Three-quarters of the innovations developed by European universities are going to waste rather than being spun out as startups, says Earlybird, the German VC.
Earlybird, best known for its early-stage investments in UiPath and N26, is hoping to help increase the spinout rate — and find a few winners for its portfolio — with the launch of a new €75m fund.
The team will work with 45 professors at European universities such as RWTH Aachen University, Karlsruhe Institute of Technology and Imperial College London. The fund will help to source and support companies coming out of research institutions with the goal of investing in 40 companies.
Many founders and investors say that Europe is not doing a good enough job commercialising its technical and research talent. Europe is home to four of the top 10 global universities for computer science and the research community is nearly as prolific as the US. However, out of 116 VC-backed European unicorns, only 4 are university spin-outs.
“In the US, people take the opportunity to found and spin out their great ideas. Here, we're still at the point where people after their engineering studies go rather to BMW, Bosch or one of the bigger players,” says Stephan Rauscher, one of the founders of the UNI-X fund.
“It's a matter of mindset and it's a matter of also finding unicorns at the very early stages.”
Philipp Semmer, Earlybird UNI-X partner and seed investor, says that the team wants to also expand its network of professors and universities to other countries in the future including France, Switzerland and Austria. “It's got to be a really pan-European network — that's our goal.”
Many of the LPs in the fund are corporate, making the investments a potential pipeline of technology for them, say the fund’s founders.
Universities working with VCs
Earlybird says that European universities develop between 45k and 60k innovations and technologies every year, only half of which are made into a company. Only half of these companies raise financing, resulting in a 75% loss of potential to commercialise innovation.
A lot of criticism has been aimed at universities themselves for not giving the right support to founders — for example by taking too large a share of the equity in the spinout company, making it appealing for future VC investors. Oxford University recently lowered the amount of equity the university takes to 20%, but many VCs still believe these levels are too high.
However, the UNI-X team says that the aim isn’t to compete with universities or replace tech transfer offices.
“We have to join forces because universities need to prep the startups in a way that they have access to the IP [intellectual property] and we are there to provide the funding. If we both work together and nobody's too greedy, we’re going to have a fair deal,” says Semmer.