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SETTING UP A COMPANY BY

SPIN-OFFS

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Setting up a company by SPIN-OFFS

Creating a spin-off company is a form of entrepreneurship in which a new company is created from an existing technology, product or service of a parent company. The term "spin-off" refers to the separation of a part of the parent company to create a new independent company. Spin-offs are created to take advantage of the market opportunity of a specific technology, product or service that is not being exploited by the parent company.

Spin-offs can have several advantages for entrepreneurs, such as:

  1. Access to existing technology: spin-offs can take advantage of the parent company's existing technology and know-how to create new solutions or products.
  2. Lower risk: spin-offs have a lower risk than a completely new company, as they are based on a technology, product or service already existing and proven in the market.
  3. Lower initial investment: spin-offs may require less initial investment, as they can leverage the parent company's existing resources.
  4. Greater flexibility: spin-offs can be more agile and flexible than the parent company, as they are not constrained by existing structures and processes.
  5. Potential for further gains: spin-offs may have a higher profit potential than the parent company, as they focus on a specific technology, product or service and may have a greater focus and dedication than the parent company.

Creating a company by spin-offs is a form of entrepreneurship that leverages the existing technology, knowledge and resources of a parent company to create a new independent company. Spin-offs can have advantages such as access to existing technology, lower risk, lower initial investment, greater flexibility and higher profit potential.

Advantages of the spin-off for the parent company

The creation of spin-offs can also have several advantages for the parent company.

SOME OF THEM ARE:

  1. Cost reduction: spin-offs can reduce the parent company's costs by allowing it to focus on its core products or services and divest itself of products or services that are not generating profits.
  2. Knowledge transfer: spin-offs can transfer knowledge and technology to the new company, which can increase the innovation and creativity of both companies.
  3. Value enhancement: If the spin-off is successful, it can increase the value of the parent company through a stake in the new company.
  4. Greater focus: spin-offs allow the parent company to focus on its core business areas, which can increase efficiency and productivity.
  5. Development of new business opportunities: by allowing spin-offs to focus on specific technologies, products or services, the parent company can develop new business opportunities in other areas.
  6. Potential for acquisitions: if the spin-off is successful, the parent company may have the option to acquire the new company and reintegrate it into the parent company.

The creation of spin-offs can have several advantages for the parent company, such as cost reduction, knowledge transfer, increased value, greater focus, development of new business opportunities and the potential for acquisitions.

success stories of spin-off business creation

There are several success stories of companies that were created from spin-offs of parent companies. Here are a few examples:

  1. PayPal: PayPal was created as a spin-off from parent company Confinity in 1999. Confinity was developing an online payment technology and, after a merger with another company, it was decided to create an independent company called PayPal. PayPal became a very successful company and was sold to eBay in 2002 for $$1.5 billion.
  2. VMware: VMware was created as a spin-off from parent company EMC in 1998. EMC was looking for ways to virtualise its storage and data systems, and created VMware as an independent company to develop virtualisation solutions. VMware became a leader in virtualisation solutions and was acquired by Dell Technologies in 2016.
  3. Akamai Technologies: Akamai Technologies was created as a spin-off from parent company MIT in 1998. Akamai's goal was to develop technology to accelerate the delivery of online content. Akamai became a leader in content delivery services and has customers around the world.
  4. Gilead Sciences: Gilead Sciences was created as a spin-off from parent company Triangle Pharmaceuticals in 1987. Gilead's goal was to develop a new class of antiviral drugs to fight diseases such as HIV and hepatitis. Gilead became a leading company in the medical field and is best known for its HIV and hepatitis C drugs.

In summary, these are just a few examples of successful companies that were created from spin-offs of parent companies. These cases show how creating an independent company from a parent company can be a successful strategy to seize market opportunities and develop innovative solutions in different industries. Spin-off is an Anglo-Saxon term and refers to the process by which a new company emerges from an existing entity. Over time, the new company is spun off from the firm that acted as incubator and eventually acquires legal, technical and commercial independence, although it may maintain some degree of collaboration with its "parent company".

