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The “impossible” talk

or

Playing around the legislation related to the creation of spin-off companies… and a collection of pieces of advice

José María CarazoIntegromics Founder (www.integromics.com)Head of the BioComputing Unit of the CNB

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The “impossible” Talk

• A dear friend ask me to lecture about

– “Legislation about Technology-based spin-off companies”

• Poor guy, he does not know…..

– In simple terms: “DO NOT DO ANYTHING”, fool of you!!!

• However, we are scientist, if we manage to get Research funds from Madrid or the EU, we should me able to do anything…. (or almost)

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The “impossible” talk

or

The experience of a group of researchers of the National Center for Biotechnology-CSIC spinning-off a company in Bioinformatics that is starting its international expanssion

José María CarazoIntegromics Founder (www.integromics.com)Head of the BioComputing Unit of the CNB

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Starting a spin-off

• Key point: What I am going to do

– I do not want to reinvent the wheel

• Identify needs in the market– Perform market research– Try to make a “Plan”, many would tell you to do a “Bussiness Plan”.

This is great, but you probably do not yet have more than a “reasonable idea”

– I do not want to do a one time shot: If you go for a company, you should have identified a broad oportunity. Otherwise get in contact with stablished companies to license patents. Do NOT set a spin-off on ONE patent!!! (it is so often done….)

– I do not want to leave research (do I?)

• Seniors opening fronts from within for a limited time• Brilliant juniors leaving academia at the start and in the midterm• Bussiness men/women joining

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Starting a spin-off

• Structuring shares: Which percentage each of founders?

– Legislation: For civil servant no more than 10% each

• What??. Are you kidding????

– But if we are just two persons, how can we have 10% each??????

• A good question, that deserves an informal answer……

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Starting a spin-off

• Involving your Institution

– Signing Cooperation Aggreement

• YOU ARE THEIR EMPLOYEE, stay in good terms!!!!!!

– Question of Intectual/Industrial Property (IP): You should NOT stole anything in anyway

– Question of doing research work in the company: Under a research project signed with your Institution, you can work in that project, even in the company premises and viceversa, but it has to be a research project, part time and for a limiter time

– Question of doing development work: Mostly at the company

– Question of doing sales work: ALWAYS at the company

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Starting a spin-off

• Where is the company created??

– Normally there will be a “VIVERO” around you. Go first to see them. – Of course, start selecting enviroments that offer you the scientific

infrastructures that you need (do you need labs?. Animal facilities?, Mass spectrometers?. Just an office?)

– In theory they offer you• Cheap rent• A course on how to get started• Some administrative advice on setting up the company• Technological Platforms!!!!!!!• Help in dealing with Industrial property• Perhaps some “help” in some bussiness aspects…, specially in doing an

“Excercise Bussiness Plan”• Perhaps some help in ways to access credits, grants…. (to get MONEY)• REMEMBER: NOT ALL OF THEM ARE THE SAME. FEW OFFERS YOU MORE

THAN CHEAP RENT. VERY FEW HAVE GOOD COACHING PROFESSIONALS: CHOSSE THOSE (THEY ARE GOOD)!!!

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Starting a company

• Very initial funds: 3100 Euros to set the company

• Then, what?. It depends of the places

Initially, initially…. Your own money in small amounts –or that idea of Family, Friends and Fools, if you dare to loose them- (to pay the first rent, the fees to set up the company..)

In Barcelona: See CIDEM, see the various Parks for advice

In the Vask Country: Quite some oportunities

In Andalucia: Atlantis project

In many other places: Nothing …. For a while…

Accept the idea that you have to get some 30K at least to survive

Beware: Banks in Europe do not tend to offer money based on projects, they “like” to see your payroll, your house, your parents…..

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Starting a company

• “You need a Bussiness Plan (BP)”: But, what is a Bussiness Plan?

• In theory, it is the complete definition of your activity, how you are going to do it and how much money you need.

• In practice, it will be sometime untill you really know what you are going to do (you have to be confronted with the market first). Before that point, a BP is little less than “an interesting exercise”.

• No point in doing a serious BP untill (a) You really know what and how to do, (b) There is a bussiness man on board

• If they ask you for a “serious one” before…. Let hope they know they are joking…. (but many people do not know it!)

• CREATE CASH: SALE (RESALE); MAKE COURSES; PLAY MUSIC IN THE TUBE….

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Starting a company

• “First rounds”: That is, how to get money in the orden of 300K– By that time you better have a relatively good “Bussiness Plann”

• Autonomic funds:– Catalonian 100K CIDEM– Andalucia 300K “Atlantis” (6 out of 500….)– Madrid “KO”– …….

• Central funds– CDETI Neotec: Quite feasible but:

• You should apply before two years after creating the company• If they give you 300K, they would normally ask you to put capital for other

300K

• CONCENTRATE ON YOUR BUSSINES CORE: STOP PLAYING MUSIC IN THE TUBE!

