Philips and TNO and the art of the corporate spinoff

Spinning off from a parent company – transitioning from an internal innovation to an independent company – is a unique process that has produced some of the most exciting tech companies operating today. Think of Nearfield Instruments, Signify, Carbyon, NXP Semiconductors, and even ASML. But how exactly does this process work? Why do companies pursue spinning off, and what does it take for a spinoff to succeed? From their corporate perspective, Hans Boumans, Director of Technology Transfer at TNO, and Benno Tieke, Director of Portfolio Management at Philips, offered their insights, expertise, and experiences at a discussion at High Tech Campus’ AI Innovation Center.

For TNO, spinoffs are a key strategy for bringing innovations to the market. "We work together with companies to develop technology and then have it applied in reality," Boumans explained. "A spinoff is one way to do this, especially when significant financing is required to transform a technology into a commercial product. Venture capital often becomes necessary, and a startup structure is the best way to attract such investment."

Philips, however, takes a different approach. According to Tieke, the company’s priority is to develop innovations within its own business structure. "Spinoffs are not a primary goal for us. Our structured processes focus on creating businesses within Philips. However, in some cases, when an innovation doesn’t fit within our core business, we consider spinning it off rather than shelving it."

The process of creating a spinoff

At TNO, the process follows a structured framework:

1. Tech Transfer Program: Internal innovators or senior management can propose spinoffs.
2. Incubation Program: The first phase involves validating market potential, while the second focuses on building the company.
3. Investor Support: TNO connects spinoffs with external investors, with its advisory board - including venture capital fund managers from firms such as Lumo Labs and DeepTechXL - offering guidance.
4. Ongoing Support: TNO may retain a minority share in the spinoff to help guide its growth.

For Philips, the process is less standardized. "There is no ‘spinoff officer’ at Philips," Tieke noted. "I do this part-time and tailor the approach based on the opportunity. We rely on external partners like HighTechXL and the Brabant Development Agency (BOM) to help build new companies based on Philips technologies."

Challenges and success factors

Creating a spinoff comes with significant challenges. One major hurdle is securing funding. Philips, for instance, does not invest in spinoffs after they leave the company. "The moment a spinoff is created, Philips stops investing," Tieke explained. "That makes securing external funding the responsibility of the entrepreneurs."

TNO, on the other hand, may co-invest in early-stage spinoffs but emphasizes that the startup team must drive success. "Entrepreneurs are in the lead," Boumans said. "We provide financial and strategic connections, but they are responsible for making the business succeed."

Another key factor is structuring the company correctly to attract investors. "If a spinoff’s capital structure is too complex or the parent company holds too much equity, it becomes uninvestable," Tieke cautioned. "We’ve learned to structure deals so startups remain attractive to venture capitalists."

Success stories and lessons learned

Over the last seven years, TNO has created 45 spinoffs, including Carbyon, Nearfield Instruments, and PhononTech. Some, like Sonic Precision and Aikon Health, emerged from High Tech Campus programs designed to facilitate new startups. Philips, meanwhile, has had a more indirect but profound impact on the Eindhoven tech ecosystem. "Many of the Brainport region’s startups have Philips DNA in them," Tieke noted. "Whether through former employees or licensed technologies, Philips has played a role in numerous success stories."

Philips Family Tree © BOM

Yet, not all spinoffs succeed. "Some fail because their market assumptions were wrong, others due to poor team dynamics," Boumans admitted. "But failure isn’t necessarily a loss – it provides valuable learning experiences for future ventures."

A robust ecosystem is needed

Despite the different approaches TNO and Philips take, both agree on the importance of a robust ecosystem in enabling spinoffs to thrive. "Fifteen years ago, it was much harder to spin out a company," Tieke reflected. "Today, with more investors and support networks, the chances of success are significantly higher." Yet, Europe still lags behind the U.S. in scaling tech companies. "We need a better IPO climate in Europe to keep startups independent," Boumans argued. "Too often, promising companies are acquired by larger U.S. firms. Creating a strong European investment ecosystem is key to changing this."

Corporate spinoffs remain a vital mechanism for translating breakthrough innovations into successful businesses. While Philips and TNO approach the process differently, both recognize that fostering entrepreneurship through structured programs or organic processes ensures valuable technologies reach the market, creating an impact beyond their parent organizations.

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