University Spin-offs: Seeding the field

1. University Spin-offs:Seeding the field Hermann Hauser London 3rd June 2003

2. Content • Historical Background • Spin-outs: How do they happen? • Cambridge: an Example • Future Innovation • Conclusions

4. NASDAQ Close (Historical) October 1984 - Today Source: CSFB Tech Pvt Equity Conf. Nov 02

5. NASDAQ Close (1985 -2002) NASDAQ Closing Values (Log Scale) Note: Regression Analysis performed on data between Jan 85 – Jan 95 and the results extended from there onwards Source: NASDAQ; Amadeus Research

6. US and EuropeVenture-backed Tech IPOs Source: VentureOne

7. UK Total High Tech VC Investment (All Stages, £m) £m Source: BVCA

8. Time to Exit (Deals) ? 6 – 8 years Years 5 – 7 years 1 – 3 years Source: Amadeus analysis

9. Innovation: How does it happen?

10. Alfred Marshall on Clusters When an industry has chosen a locality for itself, it is likely to stay there long: so great are the advantages which people following the same skilled trade get from near neighborhood to one another. The mysteries of trade become no mysteries; but are as it were IN THE AIR, and children learn many of them unconsciously.

11. Clusters: Silicon Valley • World Class University • Entrepreneurial Spirit • Venture Capital • Supportive Government: CGT, R&D credits, Immigration • Close Relationship with Lead Companies • Infrastructure: Legal, Accounting, Leasing • Real Estate: Availability, Short Leases • People Network!

12. Four Necessary Ingredients Business Model Beacons “Success Stories” Human Capital “Tech Talent” Service Infrastructure “Well-paid Hangers on” Ready Venture Capital “Fast Money”

13. Five Dysfunctional Imperatives • Soul wrenching personal sacrifices • Creating new industries is hard • Frictionless labor markets • No corporate loyalty • High tolerance for chaos • Start-ups are messy and unpredictable • Social acceptance of failure • Entrepreneurs often crash and burn • Income inequality • Those that don’t get rich as Croesus

14. Rate of Innovation is Accelerating Time to Double Optical 9 Months Performance/Price Storage 12 Months Semiconductors 18 Months Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Source: KPCB

15. Cambridge: An Example

16. World Class University • 72 Nobel Laureats: global #1 • Notable contributions to Science: • Newton: Gravity • Thompson, Rutherford, Chadwick: e,p,n • Richard Friend: LEPs, Plastic Electronics • Crick & Watson: DNA • Millstone: monoclonal anti-bodies • Sanger: DNA sequencing method, Insulin

17. History of Silicon Fen • Cambridge Instruments 19th Century • Cambridge Science Park, St John’s Innovation Centre • 1980s: Cambridge Phenomenon, Sinclair, CCL, Pye • Acorn = Fairchild of Silicon Fen • 30 Companies started by Acorn Alumni • ARM, VIRATA, E*Trade UK, E14, etc • Consultancy spin-outs: CSR, Domino, TTPCom • Acambis, Celltech, CAT

18. Independent Research • Cambridge Manufacturing Institute: • Cambridge: 1,600 companies, 40k jobs • Oxford: 1,000 companies • Oxford Economic Observatory • Oxford: 2,000 companies, 50k jobs • Cambridge: 1,400 companies but much smaller

19. Silicon Fen • Cambridge Based • World Class University: • 1,600 High-Tech Companies • Employment: 40,000 People • ARM: First >$5bn Company • BUT

20. Cambridge vs. Stanford • Both World Class Academic Institutions • Stanford Alumni founded Companies worth ~ 500 bn • Cambridge Alumni: ~ 10 bn • Are we really 50x WORSE

21. Grounds for Optimism • Global Strategic Partnering: ARM • US accepted as Lead Market: VIRATA • Better Management Talent: E*Trade UK • Globalisation of Technology: CSR • New Access to Capital Markets: LSE, NASDAQ, EASDAQ, AIM

23. Cambridge Business Angels • Great Eastern Investment Forum • Cambridge Angels • Share Options in ARM, VIRATA, Autonomy ~ $1bn • BIGGER impact in Cambridge than VC, Government schemes, • Creates Start-Up Pool for VCs • Changes Culture

24. Entrepreneurship • Start in Schools • Entrepreneurship Courses for ALL University Students • Courses for Graduates who want to Start Businesses • Courses for Practising Entrepreneurs • Associated Incubator

25. University Enterprises Ltd • Efficient commercialisation process • Entrepreneurship Centre: BP writing • Technology Transfer Office: IPR • University Challenge Fund: Seed Fund • Licences to large companies • Equity in Spin-offs: could make BIG contribution to endowment!

26. www.cambridgenetwork.co.uk • Launched July 1998 • Now 3000+ pages • Directory of 1,000 companies • Over 1500 submissions, • Search of members’ Web sites, with intelligent agent capability

27. The Future is Wet

28. Future Areas for Innovation • Biotech • Proteomics • Microarrays • Bio-Informatics • Plastic Electronics • Ink-jet printing of circuits • Nanotechnology • Software • Wireless

29. Old vs. New in Mainframe and PC era Capital fled legacy systems New winners emerged A similar shift may be about to begin in Semiconductors ! Source: Thomas Weisel Partners

30. PC Era was a US Era US Processor Intel US Software Microsoft US Top Companies Compaq, Dell, IBM US Dominant Market US Standards MobileEra is a EU Era EU Processor ARM EU Software Symbian, GSM EU Top Companies Nokia, Ericsson, Vodafone EU Dominant Market EU Standards The European Opportunity

31. Silicon vs. Plastic… Conventional Semiconductor Printed Plastic Electronics Direct printing & solution processing Photolithographic patterning, high temperatures & vacuum processing

32. Low Cost Source: Fraunhofer Institut, Munich

33. Conclusion • Spin-outs need: • Clusters with world class universities • People Networks • Supportive Government • High-tech spin-outs bring growth • But it is a global race!