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Starting a company

• “COMPLEMENTING A FIRST ROUND” (or getting into other “rounds”)

• Many venture capital firms (“seed” capital, really, in Spain “Venture capital” invest in CAPRABO)

– Barcelona Emprent– Unirisco– Talde…

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Industrial Property

• Protect the “source code”– NEVER give it away– In any case, deposit “marks” under notary public, done

by at least two different people

• If possible (if there is anything to be pantented), do so:– At least start an international PCT – Seriously consider a “Preliminary Patent Application” in

the US, specially if one way or the other, software is an issue (and software is NOT patentible in the EU)

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Industrial Property

• WHO PAYS?

– We are talking about thousands or ten of thousands Euros, so, it is important

– If the patent has an Institutional origin, or at least a joint origin, you may get some economical help from the Institution. Note, however, that one it enters into explotation normally the company is expected to cover the costs

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Names and Brads

• Protect your “identifiable” brands (globally?)

– Not necesarily the name of the company, but the BRAND of the product

• Example: COCA-COLA

• Does anybody know the name of the company that produces it in the different countries??? (it is not “Coca-Cola”…)

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The time to pay Institutional attention

• Plan a good framework of relationships with your institution.

– Normally arrange for a “framework contract”, defining general aspects, then for “specific contracts” on a project by project bases.

– Always keep them informed beyond the legally binding obligations….. They are, or have been, “your home”

• You gain very little in the long run if you do not so, and you may loose a lot.

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R&D Network

• Create a good network of contats and contracts at the National and International Level

• Keep a very high up scientific/technical profile (a spin-off is NOT to make Web pages….)

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Structuring the company

• THE BOARD (El Consejo de Administracion)

Wht does the low say????

Ley 53/1984, de 26 de diciembre, de Incompatibilidades del personal al servicio de las Administraciones Públicas

Artículo doce.

1. En todo caso, el personal comprendido en el ámbito de aplicación de esta Ley no podrá ejercer las actividades siguientes:

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The BOARD

• b) La pertenencia a Consejos de Administración u órganos rectores de Empresas o Entidades privadas, siempre que la actividad de las mismas esté directamente relacionada con las que gestiones el Departamento, Organismo o Entidad en que preste sus servicios el personal afectado.

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THE BOARD

• SO:

• Research Personnel (Universities, OPIS, Hospitals) cannot be part of a BOARD.

– BUT:

– Do you have a husband or a wife?. Also a researcher?. Somebody in the familiy is not in research?????

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THE BOARD

• It will have a President (in Spanish, a President or a Consejero Delegado).

• Will be composed, tipically, between 3 and 9 members.

• To obey wih international rules/advices on “governanza”, have two “indepent members”, who are not part of the company.

• Of course, if a venture capital firm enters into the capital, it will be on the Board

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YOUR TIME

• You can work in the company in the context of a defined and approuved research contract with your institution.

• BUT: You would like to work “in general”.

– No way, if you want to keep your normal condition in the University or the OPIS

– Possible, if you take an special leave of absence from your Institution

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Your time

• If you belong to an OPI

– Then you can ask for a special leave of absence up to three year to work in a company. You will be reintegrated “to your same position and place”

• However, if you have a research group, this is a suicide!

• If you belong to an Univers¡ty, in principle it is the same. However, they may be internally more flexible (wheather these internal flexibility will resist a full challenge is questionable, although it is not obvious which other instutution will challenge the University)

• NOTE: In Spain is not legal to dedicate, say, 20% of your time to start a technology-related, institutionally backed-up company. THE “LEY DE LA CIENCIA” would need to be changed

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An economical sucess

• Do you have profit?.

• Pay 35% to the Treasure as a company and get it yourself in the form of dividens

• Then pay to the Treasure again your IRPF

– Not a but bussines for the Treasure…., but it is the law for all the sociate

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Subcontracting research

• Contracts and “productivity”

• It is possible to apply all or part of the money of a contract with Industry to a public servant salary in the form of “productivity”

• In the University. Normally you can apply all, and the overhead deducted by the University is about 20%. This is considered a “research expenditure” of the company

• In the CSIC. You can only apply 30% to productivity. From the total the CSIC deducts 20%. From the productivity it further deducts 40%. You pay IRPF of “what is left”.

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Sales to the public sector

• Sales to the public sector

– For sales above 12K in one act or in a collection of them, normally a public institution should perform a public biding process. As long as it is public, no problems in which enterprise gets it (Remember you should not have more than 10% in any enterprise)

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Getting R&D Grants

• Nationally:

– Profit style (Credit and Grants)– DCTI (Only credits)

– Research and Tecnical personnel

Torres Quevedo fellowships

OBVIOUS CASH FLOW PROBLEMS: FIRST SPEND, THEN GET THE MONEY

Regionally, It depends

Compatibility: Only limited by 50/75% total coverage EU limit

NOTE: NEVER INITIATE A SPIN-OFF TO GET GRANTS!!!!!

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Rules abroad that do not apply at home

• Normally you can dedicate something like 20% to a spin-off activity approuved by your institution

• You can have more than 10% in the initial phases of the company (limits apply, between 5-7% to “fully vested” companies)

• You cannot subcontract your company

• Your students cannot work in anything related to the company

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Leaving the incubator

• Keep good institutional contacts

• Keep beeing a high technological standards

• Good luck