From doctoral research to spin-out: a UK tech start-up's VC-backed international journey

SOLVE Chemistry, advised by Justin Starling and Fern Tawera from our Corporate team, recently completed a spin-out and pre-seed fundraising. Founder and chief executive, Linden Schrecker, took time to discuss the company's aims and some of the challenges and lessons learned from the spin-out and fundraising round.

Can you give us a brief overview of SOLVE Chemistry?

SOLVE aims to make chemical processes more efficient – we care about efficiency – through the collection of empirical data on chemical reactions and processes and use this to build AI models, which we use to predict the outcomes of further chemical reactions.

I did my PhD, sponsored by BASF, the German chemical company, at Imperial College London, where I developed transient flow methodology and worked on academic and industrial examples while developing new data-rich methods. My team realised we could form a company focused on solvent replacement, a pressing need of the chemical industry. However, the chemical industry had less data than we thought – and we could provide a lot of help in broader areas. We extended what we were planning and made it more efficient using machine learning methods.

What advice would you give to similar teams considering commercialising their research?

From a university spin-out perspective, it's important to look at intellectual property (IP) considerations as soon as possible. Our IP situation was slightly complex, as it came from an industrially sponsored PhD, and BASF and Imperial jointly owned the IP. It's worth knowing where the IP sits so you facilitate this early on.

This doesn't mean, if your IP is owned by someone else, that it will be a problem, but it can take longer to spin out and fundraise – and you may lose small percentages of share capital or have small percentages owned by other companies.

In terms of spotting the right research to commercialise, speak to customers early on as well as people who understand the markets or, in our case, B2Bs. They will understand where you're going with your business – customers are important for validation but, in order to build a robust business plan, you need people that have had a go at this themselves. Seeking advice whenever you can is an important part of commercialisation.

What important skills do you think you need as a founder of a spin-out?

The most important skills are similar to an academic environment – communication. Although it's important the research is good and for people to trust that the technology works, it really comes down to communicating your ideas to different people. If you can't show and convince others that the research is good and worth using, then it has a lot less value. Different communication skills are important for this, such as being able to communicate ideas commercially – and especially in investment rounds.

What was your overall experience with the spin-out and fundraising?

Busy but that's good if things are moving in the right direction. There was not much frustration, as my investors, Creator Fund, were very good at pushing things and maintaining direction. We managed to align different teams to work in the right direction.

In the future, I'd like to understand the process better before starting. If you don't know precisely the next steps in the process, effort is more often lost on unproductive directions. To use an analogy, if you grow beans, you construct the bean pole stack before growing the beans, then, if the beans grow off alignment, they will still be in the direction you wanted. It's worth knowing what the pole stack should look like before starting to grow the beans.

It's good to know who to trust to outsource decisions to and not to micromanage those decisions. If someone you trust says "this is the best way to go", have trust in them – you know they have high integrity in the area and you don't need to do everything yourself.

What were the most challenging aspects of the fundraising?

Finding the right venture capitalists (VCs) to match and getting out to meet the right people. It feels like dating: they need to find the right thing in you, but you do in them too. It's the same with investors and co-founders. Also, make sure you have the energy to go to put yourself out there. London is a good place for this.

How did you end up finding your investors?

During my PhD, we started thinking about commercialisation about a year and a half before SOLVE was incorporated. We spoke to Chemovator, a 100% subsidiary and the business incubator / early-stage investor of BASF, one of our investors in Germany, and went to a "Startup Bootcamp" with them. I participated in the Imperial Enterprise Techcelerate programme. Both experiences were useful in developing how to think and talk commercially and learning what VCs are likely to ask. I went to VC "fireside chats" and networking drinks before I came across Creator Fund at an event of theirs at Imperial. I spoke to a lot of other VCs and had multiple calls. Even when I thought a meeting went well, I’d use the adrenaline to plan for a negative outcome, I immediately emailed to set up another meeting with different VCs.

How do you make yourself stand out?

Develop contacts at VCs and be excited by your own ideas. Be open to changing your mind about what's important: you may know best about your technology but the VC knows about the business and the investment side. If changes were needed to make a more investable and commercial idea, my attitude was that we should be doing those things.

How did you prepare for your fundraising and what would you do differently?

What you show to investors needs to be investor facing. For example, the cash flow and financial models I used were – because of the pace of the different stages of the investment – not designed for investors but for me to understand what I was doing. Consequently, they were more conservative than people would often show to investors and less friendly investors would have said these needed to be more optimistic. For me, this approach came from my academic background, which always needs proof, as well as attendance at the OC Ventures Live event last year, where the investor speakers highlighted that they often run their own more conservative cash flows. However, this conservative approach has made due diligence easier, because any holes that could be picked had been by me!

What aspects of your business plan attracted the most interest or scepticism?

They wanted to know whether we can really do what we say we are going to do, so the tech idea attracted initial scepticism from both investors and customers due to its ambition. But it's a matter of framing a problem: you have to explain that it isn't impossible, it’s just a matter of efficiency for commercial viability. The VC funded model is about reducing uncertainty and increasing expected value at each stage.

Did you encounter any unexpected legal or regulatory challenges during fundraising?

On the legal side, we made sure we knew where the IP was, who owned it and how to "get it out", including drawing up contracts in the right manner for different people. Generally, all parties were aligned and were able to move quickly. That doesn't mean there were no problems, but they were easier to deal with as there was alignment on general business goals. Decisions were made quickly to solve those problems.

How did you handle the due diligence process and were there any hurdles?

Due diligence is similar to academia. My PhD supervisor would say that you know the most about your specific topic and those asking questions aren't trying to pick holes but to understand. In the end, all parties want a healthy and successful company. You need to be able to answer questions clearly, which goes back to communicating ideas well.

What were your main conclusions from this fundraising round?

I'm glad people consider the technology that I think is good is good and that there's a general buzz not just from the customer-facing and academic worlds but also from the investor side.
One thing that surprised me was, once you have people that are on side and saying the idea is good, it becomes significantly easier to get others to say so too. The process can be stressful, but generally not too bad. It's all progress and a learning curve; coming out of the investment, I thought what have I learnt from that is a useful thing for next time.

How has this experience shaped your strategy for scaling your business?

We align with our stakeholders as soon as we can and make sure we're speaking early on to the right people – including customers – in the right ways. That means starting discussions before planning a project in an open and honest manner and to ensure what we think the customer need is is right.

How has the fundraising process affected your day-to-day operations?

We're building better and making sure we're planning accurately. We have our first employees and commercial contracts starting in August and, in advance, we are ensuring everything is in the best shape it can be, planning for different eventualities and spreading the word at conferences so that we're talking in advance to the right people. And I do more emails than I did before.

What are you most excited about in the short- to medium-term for SOLVE Chemistry?

I'm currently at BASF's site in Ludwigshafen and visiting other commercial sites. Even in economically uncertain times for chemical industries, there's money for innovation and people are excited to work out how they can do things more efficiently – and to achieve that are using our services. I'm proud of the core team we have hired and they're excited about developing the technology and making sure we can build what we want to build.

Linden Schrecker spoke with Fern Tawera, a member of the Corporate team at Osborne Clarke.