Taking the first steps towards launching a university nanotech spin-off is a rollercoaster ride — a considerable departure from the fundamental research ecosystem. A successful nanotech spin-off needs to pull together five key elements, broadly correlating with Fisher’s five points above: (1) an exceptional technology with a market need; (2) IP management; (3) risk and capital investment, coupled with (4) a solid business strategy; and (5) a team with the right complementary skill sets.

Exceptional technology with a market need

Basilard BioTech (basilardbiotech.com), a spin-off from the University of California (UC) Riverside, sees their ‘deterministic mechanoporation’ technology as the turning point of their gene-delivery innovation, in which each cell is ‘poked’ by nanomechanical element (a silicon nanoneedle) just once, not indiscriminately. This reproducible mechanical poration by a single needle on a single cell in the same location promises more uniform, reliable and less-disruptive delivery of genetic material — a much-needed goal for CAR T-cell technology. Co-founders Professor Masaru Rao and Mr Brynely Lee see their technology as having a dramatic impact on cellular immunotherapies, in particular CAR T-cell therapy.

Cytosurge (www.cytosurge.com) is actively developing hollow FluidFM nanoprobes, enabling precise control of femtolitre volumes for intracellular delivery and nanobiopsy. The technology originated from Professor Tomaso Zambelli’s group at ETH Zürich, and was then developed by Dr Pascal Behr (Cytosurge’s chief executive officer (CEO) and co-founder) during his PhD. Behr realized that there was a market need for FluidFM from the sheer number of researchers approaching him to access these specialized engineered nanoprobes. The biggest scientific challenge for the spin-off was to figure out how FluidFM could robustly bridge the nanotechnological and biological worlds that are “both inherently so far apart”. “Bridge is just one simple word,” Zambelli says, “but it took us 10 years of work.”

Aligned Bio (alignedbio.com), a spin-off from Lund University, is targeting next-generation DNA sequencing and molecular biomarker detection. For biomarkers, they are already licensing their nanoneedle platforms and moving towards full solutions for point of care and diagnostics. The technology for DNA sequencing is under development, having demonstrated single-molecule and dye identification at the speeds and costs of single-molecule sequencing.

Developing intellectual property

IP is critical and expensive. Behr says that Cytosurge negotiated friendly IP terms with ETH Zürich’s transfer office, obtaining an exclusive license agreement. Over the 12 years since launching, IP security has become increasingly important to the business. Online-based stealing of IP is a factor to consider when expanding IP protection: developmental urgency must be balanced against the costs of protection — which might be trivial for big multinational companies but is often significant for a small spin-off. Mr Erik Smith (CEO, founder and board member of Aligned Bio) says that protecting IP is essential, and should not be sacrificed because of costs; but at the same time, IP protection is no guarantee of commercial success. That is how IP is presented to potential investors.

Management of IP varies among universities. How much ownership and prospective revenue the university will retain is usually subject to intense negotiation with a spin-off or start-up, in the absence of a consistent framework. The Melbourne Centre for Nanofabrication (MCN) — headquarter of the Australian government-funded Australian National Fabrication Facility, which supports many Australian universities, government labs and private companies with International Organization for Standardization-accredited micro- and nanofabrication capabilities — is taking a unique approach. Dr Langelier (MCN’s general manager) explains that MCN allows academic and industry clients to retain all IP generated. This is specifically designed to help researchers to traverse the so-called valley of death — a challenging period in a product’s development life cycle in which things such as IP ownership, scalability and access to capital are put to the test. Such arrangements, at least in the case of the MCN, have helped to create a vibrant environment for university spin-offs, start-ups and established companies. Each year the facility hosts more than ten full-time industry residents, who view the MCN as an extension of their own laboratories.

Capital investment and risk

Medtech markets for nanoneedle technologies are all young and still open to disruptive innovations that will improve efficiency and/or reduce costs; yet the value of these markets and their projected growth is already significant (for example, Nanomosaic’s first series was oversubscribed at more than US$40.75 million in early 2022²¹) — a promise of long-term sustainability if the technology can be established. The right type of fundraising approach is vital in achieving this.

