable business model

Northern Ireland Lean Launchpad

≈

Northern Ireland Lean Launchpad

≈

Hypothesis - Test driven Entrepreneur Led Market Focused

Team Dependent (using Post Docs)

Creating a pool of credible ‘rowers’ to power start-ups

https://vimeo.com/109811495

Observation 5 - it needs to be selective

Observation 2 - make it easy!

“because innovation is so uncertain (most will fail), it is fundamental to consider the risk-reward relationship in

innovation… Indeed, the state should ….spending also, for example, on seed finance which private venture capital (VC)

has proved too risk-averse to fund”

“Make it Less Risky…”

“Silicon Valley’s latest hero, Elon Musk, launched Tesla, a successful maker of electric cars, with a $500m guaranteed

government loan”.

Not every region

suffered a decline. Deals were up 100% in

the North East

The Seed Market

In 2013, angel networks were replaced by government-backed funds, followed by crowd funders, as the top funders

More than the next 2 together…

This is - at the *moment* an early stage phenomena

…but that’”⁹s what we tend to do!

Better Terms Completed Round Agile Valuation De-risked

Hit target in 48 hours!

Testing Valuations - Pre-IPO…?

Technology from MMU Over-raised £700,000 from 37 angel investors

Mindlflood

Double deal flow - make more ‘small bets’

Better validate early opportunities

Pool a community of tested entrepreneurs

Make the process Simple, Lean & Scalable

Better map the funding landscape

Mix grant to equity finance

Exploit emergent investment markets

In Summary: