The Ecosystem: inside ETH Zurich’s spin-off factory

By the standards of most universities, ETH Zurich produces a lot of spin-off companies. In the past decade the total has ranged from 22 to 34 new ventures each year, with a record-breaking 43 new spin-offs created in 2023.

As for how the university does this, Frank Floessel, head of ETH Entrepreneurship, gives the credit to its researchers. “We cannot influence the number of spin-offs that come out of ETH that much,” he said. “It’s very much a grassroots movement. It comes from the PhDs, master’s students and professors who think that one of their technologies might be right for the market.”

Yet ETH Zurich is clearly doing something right for so many of its academics to choose entrepreneurship as an option, and to follow that choice through to founding a company. An important part of that success comes from normalising entrepreneurship as a career choice. “You are not the odd one out here if you have the idea of becoming an entrepreneur,” Floessel said. “You are at the centre of a whole ecosystem.”

The first step for students or researchers who think their research contains an idea with commercial potential is a conversation with Floessel’s team in ETH Entrepreneurship, which coordinates the university’s support for spin-offs and advises on external programmes. Then they are passed on to ETH Transfer to assess the intellectual property and the steps needed to protect and licence it.

If the commercial potential and patentability are both sound, the project is granted the ETH spin-off label. This unlocks a range of support programmes and is also a validation. “The label tells people that there is a certain substance in the company, and even if it doesn’t scale-up like crazy, at least it has a solid scientific basis,” Floessel said.

One significant benefit of securing the label is that the team can rent lab space at ETH and access equipment at a reduced rate for up to three years. This is seen as essential for companies which need to maintain links with their research roots during the early years.

Efforts are also made to unite the spin-offs created in any one year into a cohort, so that they learn from each other as they progress. Events held under the banner of Spin-off Vintage also bring in more experienced entrepreneurs. “These senior entrepreneurs are only allowed to share their experience, not to give advice, and we’ve found that is very helpful for the founders,” said Floessel.

Who will pay?

The central pillar of ETH’s support for spin-offs is the Pioneer Fellowship programme, which offers up to CHF150,000  (€153,000) over 18 months to get the idea out of the lab and on the way to commercialisation. Founders also get coaching, entrepreneurial training, support by a host professor, and access to ETH infrastructure.

“Deep tech is a product push: you start with a product and you are searching for a market, and that is the biggest obstacle these companies face,” Floessel said. “You might look at their proof of concept, and see that it is brilliant and seems to work, but the next question is who is going to pay for it?”

University scientists are not necessarily best-placed to answer that question, so the fellowships support them while they learn and adapt and work towards a producing a marketable prototype. “We don’t want them to stay in the lab, and still be there 18 months later,” Floessel said. “They should really start the transition to being an entrepreneur.”

There are two rounds of Pioneer Fellowships each year, and the competition is stiff. The round currently under way received around 20 applications, from which six candidates and two reserves have been selected. Rejection is not necessarily the end, however.

“Sometimes a project is rejected because it is already too advanced, for example it already has pilot projects and pilot customers, and it may be able to get funding another way,” Floessel said. “Or it may be too early, and we send it back to the lab and see what they come up with a year later.”

In general, the opportunities for finding early-stage funding are relatively good in Switzerland, for example through grants, through innovation agency Innosuisse, or through the philanthropic Venture Kick programme.

“There are many opportunities to get non-dilutive funding at the beginning, so that companies can make it through the first couple of years, before they have a product to sell,” Floessel says. “It’s later on, when it comes to scaling up, that money becomes a little bit scarce.”

Alumni entrepreneurs

Fostering an entrepreneurial mindset begins early, with the Entrepreneurial Backpack series bringing in alumni entrepreneurs to talk to students about spin-off creation as a career choice. And these students increasingly have ideas for companies, particularly involving artificial intelligence (AI).

“Creating an AI company has become much easier, with all the support systems and tools that are available,” Floessel said. “You don’t need to have a huge tech team any more to create something quite significant.”

One challenge this has produced for ETH is that student founders do not necessarily benefit from existing spin-off support programmes, particularly if their ideas are not based on research carried out at the university. This is an area where Floessel is hoping to provide more tailored support in future.

Another recent development is that ETH’s research centres are starting to build ventures in-house, rather than spinning them off in the traditional sense. “If you look at the AI Centre, for example, it is working with very experienced entrepreneurs and forming companies on the spot,” Floessel said. “It already has a very consistent approach to setting up companies and helping them to grow and venture out.”

This is an area that might also expand in future, if appropriate to the technology and the academic culture and critical mass. In the case of the AI Centre, more than 100 professors are associated with the endeavour, and both venture capital and corporate partners are already closely involved.

“AI is such a homogenous field, that it makes sense to have possible exit partners around at the start to help companies go in the right direction,” Floessel said.

The prize is a hothouse of company creation. “The beauty of a venture-building approach is that you have a much higher success rate than in a regular start-up process, and the entrepreneurial academics have a much better experience.”

Despite last year’s record for company creation, ETH is not resting on its laurels. “We are doing well in terms of spin-off companies, but we can still do much better,” Floessel said. “Our internal processes can be streamlined, so that companies get the easiest start possible, and we can do more to build communities around our spin-offs.”

One area where this is already happening is with investment. In March, ETH announced the creation of Investor Connect, a platform that offers investors a closer interaction with its spin-off founders and access to the university’s latest technological advances and research breakthroughs. This will go live in the second half of 2024.

“If we can bring the investor community closer to ETH, so that they give their input to how our spin-offs develop, then they will become more investable,” Floessel said. “At the same time, the venture community can begin to build relationships with founders, even before their companies are ready for investment.”

A similar effort is planned for ETH’s alumni entrepreneurs, to ensure that their experience feeds back into the ecosystem. This will include the creation of an entrepreneur-in-residence programme.

“Once entrepreneurs have an exit, we want them to consider coming back to ETH to talk about their successes and their failures, and in the best case, to become founders of a second spin-off and make the whole journey again,” Floessel said.

Elsewhere in the Ecosystem…

• The gap in venture capital (VC) market activity between the EU and the US is less pronounced in the green technology sector than in the market as a whole, according to a report from the European Investment Bank and European Patent Office. Across all sectors, the EU’s per capita VC investment is one eighth that in the US, but in greentech the EU is less than a third behind the US. This is attributed in part to the EU’s strong decarbonisation agenda. The greentech sector also remained relatively resilient in 2022 and 2023, when the tightening of financing conditions led to a swift readjustment in VC financing globally.
   
• Cancer immunotherapy specialist Flindr Therapeutics, a spin-out from the Netherlands Cancer Institute and the Oncode Institute, closed a €20 million series A to advance its lead programme into the clinic in the treatment of ovarian cancer and to take a second candidate into preclinical development. The funding round was led by V-Bio Ventures.
   
• Owlstone Medical has secured $6.5 million in funding from the Bill & Melinda Gates Foundation to further develop breath-based diagnostics for infectious disease. This consists of $5 million in equity investment and an initial $1.5 million in grant funding to develop breath-based diagnostics for tuberculosis and HIV with potential to be deployed in the developing world.