Spin out
From Wikipedia, the free encyclopedia
A Spin out is a term from business that refers to when a division of a company or becomes an independent business. The spin out company usually takes intellectual property, technology, or existing products from the parent organization and transforms them into new products or services. Many times the management team of the new company are from the same parent organization. Often, a spin out offers the opportunity to individuals to be unbound by the parent company's past and take the ideas that may have been languishing in an old environment and help them grow in a new environment.
In most cases, the parent company or organization offers support doing one or more of the following:
- investing equity in the new firm,
- being the first customer of the spin out (helps to create cash flow),
- providing incubation space (desk, chairs, phones, internet access, etc.), and / or
- providing services such as legal, finance, technology, etc.
All the support from the parent company are provided with the explicit purpose of helping the spin out grow.
The U.S. Securities and Exchange Commission definition of spin out is more precise. Spin outs are when the equity owners of the parent company receive equity stakes in the new spun out company. For example, when Agilent Technologies spun out of Hewlett-Packard in 1999, the stock holders of HP received stock in Agilent.
A company "spun out" in the common man view but not considered a spin out in the SEC's eyes would be considered by the SEC as a technology transfer or licencing of the technology to the new company.
A second definition of a spin out is a firm formed when an employee or group of employees leaves an existing entity to form an independent start-up firm. The parent entity can be a firm, a university, or another organization. Spin outs typically operate at arms length from their parent organizations and have independent sources of financing, products, services, customers, and so on. In some cases, the spin out may license technology from the parent or supply the parent with products or services.
A spin out is distinct from a spin off, which is created when a firm creates a new firm out of one of its existing divisions, subsidiaries, or subunits. In the case of a spin off, the new firm is created as a deliberate act of the parent, and the owners of the parent are the original owners of the new firm (although these owners can normally sell their ownership stakes at market rates soon after the new entity is formed, especially if the spin-off is publicly traded). However, much of the academic and popular literature in business, economics, finance, and management uses the term “spin off” when “spin out” is the correct description of the entity being described.
Spin outs are important sources of technological diffusion in high technology industries.
Franco and Filson (1999), “Spin-outs: Knowledge Diffusion through Employee Mobility” Federal Reserve Bank of Minneapolis working paper, forthcoming in RAND Journal of Economics, examines spin outs as a source of technological diffusion in rapidly-evolving high technology industries. Their analysis suggests that, other things equal, research-oriented employees accept lower wages at firms with better technological know-how in exchange for the implicit opportunity to learn about their employer’s technology and capabilities. Employees who successfully learn can leave their employer and start their own firms using some of their former employer’s know-how. As this opportunity has high future value, employees are willing to accept lower wages today in return for the chance to “spin out” tomorrow.
Franco and Filson’s analysis suggests that spin outs play critical roles in the evolution of the industry. More technologically advanced firms are more likely to survive and more likely to generate spin outs, and spin outs that emerge from more advanced firms are more likely to survive, as long as the spin outs succeed in learning their parent’s know-how. The fact that spin outs are important in the evolution of high technology industries during the initial take-off stage challenges the previous conventional wisdom that progress and entry early on in the evolution of an industry is driven by forces outside the industry itself.
[edit] Spin out example
Some examples of spin outs in SEC eyes:
- Guidant was spun out of Eli Lilly and Company in 1994, formed from Lilly's Medical Devices and Diagnostics Division.
- Agilent Technologies spun out of Hewlett-Packard in 1999, formed from HP's former test-and-measurement equipment division.
Example of companies created by technology transfer or licencing, a "spin out" in the common man point of view:
- Oxford NanoLabs and Oxford RF Sensors, were set up to commercialise technology based on University of Oxford research, and have been "spun out" by Isis Innovation, the technology transfer arm of the University.
Examples following the second definition of spin out:
- Shugart and Associates was a spin out of IBM.
- Fairchild Semiconductor was a spin out of Shockley Transistor. (These founders were the "Traitorous Eight." Intel was a spin out of Fairchild, as were a large number of firms in the semiconductor industry.)
