IDEA

1. IDEA SPIN-OFF CAPITAL Fraunhofer Venture 29.02.2012, STOA-Workshop: „Knowledge Transfer form Public Research Organisations“ Sebastian Surma

2. Applied research by the Fraunhofer-Societey • More than 80 research institutions, including 60 Fraunhofer institutes • More than 18,000 employees, the majority educated in the natural sciences or engineering • An annual research volume of €1.8 billion, of which €1.5 billion is generated through contract research. • 70 percent of this research revenue derives from contracts with industry and from publicly financed research projects. • 30 percent is contributed by the German federal government and the Länder governments in the form of institutional financing. • International collaboration through representative offices in Europe, the US, Asia and the Middle East

3. Financial structure of the Fraunhofer-Society Annual research volume in Million €.

4. UniversityBasic Research Teamwork IndustryR&D for Products and Services Fraunhofer Applied Research Fraunhofer innovation clusters Accelerating innovation by creating regional focuses: • Reinforcing strengths • Creating beacons of research Research Area – Region – Fraunhofer

5. Fraunhofer Venture • Spin-offs as the 3rdtechnology transfer to the market. • Profits from spin-offs (research contracts, licensing fees, dividends and exits). • Cooperative networks between Fraunhofer and spin-offs. • Promotion of entrepreneurial thinking within Fraunhofer. contract research for industry Spin-off IPR management

6. Positive - practical approaches & lessons learned • Investor network • Internal funding • Fraunhofer infrastructure • Customer contact • Brand name • Lean operations • Employment options

7. Positive - practical approaches & lessons learned • Investor network • Internal funding • Fraunhofer infrastructure • Customer contact • Brand name • Lean operations • Employment options >>> We maintain a very tight network to VC's, Business Angels and state run investment offices (Bayernkapital, TGFS, HTGF). <<<

8. Positive - practical approaches & lessons learned • Investor network • Internal funding • Fraunhofer infrastructure • Customer contact • Brand name • Lean operations • Employment options >>> Our internal funding and supporting programs helps scientists to become founders and good managers (FFE & FFM – Fraunhofer Funds Entrepreneurship, Fraunhofer Funds Management). <<<

9. Positive - practical approaches & lessons learned • Investor network • Internal funding • Fraunhofer infrastructure • Customer contact • Brand name • Lean operations • Employment options >>> We make sure to give scientists the option to prepare their ventures as good as possible within the research institute, before going out on the market and starting up. <<<

10. Positive - practical approaches & lessons learned • Investor network • Internal funding • Fraunhofer infrastructure • Customer contact • Brand name • Lean operations • Employment options >>> We motivate our scientists to develop their to-be-commercialized product/service in close cooperation with prospective customers. By this way, they keep themselves clear form the phenomenon of "analysis paralysis" and at the same time build up relationships to a prized client base. <<<

11. Positive - practical approaches & lessons learned • Investor network • Internal funding • Fraunhofer infrastructure • Customer contact • Brand name • Lean operations • Employment options >>> Our "Fraunhofer" brand is a very precious asset, not just in the scientific world. Every spin-off that has its roots in one of our Fraunhofer institutes massively gains credibility by being connected to our brand name. <<<

12. Positive - practical approaches & lessons learned • Investor network • Internal funding • Fraunhofer infrastructure • Customer contact • Brand name • Lean operations • Employment options >>> We keep a close connection to our spin off's. They perceive us as their research backbone. This way they don't need to build up their own research division and can keep an uncompromised market focus. <<<

13. Positive - practical approaches & lessons learned • Investor network • Internal funding • Fraunhofer infrastructure • Customer contact • Brand name • Lean operations • Employment options >>> We give our scientists the feeling that there still is a security string that keeps them from falling if disaster strikes (part time work options, "come back" options, …). <<<

14. Negative – what we learned that does not work • Incentive system • Junior managers • Founders team • Decision process • Investment fund • Portfolio size

15. Negative – what we learned that does not work • Incentive system • Junior managers • Founders team • Decision process • Investment fund • Portfolio size >>> It is of decisive importance to make sure that the research institute we want to spin a company out of understands what it gains by a new venture. It shouldn't perceive a spin-off just as a loss of good talent and research revenue. <<<

16. Negative – what we learned that does not work • Incentive system • Junior managers • Founders team • Decision process • Investment fund • Portfolio size >>> We tried to enhance (founder) teams with junior management experts, who were supposed to focus on just a single spin-off project and eventually become part of that team. <<<

17. Negative – what we learned that does not work • Incentive system • Junior managers • Founders team • Decision process • Investment fund • Portfolio size >>> If we do not have the right team (quality-wise) at hand we should not start a company. Likewise, we should not start a company with a team that is to big then necessary. <<<

18. Negative – what we learned that does not work • Incentive system • Junior managers • Founders team • Decision process • Investment fund • Portfolio size >>> The longer it takes us to come to a decision whether we want to support a given spin-off project (and become shareholder) or not , the more likely it will be that the team and their (prospective) investors will start thinking about doing it without Fraunhofer. <<<

19. Negative – what we learned that does not work • Incentive system • Junior managers • Founders team • Decision process • Investment fund • Portfolio size >>> Sometimes we miss the option to use our own investment fund in order to act quickly and independently. <<<

20. Negative – what we learned that does not work • Incentive system • Junior managers • Founders team • Decision process • Investment fund • Portfolio size >>> To manage the rather big portfolio of companies that Fraunhofer holds shares of (~90) consumes a lot of our time. Hence, we learned that it is important to put more emphasis on our exit strategies. <<<

21. 23,2 19,3 18,9 14,9 14,4 Annual earnings from spin-offs Earnings from spin-offs mill. Euro 2006 - 2010 exits leasing licencing fees contract research Source: Fraunhofer Venture, 2011

22. Fraunhofer Spin-offs

23. Fraunhofer Venture Contact Sebastian Surma Spin-offs and Investments Fraunhofer Venture Hansastrasse 27c D - 80686 Munich Tel. +49 89 1205 - 4519 Fax +49 89 1205 - 77 - 4519 http://www.fraunhoferventure.de