Starting up a Start-up in the U.K. Part 1: The Ground Work

Editor's note: For the past year, Robert Phillips, has been working as an Enterprise Fellow at Manchester Science Enterprise Centre (MSEC). Robert trained as a biochemist and worked in research up to postdoc 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 to turn an innovative idea into a business. In the first of a two part series, Robert Phillips gives an overview of the main routes for commercialisation of academic research in the U.K.

Sources within the Medical Research Council (MRC) have said that if MRC Cambridge researchers Milstein and Köhler had patented their seminal monoclonal antibody technology back in 1975, the MRC would now be entirely self sufficient. Indeed former Prime Minister Margaret Thatcher, who herself has a degree in chemistry, later singled this incident out as an example of a good British innovation failing to be exploited economically.

In the U.K., until about 10 years ago, the academic and business communities often resided on different planets, with apparently mutually exclusive objectives. But in recent years universities have become more business-minded, and have put policies in place that position them better to take advantage of the revenue opportunities that some of their scientific discoveries present. Most universities now have a technology-transfer office, employing commercially-minded scientists who are able to identify valuable Intellectual Property (I.P.) and advise scientists accordingly. This awareness and these new resources have led to new revenue streams that are helping academics fund research and generate even more revenue for universities.

Still, for a large portion of today's creative and ambitious bench scientists, when a project shows some commercial promise, a cloud of doubt quickly gathers. Where to do I start? What support is available? What am I letting myself in for? Will I compromise my academic career ambitions? How much time will it take? How good are the odds that my new technology will eventually yield a profit?

A commercial venture will certainly take up part of your research time -- several hours per week for the foreseeable future -- even with experts at the technology transfer office helping you out with time-consuming tasks like patent searches, market research, and registering your venture as a company with the tax office and Companies House. A business is not something to be treated as a "hobby". For postdocs seeking an academic position, publishing is everything, and patent applications -- not to mention the time lost from research -- can delay publication.

But these days, patents themselves are beginning to be recognized as valuable, even in the academic community. In the U.K., patents are recognised on the Research Assessment Exercise (RAE) and a patent on a scientist's C.V. looks good, perhaps even better than a publication in the eyes of some potential employers. The commercial route clearly has good and bad points.

may have a commercial application is challenging. Commercial success is much more probable with a "ready-for-sale" product (for example, reagents that can be produced immediately in the lab) than with a new technology that, with refinement and years of clinical trials, may yield a wonder drug eventually. Or may not.

If you believe an aspect of your work has a commercial potential and your colleagues agree, get yourself down to your university's technology transfer office. They can offer an initial assessment and do a worldwide patent search. Yet, scientists themselves, as world experts in their field, are the best source of information about competitors, rival patents, and potential customers and investors. You may be the best source of all about your work's commercial potential, once your tech-transfer officer asks you the right questions.

If there is strong case to file a patent, before you make any further decisions it is important to clarify who will own I.P. Is it the university, the grant awarder, or the professor? What about the other members of the scientific team? Postdocs? Collaborators from other departments? From other universities? Is ownership shared?

Institutional polices differ on this, so best to check your university regulations. The Patent Acts of 1977 and 1988 give essentially all rights to your employer; however, almost all universities now share equity with their inventors. (In contrast, a copyright, which is important for software inventions, is always the property of the author.)

Formulate Your Strategy

A good patent agent is invaluable: he or she will tell you if your invention has a good chance of being awarded a patent. The patent-filing offices used by most U.K.-based researchers are those in the U.K., E.U., U.S., and in some cases, Japan. Look at potential competitors -- where they are based? -- and patent accordingly. At this point, a basic business strategy can be formulated reasonably quickly; are you offering something completely novel or are you offering a better and cheaper option than is already available? Your strategy will depend on the answers to these (and other) questions. Once the decision to commercialise is taken, a more detailed market-research programme, including potential customer lists, can be drawn up as part of an overall business plan.

The more places a patent is filed the higher the costs. In the U.K. it is quite cheap -- about £200 -- but detailed searches and patent agent fees cost money, often taking the cost past £5000, and renewals can amount to hundreds of pounds per year. International patenting definitely requires expert advice despite recent moves to simplify things with international patent treaties. University administrations often cover the cost of filing the patent. The potential disadvantage of this is that the university may have too much say in future decisions (i.e., whether to license your technology or start your own company), but the law and your university's policies may not give you any choice. Your university may even have the right to drop, at their sole discretion, the patent to avoid paying renewal costs.

