Spin-Offs are Fragile. However, They Bring Profit to All Sides

To some, it might come as a surprise that Masaryk University co-owns a company. And not just one. There are already fifteen so-called spin-off companies that help to put university knowledge into practice. However, the university has equity shares in just three of these. This way of  commercializing scientific results is becoming more and more desirable. Nonetheless, Czech universities are relatively reserved as far as founding spin-offs is concerned. What are the limits of this type of business and what benefits does the spin-off status bring?

6 Nov 2019 Iveta Zieglová

The third floor of the building in Poštovska Street is quiet; however, behind the office doors, it is bustling with activity. At the Institute of Biostatistics and Analyses you would not find any high-tech devices or laboratories, just people and computers. These people are the „pride and joy“ of this spin-off company in which Masaryk University has a 7% share. The company focuses on project management of clinical research and in-house development of specialized software to support it.

„To us, the greatest advantage is the university´s trademark. We mention the fact that we are a spin-off everywhere we can. If we did not consider it to be an advantage, we would not be doing so,“ says the CIO and one of the co-founders of the company, Assoc. Prof. Daniel Schwarz. And the logo on the wall that proudly professes allegiance to Masaryk University confirms his words. „Especially abroad, any connection to a university is welcomed – spin-offs are very common there. Thanks to this we´re not seen as a small start-up trying to conquer the World – the university gives us credibility,“ adds Dr Petr Brabec, a colleague of Mr Schwarz and the company´s CEO. Both are mentioning yet another benefit – thanks to the university they are able to establish and maintain contact with students some of whom can later find jobs in their company.

However, this is where their optimism regarding spin-offs starts running out. The connection with Masaryk University takes its toll e.g. in slow and cumbersome decision making. „We cannot decide on anything important without calling a meeting of the board of supervisors, we cannot bid for certain public contracts because we are financially connected with a public university,“ says Mr Brabec. Rather than support, he feels certain distrust on the part of the university. „When we mention we are a spin-off, a lot of academicians feel that something is not quite right, that we are taking something away from the university. The academic environment and the industry should remain two separate worlds; however, they should also collaborate more closely to make the World a better place. Our motivation is to improve healthcare. We believe that our work can help, for example, to get new drugs to patients quicker,“ adds Mr Brabec.

Despite all this, according to them the advantages of being a spin-off outweigh the drawbacks. „Should we start the company again, we would still want it to be a spin-off. Only we would be more careful to set the rules of cooperation with the university in a way that would not complicate running the company. We would like to cooperate with MUNI more – for example on joint projects, student internships and so on,“ concludes Mr Schwarz.

From Brno to Financial Times’ Ranking

Another example of a successful spin-off is just a 15-minute tram ride from the centre of Brno, in Žabovřesky. It is the place of business of a successful IT company, Flowmon Networks – another of the spin-offs in which MUNI has a share. In this case, MUNI holds 4 % of the company´s stock. The people here know as well that being a spin-off does not miraculously open all doors to collaboration with the university.

„At MUNI, there are equal opportunities. Being a spin-off does not bring us any significant advantages. The main advantage is the long-term collaboration with the university which makes it easier to arrange e.g. a joint project or set diploma thesis topics. However, if we want to be a business partner of the Faculty of Informatics, we have to meet the same conditions as any other company, there is no preferential treatment,“ says the company´s  chief technology officer, Dr Pavel Minařík.

To Flowmon Networks, collaboration with MUNI is pivotal and brings benefits to both sides. „For us, it means access to a powerful force that can help us in many ways, for instance to innovate our products. If a topic is scientifically attractive to the university, we may agree on turning it into

a diploma thesis or a joint project which will help us solve problems we cannot deal with on our own. I cannot afford to have a third of my research team working on some futuristic topic that may turn out to be a dead end. However, if such research yields e.g. a useful piece of software, we can then license it from the university,“ says Mr Minařik. He also considers the connection with the university a sign of reliability appreciated by their partners.

Fragile Business

Flowmon Networks is a living proof that the university´s relatively risky decision to invest CZK 80 thousand in a start-up has paid off nicely. The four per cent of the company´s  stock currently held by MUNI has increased in value significantly. Even the IBA company is gradually becoming more and more profitable which allows it to invest in its own development.

„Starting spin-offs is a good idea. However, it has its drawbacks and it is not for everyone,“ says the director of Technology Transfer Office, Dr Eva Janouškovcova. „The general set-up of the environment is still problematic; it does not sufficiently support new spin-offs. The state somewhat missed the boat – universities have more experience. State agencies have already started promoting spin-offs and supporting them with grants, which is great. However, we at the universities already know that it is not that easy to start a spin-off properly and make it truly functional so that it brings benefits to all the parties involved and does not weaken the university,“ she adds.

According to Ms Janouškovcova, some spin-offs would benefit greatly from professional support, that is teams of people with business experience that would help get the spin-off going. Nowadays, this responsibility lies mostly on the shoulders of scientists who often have other obligations at universities. „There are students, grants and research teams depending on them, which means scientists cannot apply themselves fully to business. Scientists should only be backing and developing the know-how on which the company had been founded, not dealing with employees´ salary and bank loans,“ says Ms Janouškovcova and adds: „With regard to the current government debate on spinoffs, MUNI would like to react by changing its attitude towards the entire process and operation of spin-offs, including the role of potential investors and scientists.“

In conclusion, she adds yet another key characteristics: „Spin-offs are thin ice because they are meant for research results so risky that end users are not interested in them yet; however, we see their potential. Whereas abroad, investors are willing to accept higher levels of risk and invest in spin-offs knowing they may fail but if they succeed, it will bring in a considerable profit, domestic investors still prefer safe bets,“ says Ms Janouškovcova.

“Masaryk University currently has 3 so-called “regular” spin-offs partially owned by the university and 12 more spin-offs without any equity share. In the regular spin-offs Flowmon Networks, a. s. and Netcope Technologies a. s. the university holds a 4% share. It also owns 7 % of the Institute of Biostatistics and Analyses, s. r. o.”

“To us, the greatest advantage is the university’s trademark,“ says Petr Brabec and Daniel Schwarz (on the right)
“I see the long-term collaboration with the university as an advantage,” says Pavel Minařík (Photo: Flowmon Networks a. s.)

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