Fundraising is usually a multi-stage process, especially for nanotech spin-offs. Despite strong financial support by universities to initially create the technology, with sometimes co-investment from governments or philanthropists, this model does not usually extend to the next stage of riskier capital investment. Unlike IT spin-offs, with their often rapid and relatively inexpensive paths to market, nanotech spin-offs have a much higher bar: when it comes to nanoneedles, some investors may be wary of medtech applications, which are subject to regulatory issues around patient safety concerns. This makes it much more intricate to calculate risk, revenue, time to market, and time to reach a liquidity event such as a merger, acquisition or initial public offering. So it is typically more challenging to secure substantial funding or give investors confidence in offering tenfold returns on investment over five years, or fivefold returns over three years — the standard expectations of venture capitalists (VCs)²².

Basilard Biotech, for example, was born of the quest to minimize risk by identifying the most compelling and viable technology at UC Riverside — a task the university assigned to Lee as its CEO-in-residence. He gauged the readiness of more than 50 technologies, narrowing the field to those most likely to attain market traction, raise capital and attract customer partnerships. Essentially, he says, the challenge was “to find the one technology; and now we have Basilard”. The innovation pipeline at UC Riverside is closely tracked by the California-based Vertical Venture Partners, which manages the University’s Highlander Venture Fund that was set up in 2017. The company made an initial US$500,000 investment in Basilard that pushed their nanoneedle technology to early-stage milestones, and then to the translational stage.

The due diligence of evaluating Cytosurge’s IP portfolio as a whole gave the company the freedom to operate and secure capital investment in the millions from Swiss angel investors (who put their private money into higher-risk early-stage companies. “These people, in this case friends and family, made our first five years possible,” says Behr. Continued streamlined investments have allowed Cytosurge to grow and diversify technology, such as a new gene editing service (FluidFM CellEDIT), and build the business to the point where it has spawned another start-up.

Aligned Bio followed a more established path, raising Swedish seed and innovation funds in September 2019 to gain 80 provisional or full patents. With IP secured, they engaged immediately with customers and attracted staff with the talent to innovate. Through technology demonstrations and customer interactions, they managed to raise about five times the company’s valuation in December 2020. The company has also been successful at securing grants as a part of its funding strategy, such as US$2.4 million from the European Innovation Council in 2021.

Fisher thinks it is possible to invest in entrepreneurs who lack experience, but these individuals must demonstrate a good sense of what the customer needs and how to reflect these needs in technology development. There are diverse sources and routes for raising investment (for example, angel investors and VCs), but entrepreneurs should ultimately focus on finding the right type of investors who share their vision and believe in their technology.

Solid business strategy

A solid business plan and clear path to profitability is often the first thing that prospective investors will look at. Basilard has developed its business plan by building credibility and traction in the investment community, and are nearing the close of their seed-capital round from a syndicate of early-stage VC and angel groups. “Once the first VC company was convinced, there was a level of validation that reduced risk and helped encourage others to invest.” Lee highlights the importance of identifying and determining a strong beachhead strategy. Basilard has generated interest from a broad range of biotech and big pharma companies — specifically in the CAR T-cell market and more broadly in the ex vivo cell- and gene-therapy markets. It has been critical for Basilard to measure and understand the performance metrics of its product, and to adapt it to the specific needs of cell- and gene-therapy companies. For some companies, scalability (involving the number of cells and the throughput) is the biggest hurdle; for others, the focus is on transfection performance; and for others, the goal is to deliver molecular constructs of specific size or to look at combining all of these metrics.

Cytosurge sold its unique atomic force microscopy hollow probe right from the early stages. Behr says Cytosurge had a profitable margin from the start, allowing them to operate at a small scale for several years. Then Cytosurge accessed Swiss National Science Foundation funding, which enabled ETH Zürich and the company to share PhD students. This was important in developing FluidFM at reasonable cost. Cytosurge’s initial idea was to manufacture only hollow FluidFM nanoprobes, but at a certain stage they made the decision to design their own atomic force microscopy instruments, decoupling from external tool manufacture to exercise closer control over the process. Cytosurge technology was so versatile and disruptive that it gave birth to another spin-off, Exaddon, which now specializes in three-dimensional electrochemical metal microprinting.

A team with the right complementary skill sets

Smith compares a good company to a successful sport team: “Winning championships needs teamwork combining specific skill sets.” At Aligned Bio, all players — scientists, technicians and administrators — learn the fundamental concepts of business. His view is that “even though we’re a technology/science-based company, we’re first and foremost a business”. For Smith, the challenge in recruiting the best people varies by geographical and jurisdictional location. Convincing the talent to join a European Union start-up often requires a bit more creativity than it does, say, in Silicon Valley. What needs to be emphasized is the strength of a company’s board, the advisors, and the depth of the investors’ commitment and pockets — all in addition to the demonstrated capability of the technology.