A long-awaited review into the UK's university spinout ecosystem has been hailed as an important step forward for commercialising research-based innovation in the world’s sixth largest economy.
The report was tasked with overcoming what some in the investor community have labelled “decades of bad practice” when academics create companies from their research.
Among the most contentious issues have been the high equity stakes taken by universities, a lack of proof of concept funding holding back science-heavy company ideas and lengthy timelines for actually spinning out.
Here’s what founders need to know.
What are the report’s recommendations?
The report’s authors — Andrew Williamson, managing partner at Cambridge Innovation Capital, and Irene Tracey, the vice chancellor of Oxford University — recommend:
- That the equity terms laid out by the University Spin-out Investment Terms (USIT) Guide published by TenU — a collaboration between 10 leading tech transfer offices — should be used as a starting point for deals between unis and spinouts. That includes 10-25% for life science spinouts, with exact terms varying depending on the wider commercial deal (including things like royalties).
- Software spinouts — which typically take less university support and have more straightforward IP — should demand lower deal terms, with universities taking 10% or less equity. Hardware and engineering spinouts should sit somewhere in between these companies and life sciences spinouts.
- When spinning out a company, universities should clearly state expectations on the time to complete the stages of spinning out, from both the institution and the founders.
- The Higher Education Innovation Fund (HEIF) — public money for academic institutions — should be used to reduce the need for universities to cover their tech transfer office (TTO) costs from spinouts’ income.
- The UK government should also increase funding for proof of concept funds, which help academics refine their ideas prior to actually spinning out. Williamson tells Sifted that when they were speaking to university CEOs and vice chancellors up and down the country, every single one said that this was a key issue.
The report also recommends that UK Research and Innovation — a public body that funnels research and innovation funding to academics — should ensure all PhD students that it funds can attend entrepreneurship training and have the opportunity to intern in local spinouts, VC firms or tech transfer offices. That ties into enabling "porosity of talent" — a professor of biology going to work at a biotech startup, for example, and then for a big pharma company, before returning to academia. "That rich experience set makes you better at all of those jobs," says Williamson.
There are also calls to create a national register of spinouts, that would see universities publish more information on their typical deal terms.
What are the next steps?
The UK chancellor Jeremy Hunt has accepted all of the recommendations and is set to lay out his response as part of the Autumn Statement tomorrow.
How’s it been received?
On the whole, the report has been well received by the investor community.
“Founders will own more of their spinouts and will be free to focus on building breakthrough companies, rather than negotiating with TTOs,” says Nathan Benaich, the founder of Air Street Capital. “The only way to commercialise the UK’s world-leading research is to break down the doors of the ivory tower. Today’s review is a significant victory for founders and the UK’s science and tech ecosystem.”
Additions to translational funding “will probably create at least 100 new spinouts”, says Moray Wright, the CEO of Parkwalk Advisors, an active spinout backer. “I think the equity split is a very good compromise, it’s more aligned with the US to allow us to compete for top talent, but the universities still have the opportunity to generate returns to create a virtuous circle of more funding, more research, more spinouts, more growth.”
Douglas Hansen-Luke, the founder and executive chairman of Future Planet Capital, another active spinout backer, says that plans to unlock more scale-up capital — recommended in the report — will also be a boon for the spinout sector. He adds that the chancellor’s plans to increase the volume of talented science and tech-focused VCs, also set to be part of his Autumn Statement, “are likely to have a bigger impact on this sector than guidelines on university equity stakes.”
