“Entrepreneurs should look back positively on their experience with ETH”
The ETH Executive Board has approved two regulations that aim to better support ETH members who found companies, in particular increasing transparency in what ETH offers founders and their companies, what ETH expects, and what processes must be followed. Vanessa Wood, Frank Floessel and Beat Weibel explain the changes in an interview.
On July 10th, the new Business Creation Regulations as well as the Equity and Licensing Policy entered into effect. Both regulations were approved by the ETH Executive Board and replace the previous Spin-off Guidelines. In an interview, Vanessa Wood, Vice President for Knowledge Transfer and Corporate Relations, Frank Floessel, Head of ETH Entrepreneurship, and Beat Weibel, Head of ETH transfer, explain the changes and aim of the new Regulations.
Vanessa Wood what are the most important changes that company founders need to be aware of?
Vanessa Wood: There are two important changes. First, we establish clear processes for ETH members to found companies. In the case of an ETH Spin-off, which is a company based on ETH research results, the future founders need to get in touch with ETH transfer to define what intellectual property and exploitation rights are needed, reach an agreement on terms, and then found their company. Second, we have introduced the ETH Start-up label, which is for companies not based on ETH research, but based on scalable business ideas of ETH members. We want to recognize these companies, which often come from ETH students, and also offer them the opportunity to benefit from entrepreneurship offerings at ETH.
“Once the future founders have all the necessary documentation together, they should have a Spin-off founded in six to eight weeks.”Frank Floessel
Let's stay with the spin-offs first. How quickly does it ideally take from the first contact to the foundation?
Frank Floessel: If it’s a standard founding and no special legal clarifications are needed, then the future founders can choose the Express path. It offers three pre-defined options for licensing of patent rights, from which the founder can choose, and the option to purchase software rights, data, or prototypes from ETH. Once the future founders have all the necessary documentation together, they should have a Spin-off founded in six to eight weeks.
And when does it take longer?
Beat Weibel: As soon as the IP questions are complicated, for example, if third parties are involved or if the founders wish to incorporate in the US. With these sorts of negotiations, my team is required. Young companies benefit from various support measures.
The regulations mention the ETH Entrepreneurship Ecosystem (E3). What does this mean?
Wood: “E-cubed” refers to all the different entrepreneurship offerings made available by ETH for founders and their companies. This includes the favorable conditions for office, laboratory, and infrastructure usage, access to entrepreneurship promotion programs run both centrally by Frank’s team at ETH Entrepreneurship or decentrally, for example, at an ETH center, training programs, and events with investors. Our aim is not to manage all programs, but to virtually bundle them gives the ETH community much needed visibility on the range of offers and ensures that there are consistent terms and conditions in place across ETH.
Start-ups should now also be able to benefit from these services. What considerations led to the ETH start-up label?
Floessel: Until now, those who founded a company at ETH after their studies received hardly any support from ETH. With the new start-up label, we have created the basis for these companies to also benefit from the ETH ecosystem.
Can any ETH member apply for the start-up label?
Wood: Yes, companies founded by ETH students as well as companies founded by ETH employees can apply for the Start-up label. We’re looking for companies with a clear link to ETH and a scalable business model. GetYourGuide or Doodle are examples of companies that, if founded today, would be eligible for the Start-up label. A pizzeria or a consulting company would not get the Start-up label.
Will it be possible to communicate the distinction between spin-offs and start-ups to the general public?
Weibel: In principle, the difference is in the names. With an ETH Spin-off, one takes research results out of ETH and creates a company from them. An ETH Start-up is a company founded by an ETH person. However, in everyday language, the terms are often used synonymously.
“To compare ourselves with other universities, it is important that we count both Spin-offs and Start-ups, and can distinguish between them.”Vanessa Wood
Wood: Ultimately, both Spin-offs and Start-ups are companies that have emerged from ETH people and their ideas, so if the general public mixes the two names, it is not a problem. We’re proud of all our companies. But, to compare ourselves with other universities, it is important that we count both Spin-offs and Start-ups, and can distinguish between them.
ETH takes an equity stake in spin-offs, usually two percent. What considerations lead to these participations?
Wood: The founders of ETH Spin-offs benefit from the knowledge and experience they gain during their time working in the research team at ETH as well as from the support that ETH offers its Spin-offs. It’s only fair that if the companies are successful, ETH also gets something back.
Weibel: Two percent in both an international context and in the context of other institutions of the ETH Domain is very moderate. There are many universities that take five or ten percent.
Wood: It’s also important to note that the two percent is the baseline value. A Spin-off that needs to license or acquire intellectual property rights from ETH can do so in exchange for equity, since early-stage companies are typically cash poor. In the Express path for patent licensing, future founders can choose between options which increase ETH’s equity percentage and come with lower royalties, or no additional equity beyond the two percent but higher royalties. If a company participates in an entrepreneurship promotion program run by ETH, like an incubator, where they get additional financial and in-kind support, then ETH may also take a specific amount of additional equity. Most important though is that this is now transparently written down so future founders and investors are all aware.
Also regulated is how professors and employees can be involved in Spin-offs. Why do we need these rules?
Wood: We want our rules to be aligned with industry norms. The amount of equity a co-founder receives should be based on the role he or she will have in the company. As a scientific advisor, a professor might get equity in the single digits. If the professor participates in the build-up of the company, then a higher equity stake is appropriate. Our new process requires the team of future founders to have conversations about equity stakes early on, and the best practice recommendations should hopefully guide the discussion. In short, we’ve removed strict limits on equity for professors and instead ask the professors to clearly explain in their application on outside activities what role and equity they will get and how they will avoid or mitigate any conflicts of interest and conflicts of commitment that emerge.
“The topic of conflict of interest must be taken seriously. Here, I believe the new rules and approval process have more teeth than the previous version.”Beat Weibel
Weibel: Yes, the topic of conflict of interest must be taken seriously. Here, I believe the new rules and approval process have more teeth than the previous version. We now look much closer into questions such as: Is research and teaching freedom compromised? Will the spin-off activities unduly impact the professor’s ability to acquire third-party funding or collaborate with industry? Do measures need to be put in place for mentoring of doctoral students?
The new regulations are now in effect. What impact do you expect?
Wood: I hope that, in the future, company founders look back positively on their experience with ETH. When I started as Vice President, I got the feedback from internal and external stakeholders that the rules around Spin-offs were not clear or consistently applied. Over the last two years, we’ve worked with many students, researchers, professors, former founders, investors, and law firms to craft regulations and processes that should work for company founders, their investors, and for ETH. We want our entrepreneurs to feel that ETH supported them during the early stages of their journey, with the hope that they will proudly return after much success to share their experience with the next generation.
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