Patent filing is a long process. The application itself can be completed in a matter of weeks. The patent is published after 18 months, and final approval normally takes 3 to 4 years. You can still work on project while all this is going on. Improvements to the work can be filed as patents later, as necessary.

It is vital, however, not to disclose anything before the patent is filed, even casually to a fellow academic or acquaintance.

This can be difficult. Such secrecy can alienate colleagues and detract from the rigour of scientific presentations. You need to get lab books signed by independent witnesses and data must never leave the lab. Publication of the key results, needless to say, is out of the question until the patents are filed.

Sometimes, however, the "inventive step" leading to the patent is uninteresting academically anyway, so your research talks and publications can focus on other aspects of the work. It is accepted practice when talking about work with commercial potential to ask customers and collaborators to sign a legally binding non-disclosure agreement. You can imagine how awkward this can be during, say, your thesis defence.

After the patent is filed, what comes next? It is a myth that patenting means you cannot publish your work. The reality is that the moment the patent is filed, papers can be published as normal. Aside from the all the scientific advantages, published papers and presentations can give your new venture some much needed publicity. You may encounter partners who would like to use your product as part of their technology, much as Dell computers use Intel chips. Others might buy your product because you are a trusted name in the field, or might think of novel uses for it.

To License or Not to License?

The first decision you need to make once you have your patent is whether to try and set up a "start-up" (sometimes referred to as "spin-off" or "spin-out") company or to license the technology to someone else. The general rule is it's better to license if it is a single product idea. The start-up option is viable if it's a platform technology with numerous applications, or if the technology is so new there is no other route to market via an existing company. Setting-up a start-up company is more risky, mainly due to the higher start-up costs. The upside is it can lead to greater financial rewards in the long run. Going for a license carries less risk, but licensing will limit the financial gains.

You can have a license for any aspect of the business -- selling, distributing, manufacturing or all in one -- as long as you can get someone to agree to it. It's very important to word the license agreement in a way that doesn't hinder your future research. An exclusive license is more lucrative, but it doesn't offer the flexibility to deal with new partners. A non-exclusive license is like having your product listed in the catalogue of a larger company. They will take a cut, you gain much greater marketing power, but you reserve the right to make other deals.

If you decide that the best option is to license, don't sign the first contract that's offered after the initial negotiations. An investor may test your naivety; their first offer is almost certainly not the bottom line. Your tech transfer office will probably chair the license negotiations if you don't feel confident yourself. Assuming the officer is experienced, that's probably a good idea.

Realising a Start-up

If you choose the start-up option, the most important task is to put together a solid business plan. This document is the foundation on which your new company will be laid. The Biotechnology and Biological Sciences Research Council (BBSRC) has a guide on how to write a business plan; in a good tech-transfer office a project manager will help you write it. The project manager will, however, rely on you to provide as much detail as possible regarding competitors, markets, potential partners, and so on. Ultimately, the success of the venture depends on the enthusiasm of the inventor. However, the tech transfer office plays a big role; a skilled, hard-working expert can be a huge advantage. Starting up a business is a huge project for an entrepreneur, especially one who already has a job.

In many ways, a business plan is like a grant proposal; you present the idea in context and outline how it will be executed. Probably the most vital part of a business plan -- from a marketing standpoint -- is the executive summary, which is like an abstract, not just of the business plan but also of the business itself. The executive summary might be the only thing a potential investor reads. It needs to be punchy, exciting, and jargon-free. The business plan needs a full economic costing and extensive market research, to demonstrate that a market exists for the product or service and the potential exists for substantial returns on investment. Check out the competition's Web sites, catalogues, and prices.

Some closing thoughts: Think of a catchy company name, one that's easy to remember. Unpalatable as it may seem, you also need an exit strategy. In an ideal situation, you would hope eventually to be bought out by another company, float on the stock exchange, or move on to a new venture once the business was up and running. But you also need to show you have a plan if your brilliant idea fails in the market, and the banks or other investors need to salvage what they can from the wreckage.

No start-up business can move forward without funds. Next month, I will look at funding options and the channels available and what is frequently used in the U.K.

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