APPENDIX A
UNIVERSITY OF EDINBURGH – INFORMATION ABOUT SPINOUT COMPANIES
FREEDOM OF INFORMATION REQUEST 4 JUNE 2009
1. How many spin-out companies has the University formed in the past five years and how
much did it cost the University to create each company?
The company formation support activity is delivered by Edinburgh Research and Innovation Limited,
a wholly owned subsidiary of the University. ERI is a specialised commercialisation and technology
transfer operation set up with a specific mandate to support company formation, amongst other things.
During academic years 2003/4, 2004/5, 2005/6, 2006/7 and 2008/9, the University, through ERI,
span-out 17 companies, see list below. The total attributable cost, including overhead allocation, to
the University of this activity was £684k for the five years. Notionally then, the cost per company
was approximately £40k.
The spin-outs companies formed are: Anarkik 3D, Anti-Bullying Network, Brainwave, Carbon KPI,
Conversatec, EZEP, Fios Genomics, Incite, Miramodus, Mobile Acuity, MTEM, Nanoflex,
Neurocentrix Pharma, Shapespace, Spiral Gateway, Wyeth UK and Yadster.
2. Could you provide me with a breakdown of costs incurred by the University for each spin-out
company formed within the past five years? This breakdown should include: - legal costs
involved in the formation of each company; - salary costs for any University employees
responsible for the formation of each spin-out; and - any other overheads involved, i.e. bonuses
for said staff, consultancy costs, accommodation and travel costs.
The University supports the formation of companies. However, the costs of the formation of such
companies including legal costs, consultancy costs, accommodation, travel, etc are borne by those
companies. Staff costs make up the majority of the cost of running the operation - £470k of that
£684k for the five years, including an allocation of time from the in-house legal team. An overhead
allocation is also made reflecting the size of the company formation operation.
3. Could you also provide amounts of all income earned from University spin-out companies
within the same five-year period, excluding equity/shares held by the University in those
companies?
Income from the spin-outs formed during the last five years (see above) amounted to around £8,140k.
4. If you can neither provide the costs nor the quantifiable amounts of actual income can you
provide me with the justification for such expenditure from the public purse?
The University's commercial philosophy for company formation is very much based around a
portfolio approach. It is not easy to predict which spin-out companies will produce a significant
return to the University. However in a balanced portfolio, some will and the overall return should
exceed the total cost of the exercise. In addition, the return to the wider economy from the emergence
and growth of successful indigenous technology companies is substantial. The University, and all
Universities, participate in the economic development agenda, and the formation of spin-out
companies is a crucial component of the University's contribution there.
5. How many spin-out companies have registered actual sales and how many of these companies
are trading at a profit? Could you please provide details of profit and loss accounts for these
companies? If none of these spin-out companies have made a profit, can you provide me with
justification for continuing to spend public funds in this area?
The University does not require full accounts from spin-out companies, and so we do not hold the
information required to answer this question fully. Annual accounts for all spin-out companies are
available from Companies House. Financial reports are required relating to technology licenses, but
these are not as complete as annual accounts. Spin-out companies and technology companies
generally, tend to take some years to reach sales and profitability. R&D investment by such
companies erodes any trading profitability. In addition, the route to market for a new and disruptive
technology may be a long one. That is why investment dominates the 'income statement' of spin-out
companies in their early years. Profitability, or lack of it, is not an adequate measure of the success of
a spin-out company in its early years. Many technology companies are acquired prior to sales and
profits, yet are still considered hugely successful.
6. What is the ratio of costs incurred by the University to income earned by each spin-out
company formed? Does this represent good use of public funds?
Because of the portfolio approach, an average figure is relevant. As such, given the total income is
£8,140k against total expenditure of £684k the ratio of income to cost is around 12:1. This represents
good use of public funds.
7. Have the University's Vice Chancellor, Pro Vice Chancellor responsible for financial matters,
Secretary of Court, Director of Finance or any of the University's governing bodies ever called
for an investigation/review regarding the cost to the University of creating spin-out companies?
If so, could you please provide me with the relevant details/reports?
No, though the company formation activity is subject to regular financial scrutiny. As well as
reporting on a quarterly basis to the ERI board, regular reports on spin-out activity are provided to the
University's Finance and General Purposes Committee and to the University Court. In addition, the
University Head of Corporate Services retains authority on decisions to sanction spin-out companies.
He chairs the ERI Board and also convenes the Company Formation Advisory Group to assist in that
process. That Group has amongst its members two Vice Principals, the Director of Research and
Commercialisation, the Director of Finance and two highly respected local technology entrepreneurs.
8. What level of legal/business qualifications do the people responsible for creating spin-out
companies possess? If they do not possess such qualifications, is the University going to take any
action against the Director of Human Resources for appointing these people, bearing in mind
that it is public funds being used here?
Those involved in the support of company formation are suitably qualified and well supported. ERI
has an in-house legal team with six qualified solicitors for instance. However, the companies are not
formed 'by the University'. The University supports the process. Generally, companies are formed by
one or two academics working with a small management team generally involving two or three
experienced business people. All spin-out companies are advised to take on their own legal and
financial representation, and as far as I am aware, all do so. It is though the responsibility of each
company, not the University.
9. Are the University's managers with financial control for spin-out companies required to keep
a record of all expenditure? If they are, are they required to report this to the Secretary of
Court or Director of Finance? If so, could you please provide me with the relevant
details/reports?
The University does not have financial control of spin-out companies. The University, if it is a
shareholder, is a minority one. Companies and their own boards retain financial control.
ERI's board is substantially made up of University staff and it makes regular financial and operational
reports to the University via several of its committees. The University's Director of Finance (or his
deputy) attends the ERI board and is a member of the Company Formation Advisory Group (see
above).
Grant Wheeler
Head of Company Formation and Incubation
Edinburgh Research and Innovation Limited
22 June 2009
