Research Institutions and Startups: Basics of Spinning Out New Companies

By: Elio Harmon

Hundreds of billions of dollars are spent on research each year at federal labs, universities and research hospitals. Often this research leads to the creation of valuable intellectual property assets (e.g., patents) that may be licensed to existing companies or new startups to commercialize the underlying technology. The National Science Foundation established the I-Corps program to educate academic researchers on the process of translating their research into commercial products, and universities are increasingly setting up incubators and venture funds to stimulate technology commercialization.

In addition to providing cachet to attract potential customers, partners, competitors and investors, licensing technology from research institutions offers startups the opportunity to secure non-dilutive funding such as Small Business Innovation Research grants and Small Business Technology Transfer grants. Also, the State of Ohio has a Technology Validation and Start-up Fund, which provides grants to small businesses commercializing technology from Ohio-based research institutions.

Along with the standard elements required for any startup to be successful, a lucrative university spin-out also requires the right mixture of entrepreneurial talent, technical talent (often, the inventor takes on a technical role at the startup and has a minority ownership) and reasonable license terms. Often there is a “dating” period during which the entrepreneurial team, inventor(s) and university get alignment on how a potential startup would be structured, capitalized and launched.

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