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Spin out
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Spin out refers to a type of spin off where a company "splits off" sections of itself as a separate business.

The common definition of spin out is when a division of a company or organization becomes an independent business. The "spin out" company takes assets, intellectual property, technology, and/or existing products from the parent organization.

Many times the management team of the new company are from the same parent organization. Often, a spin-out offers the opportunity for a division to be backed by the company but not be affected by the parent company's image or history, giving potential to grow existing ideas that had 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.) or
providing services such as legal, finance, technology, etc.
All the support from the parent company is provided with the explicit purpose of helping the spin-out grow.

Contents [hide]
1 U.S. SEC definition
2 Other definitions
3 Spin-out example
4 Notes
5 See also
6 External links



[edit] U.S. SEC definition
The United States Securities and Exchange Commission definition of "spin out" is more precise. Spin-outs occur when the equity owners of the parent company receive equity stakes in the newly spun out company. For example, when Agilent Technologies was spun out of Hewlett-Packard in 1999, the stock holders of HP received stock in Agilent.

A company "spun out" in the common view but not considered a spin-out in the SEC's eyes would be considered by the SEC as a technology transfer or licensing of the technology to the new company.


[edit] Other definitions
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 [1] examine 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 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.)

[edit] Notes
^ (1999), “Spin-outs: Knowledge Diffusion through Employee Mobility” Federal Reserve Bank of Minneapolis working paper, forthcoming in RAND Journal of Economics

[edit] See also
Entrepreneurship
Stub (stock)

[edit] External links
Isis Innovation at University of Oxford
Calendar of listed spinoffs worldwide
Library House: UK University Spin-out Companies[1]
PhD theses on corporate spin-offs
Retrieved from "http://en.wikipedia.org/wiki/Spin_out"