Spinning out the middleware
30 July 2002
Sitting on a gold mine of intellectual property rights, universities are keen to form spin-out companies to exploit their riches.
To find out what it is like to be ‘spun-out’ of a university, Cherry Lewis spoke to Professor Andrew Nix, technical director of ProVision, a wireless communications company spun out of Bristol University a year ago.
How did you first get involved in wireless communications?
I came to Bristol as an undergraduate student in 1986. During my final year I was assigned a personal project with Professor Joe McGeehan. Joe is a charismatic individual with an infectious passion for wireless communications! My project went well and I graduated in 1989. Although I had a few attempts to escape into industry, Joe managed to convince me that what I really wanted to do was study for a PhD. I decided to join his wireless research group and haven’t looked back.
So was wireless communications something that was beginning to take off then?
In 1989 when I started my PhD, it was clear that mobile phones were going to go somewhere. When I finished my PhD I still expected to go into industry, but a teaching post became available. I can remember Joe’s words: “You’ll own the intellectual property rights and when you come up with a good idea you could make a lot of money”. With the industry booming and my head full of ideas, I joined the lecturing staff in 1992. Now, ten years later, I believe we have the best Communications Centre in Europe. We have more than 50 full-time postgraduate students.
So at what point did you think about forming your own company?
Seriously, about five years ago. It all started because we were being asked by a lot of companies to do contract Research and Development (R&D). Most of the innovative research doesn’t actually happen in companies at all; they buy it in from universities and then make a great deal of money from it.
But it’s not easy doing company R&D under the constraints of a university. I can’t take on PhD students and get them to do development, because they can only do original research. It was clear we were world-leading with the ‘R’ but really struggling with the ‘D’. Another problem was that many of my best post-docs were going into industry. It was very frustrating.
We felt we were missing a trick. We were doing research that we couldn’t develop and producing high quality people we couldn’t keep. So the obvious thing was to form a company in partnership with the University. But five years ago there weren’t many examples of ‘spin outs’ (companies formed to develop research done at university) at Bristol.
So how did you go about it?
I had been talking regularly with Joe McGeehan about spin-outs but things took a big step forward when Professor David Bull joined us from Cardiff University and brought with him his image and video group. Dave, Joe and I got on very well. We had similar views and shared similar visions. Dave also had a track record of working with mainstream companies in the video side.
So what was the outcome of this meeting of minds?
By 1997 it became obvious that the future lay in the transmission of digital data which could represent any form of multimedia. It became irrelevant what you were trying to send or receive, but the more you want to send, the more wireless capacity you needed in the network. For example, audio typically requires around 30,000 binary bits (30 kbits) of information every second to be received in your PC or mobile phone. However, if you want to see TV quality video you need to receive between 5 and 10 million binary bits of information per second. So our challenge was to design reliable products that could support high bit rates to improve image quality, but which are cheap and don’t require too much battery power. The problem is that higher bit rates need more radio bandwidth and this is severely limited.
For example, only 5 MHz of spectrum is available to most of the UK’s third generation mobile phone operators. This translates into a capacity of perhaps 50-60 phone calls at a time for each mobile phone base station around the country. However, if I want to transmit a high quality video sequence I’ll use up most of this spectrum, which means there isn’t any left for anyone else! There’s a finite amount of bandwidth out there which is why we’re also looking to get the bit rates down whilst maintaining quality and reliability.
So how do you do that?
What Dave does is compress the image from the camera into a very, very small bit stream using innovative algorithms which are ahead of the game. Or, for the same bit stream, he gets a higher quality image – less jerks, less corruption. This method of packaging up the data is called ‘error resilient video encoding’ and most of the industry is way behind on it.
But people don’t care about the ‘techy’ end of the link. All they want to know is what services it can provide. So basically we have to have something that is innovative and ahead of all the big companies.
And what do you have?
We have a range of technologies, but a good example is the ‘home gateway’. This could take the form of a set top box in your loft that provides all the televisions and computers in your home with a broadband wireless link over your whole house. You won’t have to see the set top box and all those miles of cable. You will just have a nice plasma screen on a wall displaying whatever you want, wherever you want it. It will be the same in your office and you’ll be able to move seamlessly from one to the other. What we are developing is the wireless modems, the video software and the ‘middleware’ – the technology that sits between the modem and the user applications and makes them all work.
So what stage are you at now?
About two-and-a-half years ago, Dave and I started talking to the University’s Intellectual Property (IP) department, as it was then. Luckily, about six months later the University’s Research & Enterprise Development (RED) division was formed and the amount of support and guidance shot up. We suddenly had people who knew about business.
We could have licensed our ideas then and made a reasonable amount of money, but RED taught us that wealth generation is created in the industrialisation phase. So the University saw the benefits of hanging on to the IP further down the value chain, by spinning out the IP into a company that was part-owned by the University. So we formed ProVision.
RED then encouraged us to apply to the SULIS seed corn fund. They will invest up to £250,000 for early-stage commercialisation of research. This type of funding enables you to demonstrate your ideas and produce a well-developed business plan. In this position you don’t have to give the venture capitalists so much equity as they’ll be taking less risk.
We received the first tranche of seed corn funding about nine months ago and are about to take down the second tranche. This has allowed us to develop prototypes for some of the research that has been done in the university over the last five or six years.
So what’s the next step?
We are expecting to raise our first venture capital over the next six months and are busy fine-tuning the business plan.
This isn’t exactly the best time to be starting out on this type of technology venture, is it?
What really counts is not so much the state of the market when you enter, but what it’s doing when you want to exit – when we want to float the company. We are hoping that we can rise on the up-turn and exit before the next crash. The issue is how much equity we shall have to give up to get the money we need.
To be honest, the percentage of the equity you own is actually quite irrelevant. Ten percent of nothing is nothing. If the venture capital company adds more to ProVision’s value than the factor by which it dilutes your shares, then you do the deal. If not, you don’t. RED has taught us not to be greedy and to realise you need the expertise of a dedicated team.
So how many of your previous post-docs have you taken into the company?
In addition to Dave and myself, who are still employed by the University, we have seven full-time people now and five of those did post-docs in this University. We still can’t match the salaries that can be found in the industry, but we offer much more interesting work. We also give our employees share options. So if this dream works, they could be worth a lot of money.
And that’s where ProVision is at the moment. We have taken research from the University, significantly added to the technology and started to develop prototypes. By the end of the summer you’ll be able to see high quality digital video being sent 20 metres or so across the house to the TV set on the other side. This will showcase the business plan and give a physical embodiment to the ideas we’ve been talking about. Then all we have to do is sell them!