How more and more postgraduates are starting up hi-tech businesses

Going from a lab to starting a hi-tech company has never been easier with plenty of advice, support and funding up for grabs. Tristan Farrow speaks to entrepreneurs hoping to be the next Thomas Edison

When Gordon Brown leaves his job, he'd be flattered if you asked him whether he had noticed how that old gripe about British universities being hopeless at cashing in on their inventions is rarely heard any longer. Breathing entrepreneurial spirit into university science and technology departments has been another of Brown's burning ambitions. Britain's future prosperity, he believes, depends on innovation and on entrepreneurs who take it from the laboratory to the market. Starting a hi-tech company from a university lab has never been easier, but it remains a school of hard knocks for the unprepared.

Each year, postgraduate students and researchers in the UK take the plunge and try to emulate Thomas Edison, the world's first technology entrepreneur and inventor of the light bulb. Glen Whitwell, 28, set up a software company three years ago after a PhD in computer science at Nottingham University. "My academic research generated intellectual property that we are now exploiting through our company, Aptia Solutions, to develop software for industry," he says.

"We identified a gap in the market and had the technical expertise to meet that demand. But the hardest part was learning how companies work, writing a business plan and resolving intellectual property rights."

Fiona Reid, who runs the Science Enterprise Centre at Oxford Said Business School, warns that intellectual property is a tricky issue for small technology start-ups. It is important that the ownership of the idea is established clearly from the start, she says, "because investors want confirmation that you own your idea before committing money". Patent attorneys and business advisers can be expensive, but plenty of help is at hand on most university campuses, where enterprise centres, business incubators, and intellectual property experts looking after the university's inventions, have become part of the landscape.

And in a competitive environment, owning a good idea is everything to a small cash-strapped firm standing up to big companies with deeper pockets, says Jonathan Aikman, a corporate finance lawyer at the firm S.J.Berwin.

But, not everyone can be an entrepreneur, he says. "It takes tremendous tenacity". Aikman likes to paraphrase Edison: "Innovation is 1 per cent inspiration and 99 per cent perspiration."

Raising money to start a technology company is easier and less risky than in the bad old days when you were expected to put your own house on the line. But even now, fundraising is best approached cautiously.

"By the time you have raised enough money, your share in the company will be small and others will be telling you which way to go," says Nat Milton, 42, winner of the 2003 Entrepreneur's Challenge competition run by University College London (UCL). With the help of a government research grant, Milton set up NeuroDelta, a biotechnology firm specialising in diagnosing Alzheimer's disease, but has since raised more money from venture capital funds. It is difficult to persuade investors to back biotechnology ventures, he says, because research can take years of hard graft before there's any hope of seeing a profit, and needs millions of pounds invested in specialised laboratories.

The venture capital industry in the UK takes a short-term view and avoids risky high technology start-ups, says Reid. "They are focused on ready, high growth businesses and look for a return within five years if you're lucky, and sometimes as little as two."

Attitudes are entirely different in the US, according to Tim Meldrum, at the Entrepreneurship Centre at Imperial College. "We're missing a huge trick in the UK," he says. "We're playing catch-up with the US entrepreneurial culture, but we have an environment where people don't want to take a big risk. In the US, there is no stigma attached to losing seed finance."

Steve Currall is an American academic who helped launch 160 new technology start-up companies in the US, and now heads the Centre for Scientific Enterprise, run jointly by UCL and the London Business School.

He says that the key difference between the UK and the US is the perception of risk and failure. In the US you are celebrated for trying, and it is understood that virtually everyone will have some failures. "Here people are afraid that they'll be stigmatised if they fail," he says.

"A savvy investor would much rather invest in people who have stubbed their toe once or twice."

There are many different routes to finding funding for a start-up, says Reid. There are regional and government research grants, banks, venture capitalists, and business angels – rich individuals with a nose for business opportunities. But there are also lots of things you can do yourself – such as researching the market and talking to the competition – before seeking investors. Different kinds of investor have different strengths and weaknesses.

Amy Mokady, of Cambridge Business Angels, says that compared to venture capitalists, business angels get involved very early at the birth of the company and offer hands-on business expertise. Venture capital funding is set up over a strict timeline that includes an exit date by which returns are expected. Ramesh Kumar, 34, graduated with a Masters in engineering and management from Oxford University before helping to develop ActiveMedia in 2001, a mobile telephone ticketing company responsible for Orange Wednesday cinema tickets.

"We received an offer from a venture capital firm but felt that they wanted a large and controlling stake in the business," he says. "So we walked away and went our own way." Starting the company wasn't plain sailing, but today it has a staff of 48."

A large cash injection is unavoidable when starting a biotechnology company. But where the start-up costs are more modest, growing the company organically may be slower, but does have the advantage that you will not lose ownership, according to Reid.

For Martha Lane Fox, co-founder of the internet boom online travel company lastminute.com, coping with meteoric expansion was a permanent challenge: "We had six people at the end of the first year, and 200 by the end of the second", says Lane Fox. "Making the technology work seamlessly was incredibly hard. It was much more expensive than we thought and much more delayed too. It is very important to focus on the product, constantly testing it and ironing out the bugs in the system.

"And I can't stress enough how important it is to concentrate on improving the customers' experience of what you're offering."

Wai Lau, 27, founded a company that produces software that logs energy consumption in government buildings, with the aim of making them more energy efficient. Green technology companies are attracting increasing attention.

"I developed an innovative piece of technology during my Masters in physics at Manchester University in 2002, which I followed up with a Masters in enterprise at the Manchester Science and Enterprise Centre. This helped me crystallise a business plan.

Government buildings are required by law to keep an electronic logbook of their energy consumption, and our software does just that. We currently reinvest all revenues back into product development and as a result have yet to make a profit."

To kickstart the business, Wai Lau won an innovation award from the Manchester Science Park followed by two DTI grants and bank loans. Ever since, the business has depended on organic growth.

"I was lucky to have been surrounded by generous organisations and entrepreneurs in Manchester who recognised the potential of the idea and helped to get it off the ground. But I also heard people encourage young entrepreneurs to go forward with ideas that they would not back themselves. Listen to others but believe in your own judgment," he says.

Michael Ellis, 33, graduated this year with an MBA from Imperial College London and, together with two friends, launched a medical technology venture, Dynamic Therapeutics, aiming to develop a medical device to regulate the amount of oxygen delivered to patients breathing air from cylinders.

"Using a simple non-invasive measurement, our device allows patients to receive automatically the right dose of oxygen. As we're only just starting up, we don't yet generate any revenues, but we were able to raise money by entering business plan competitions. We were runners up in the Imperial College Entrepreneur's Challenge and won the Royal Academy of Engineers ERA Foundation Entrepreneurs Award.

"This gave us the opportunity to hone our business plan and have it scrutinised by panels of experts, as well as access to free advice from solicitors and accountants."

Ellis has raised about £30,000 in total through the competitions and is now spending the money developing a working commercial prototype that meets the regulations.

"Being at university has definite advantages in opening a lot of doors that your own name couldn't otherwise," he says. "I've also learnt that there is a big difference between potential customers expressing an interest and saying that your product or service is good or that there is a market for it, and their actually buying it."

The Independent