Initiative unearths spin-outs with employer co-operation

24 Jul 2009

A novel new initiative is facilitating people to set up spin-out companies having developed innovative products or services in-house within Irish-based companies.

Only a month after it was introduced, it has already attracted 15 enquiries, with three good-quality prospects coming out of that, says Pearse Coyle, originator and promoter of the idea. The first phase of the initiative is targeting individuals within the insurance and banking industries.

Coyle, who has played a key role in the early commercial development of successful Irish technology companies such as Eurologic, says the initiative aims to “flush out” those who have developed a technology or service that could be applied to other firms and sold on.

“We have already identified two promising spin-out candidates at Irish-based multinational insurance companies, as well as an interesting software opportunity for utility billing. In addition, a number of people in software companies have been in touch wondering if they could productise a solution they had developed as bespoke,” he says.

Coyle came up with the concept having worked at technology company Exceptis, where a technology for the management of disputed credit card transactions, originally developed for AIB, went on to be adopted by 12 banks in eight countries. Exceptis was subsequently sold for €26m.

The logic behind this new idea 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, ie the employer.

“From the start-up’s point of view, agreement with the employer is crucial. It’s important to draw up the correct contract, so the talent involved in developing the technology or service continues to provide it to the employer and the employer commits to a level of spending with the new entity. In general, there isn’t a competitive issue – the technology or development work involved is not the core business of the employer,” says Coyle.

However, sometimes employers may require a non-compete agreement, for example, to prevent the spin-out selling the service to another Irish bank or insurance company, if it had given them competitive advantage, he notes. Coyle has put together a high-level template to cover the things typically asked for by and given to employers when spin-outs are being proposed.

One of the main aspects of the process that appeals to employers is the prospect of reducing headcount, as well as the cost of the service once the new entity achieves economies of scale.

So where does Coyle’s service come in? “I have entered into this for the purpose of building up a sweat equity portfolio – I’m up for investing in some of the spin-out companies that will emerge. I aim to hold people’s hands from the point of thinking of becoming a spin-out to where a company is established.

“The initial thing I provide, which is key to unlocking opportunities, is a market assessment. Individuals within organisations don’t want to be seen to be considering this until they know they’re on to something.

“I can give them a ‘top-of-the-head’ take on their offering, do desk research and carry out a straw poll of organisations I reckon might be in the market for their solution. Once the potential is identified, the individuals can then start negotiating with their employers.”

By Sorcha Corcoran