What is a Tech Spinout?

A tech spinout is where an existing organisation forms an independent business by transferring technology, assets, distribution or people to the new business; the new business is focused on technology as its primary revenue source or competitive advantage.

There are a few key components that define a tech spinout that are worth explaining further. These are:

An existing organisation
A new, independent business
Transfer
Focus on technology

Key Components of a Tech Spinout

1. An Existing Organisation

In a tech spinout, there needs to be one or more organisations to spinout from. The word organisation is used over business or corporate because spinouts come from universities and research institutions as well.

2. A New, Independent Business

There needs to be a new business formed in a tech spinout. The new business needs to exist in a separate legal entity to the parent.

The parent may have shares in the new entity or other rights (such as license fees or royalties).

Independence means a legal structure that provides the management of the new business with the freedom to operate outside the control of the parent(s).

3. Transfer

A tech spinout needs a transfer of value to take place from the parent organisation(s) to the new business. Examples of what might be transferred are intellectual property, assets, technology, distribution, people, customers or whole business units. It could also be intangibles such as brand and insights.

4. Focus on Technology

A tech spinout is focused primarily on technology as its primary revenue source or competitive advantage.

This means the spinout is likely doing one of the following:

Developing software or hardware that it will sell. For example, a company that sells software for other businesses to use.
Using technology to operate a business in a substantially different way to how that same type of business may have operated in the past. For example, a taxi company that uses the latest advancements in technology to operate better than traditional taxi companies.
Using technology as the primary means of distribution – reaching customers. For example, a business that uses leading-edge techniques in social media and search engine optimisation to reach customers.

Forms Tech Spinouts Can Take

In order to get more of a sense of what a tech spinout is, it helps to look at the forms they can take. Here is a non-comprehensive list of examples of forms a tech spinout can take:

Form	Examples
Mature existing business A parent company spins out an existing business unit or subsidiary that already has substantial revenue, cash flow or assets.	– Agilent from HP – Expedia from Microsoft
New corporate venture A parent company spins out a new business pursuing an opportunity that is different to its core business.	– Arturo from American Family Insurance – Mx51 from Westpac
University spinout A university develops intellectual property that it wants to commercialise, and it spins this out into a new business.	– Google from Stanford – Kepler Energy from Oxford University – Radiata from CSIRO

There are other forms of tech spinouts, but the above table is just meant to help illustrate what tech spinouts look like.

Questions and Clarification

What’s the difference between a spinout and a subsidiary?
A spinout is or can be a subsidiary. However, not all subsidiaries are spinouts. A spinout must have independence from the parent organisation(s).
What’s the difference between a spinout and a spinoff?
These are just two different words describing the same concept.