This modality is the most frequently supported by the European Centres from Business and Innovation  CEEIs-BICs. These include entrepreneurs, for the most part, linked to start-ups. However, their business areas do not necessarily have to be technology-based. Sometimes a spin-off is born when a large company decides to get rid of a department or division that it does not consider necessary at a strategic level. Employees are then encouraged to become entrepreneurs by offering them a contract for their services for a certain period of time.

  • One example: st is very common for sales and distribution departments to be unbundled and to continue to operate from new business entities. It may happen that, in addition, the new company is free to take over the sale and distribution of products that do not compete with the parent company but are sold in the same distribution channels. Former salaried employees become entrepreneurs who are paid a variable fee for the services they provide.

  • Another example is the Academic spin-offs:

They are business initiatives promoted by members of the university community, which are characterised by base its activity on technology transfer, exploitation of new processes, products or services based on the knowledge acquired and the results obtained at the University itself.

Classification by origin

ACADEMIC SPIN-OFF:

It is a very typical form of business start-up which is widely used in universities and research centres. Where researchers are offered the possibility to put their projects into business practice and have an additional motivation. These are the newer, more recent and scarceThe European Union supports them through various support lines and programmes. This type of spin-off is the most recent and is supported by the European Union. through different programmes with the aim of transferring the knowledge acquired at the University to a new company.

THE ADVANTAGES OF ACADEMIC SPIN-OFFS:
  • The entrepreneurs continue to develop the technology generated at the university into the final product. They will be able to create their own valuable research team and earn income as a result of the process.
  • The university will effectively transfer the results of its research through spin-offs. In addition, it will be able to establish agreements with the spin-offs that are guarantee to reach the market and obtain economic benefits for doing so.
  • Interaction between academic centres and spin-offs will generate important societal benefits: 
    • Creation of skilled jobs, payment of taxes, and innovation through new product development. 

BUSINESS SPIN-OFFS:

It is the the process by which a new company emerges from a pre-existing one. Eventually, the newly formed company will separate from the start-up company, which acted as an incubator, and acquire commercial and legal independence. In some entrepreneurial spin-offs there have been instances of dissident factions of people leaving to develop outside opportunities identified within the company and taking advantage of the knowledge acquired.

The ownership of R&D&I developed by a person hired by a company remains with the company and does not become the property of the person unless otherwise agreed.

The managers at each university are the OTRIS (Offices for the Transfer of Research Results) and, its final product, the EBT (Technology-Based Companies). Many spin-offs are born out of technology transfer that is carried out by the universities. The technology transfer works very well in Israel or the United States. In the case of the United States, the average turnover of scientific spin-offs is 7 million dollars, while in Spain it is 30,000 euros and in Europe, 270,000. 

Google would not exist without technology transfer. The iPhone, which involves the integration of 12 science projects into a single product.

Why don't spin-offs achieve the same results in Spain as they do in Europe, Israel or the United States?

The causes are undoubtedly are found in the current regulations. And, in the event that the promoters/entrepreneurs are teaching and research staff, the Law on Incompatibilities of Staff in the Service of Public Administrations affects in two fundamental aspects:

  1. The equity participation is limited to a maximum of 10%.
  2. Membership of the Board of Directors of a company linked to the activity carried out at the University, which is not permitted.

However, Organic Law 4/2007, which amends Organic Law 6/2001 on Universities, facilitates the incorporation of teachers in this type of companies if they meet the requirements of the following requirements:

  • The university teachers may participate in companies of promoted by the University with its participation and created on the basis of patents or results obtained in research projects carried out there. 
  • There must be a explicit agreement of the Governing Council of the University, allowing the creation of such a company, subject to a prior report by the Social Council. The agreement must certify the technology-based nature of the company, and those that the University will obtain from it.

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