The lesser known spin-off strategy is when the original parent company breaks off to form a new company. The primary reason for this, is that companies may want to market a new product under a different name, or divert attention to R&D projects that languish due to not fitting into current strategies of the parent. Packaging the project as a standalone entity creates a focus and may potentially grow the development of the technology. This option may be suitable for technology companies that have a pipeline of IP and products. A biotechnology company for example, may spin out parts of its biotech developmental pipeline into a separate company. At Inner Maven we can assist inventors to consider the pros and cons of spinning out your IP into a separate company.
- Forming a spin-off can highlight the value of a division that has been overlooked within the parent company. Breaking off into a new company will motivate previous managers to have a greater sense of responsibility in terms of performance and provides greater clarity. Alternatively a new, highly focused CEO might be recruited to drive the company and commercialisation of the IP.
- A spin-off allows the inventor (usually a company) to retain direction of the invention and allows them to retain the ability to develop and control know-how and future IP.
- The inventor may be interested in taking on more or a partial role in the commercialisation process rather than licensing out the technology.
- The technology in question may require further development; breaking out can accelerate the speed of commercialisation, compared to retaining it as part of a large development portfolio.
- Outside parties that may not have been interested in the activities of the parent company, but are interested in the technology of the spin-off, can be brought in as equity partners.
- The company could lose the synergistic benefits of having multiple business units working together and face increased risk due to lessened diversification.
- Financial risk: The spin-off may not perform as well as expected. By breaking off, the new company will sacrifice the security of having costs covered by the parent.
- High cost: Being an independent company means the spin-off company will incur additional corporate costs associated with certain service and internal management systems which have been previously provided by the parent company. These additional costs can be quite high.
- Reduction in the economies of scale including borrowing capacity, costs of employment and general operating expenses.