Bizstartup.ie - Start Up Kit

The logic behind out spin-outs is that if a large company felt it necessary to develop something in-house then there is clearly a business demand and a lack of supply – two factors essential for a successful enterprise.

Added to this, there is an existing development team and a first customer. Some are also fortunate enough to have access to the required initial capital by negotiating terms with an employer. So, provided you can validate the market for a product or service, you stand to lose little but potentially gain a great deal.

Spin-out identification

Due to the nature of a spin-out (generally a non-core product or service which was developed to fill a void in a company’s processing or servicing systems) the primary corporate spin-out idea generators or candidates tend to be managers or specialists within large organisations. For these people there lies a real opportunity not just to be a manager of a team with a great product or process but to be the leader of a new company with a great commercial starting point.

The profile of candidates who benefit from the expertise of CorporateSpinouts.com can be divided into three general groups:

Individuals, usually at a middle-management level, who have been responsible for the development of a product or service within a large company. They have an idea for a spinout but they do not have the authority to make it happen.

Principals of companies (mostly software companies) who have successfully completed what was expected to have been a once-off development for a client. However, they now see wider potential for the solution delivered but their companies are not product-oriented and they don’t want them to be.

Principals of companies who can see that a line of business or an inhouse-developed product or service would be better developed if it were spun out into a new venture.

The wish-list: employer negotiations

If your spin-out proposition appears to be commercially viable your employer will co-operate with you because after it is spun out they can continue to use the same product and as you achieve economies of scale resulting from selling on the product the cost to them will diminish. In the present climate, employers may also be attracted by the prospect of reducing their direct head-count by the creation of a new entity which will employ some of their existing staff.

• There is a long wish-list of terms that one would hope to negotiate with an employer
• Amicable co-operation
• Clean transfer of intellectual property rights if required
• A contract of service committing them to a level of spending with the new entity
• An investment in kind by way of office space, light, heat and ICT infrastructure
• Permission to transfer certain key staff to the new venture
• A cash investment equivalent to the company’s redundancy obligation in respect of the transferring staff
• A further cash investment in co-operation with new investors
• Co-operation in promoting the product or service to other companies in the same group

However, I can say that in my experience you will not be able to initiate this new venture and the employer negotiations without first being confident that there is a good market out there for what you offer. This confidence will only be justified when you have spoken to organisations out there that have told you when and at what price they would buy such an offering were you to succeed in creating it. You should also seek help from specialists in this field who can help you negotiate the optimum terms for yourself.