Start up and spin out: How to transform bright ideas into viable commercial propositions

Javid Khan, founder and MD of Holoxica
Javid Khan, founder and MD of Holoxica
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We’ve done some really out-there, freaky stuff – but in the end it’s a land grab for market share,” says spin-out owner Dr Javid Khan.

The founder of Holoxica discovered a hologram trick in his basement while working in Brussels. He had such faith in the commercial application of his discovery that he quit his job, returned to the UK and signed up for a PhD at Heriot-Watt university.

“It was an engineering doctorate that I had to complete within a company – so I created a company. It was within the rules!” he laughs.

“I inserted myself into the company and got some investors. I sold my house and used that as the capital to convince other investors – some angels, some friends and family and I raised £120,000 through crowdfunding.”

It’s not the usual path to spinning out from a university setting to a commercial one – but as many successful Scottish companies are now proving, there is no longer a standard route.

Once spin-outs came mainly from the life sciences sector, where complex research projects would yield a commercially viable product or service.

Now, universities are becoming much more aware of the opportunities for students to start their career before graduation.

Udrafter was founded as part of a university project at Robert Gordon University in Aberdeen – and went on to win Scottish Young EDGE competition in 2018. Udrafter is a subscription service for companies looking to connect with university students to complete projects.

“It started out as odd jobs for students like cutting the grass,” says co-founder Luke Morrow. “The idea then became more about degree-relevant projects for students. We built the technology platform, we received angel investment and we are now set to expand across the UK next year.”

It is still more likely that spin-outs come from universities with strong backgrounds in research, however this too is changing according to Dr Claudia Cavalluzzo, director at Converge Challenge.

This is a competition which intends to “democratise company creation” and is open to staff, students and recent graduates of Scottish universities and research institutes.

“We’ve had some brilliant entries from places like St Andrews University and the Royal Conservatoire in Glasgow, so it’s not just universities with research departments,” she says.

The winner in 2017 was the first company to successfully spin out of the University of the West of Scotland (UWS). Novosound uses very thin ultrasound sensors which can bend to measure machine parts.

“I was always a researcher,” says Novosound founder Dr Dave Hughes. “The manufacturing process for sensors hadn’t changed for 40 years, but we found a film that could bend. Nothing is flat on an airplane any more so we could find cracks and defects on the plane’s hull or spoiler in a much more cost-effective way. We are across a number of markets now, including oil and gas.”

The journey for Hughes was much quicker than he expected. In May 2016 he met Scottish Enterprise and got a commercialisation grant; the following year he won the Converge Challenge and in February 2018 he set out to raise £750,000 so he could leave the university and go full time.

“I raised twice the money in half the time,” he laughs. “We were the first spin-out from UWS and I’m quite proud of that.” The company now employs 21 people and has ambitious growth plans.

At the University of Edinburgh, the school of geosciences is spinning out a number of new businesses, many of them using satellite technology.

Carbomap first patented a laser scanner for forests, but after some years in the market, realised that simple black and white laser scanning was adequate.

Founder Professor Iain Woodhouse says they made the classic mistake of overestimating the market.

“The real market was not in fancy laser scanning, it was in low-cost laser scanning,” he says.

“So we pivoted away from the patent quite early on, and focused on reducing the cost of standard laser scanning instead. Hence our work on long-range drones.”

The university was very supportive, putting a substantial sum of money into the patent before licensing it to Carbomap.

As a professor, the new challenge of running a commercial enterprise was exciting for Woodhouse.

“It was a different landscape with different rules of the game,” he explains.

“In an academic context, the people who decide on whether you get any funding are usually other academics in some collective review process. When you’re looking for investment, or selling services, you are often talking to the person who will write the cheque. That’s quite fun and exciting.”

Something no doubt many founders of spin-out companies will relate to is the change in status. For Woodhouse, it was an interesting journey in terms of how other academics viewed him.

“There is an assumption that somehow you are no longer an independent thinker once you are in business, or have the prospect of financial gain,” he says.

“In reality, everyone has some degree of conflict of interest. My way to deal with it was to be overtly transparent about my business interests – I have shares in another company in Edinburgh, Ecometrica, for example, and I am quick to let everyone know my interests. Some academics are not actually very good at that.”

As for the work/life balance, while Hughes and Khan did leave academia to work full-time on their businesses, that is not always the model.

“Running two jobs is difficult,” Woodhouse says.

“I have an official one-day-a-week secondment, but that still spills into evenings and weekends – even though our company culture is to avoid that!”

The university invested in Carbomap specifically to release a SMART award that was pending and dependent on getting money in the bank, but Woodhouse found setting up the original share structure tricky.

With the benefit of hindsight, he notes, he would recommend a more staged approach.

“Raising funds is very difficult. It always is,” he says.

“There are grants, but they require matched funding. Some organisations give full funding in our field, like the European Space Agency, and we’ve had some success there.

“Investors have very clear ideas of what they are looking for – and they’re not always sensible ideas! I reckon getting into their mindset is tricky for an academic.”

Advice for advancement

Javid Khan

Create your own luck

Watch out for sharks – negotiate your intellectual property rights at the earliest stage

Invest in good marketing

Iain Woodhouse

Do more work on market potential. Without customers, it doesn’t matter how good your idea is

Consider a staged approach to setting up a share structure

Dave Hughes

Learn how to negotiate

Be open to learning – there are lots of great free business courses

Scope out the full market – go outside your comfort zone

This article first appeared in The Scotsman’s winter 2019 edition of Vision. A digital version can be found here.