The UK government is midway through a review of British universities' spinning out processes, and a new survey indicates that the review needs to come up trumps if it's to have any hope of fixing the problems plaguing research-based startups. (UK spinout founders can contribute to the review process here.)
Founders are dissatisfied with how universities treat spinouts, complaining that they nab too much equity and fill board seats with tech transfer staff who encumber progress. A new survey of 205 spinouts — businesses converted from academic research with the help of an educational institution — conducted by London-based VC Air Street Capital gives an impression of just why founders are peeved off.
Equity stakes
The survey suggests that UK universities take more than double the average equity in spinouts than EU-based universities, and four times more than US institutions. Jamie Macfarlane, founder of early-stage deeptech investor Creator Fund, recently told Sifted that British universities taking large equity stakes “are reducing [spinouts'] chances of success” because “investors aren't going to go into that company”.
That’s because the less an academic founding team owns of its business, the less motivated VCs typically believe they’ll be to grow the business. There’s also less of the pie available to bigger investors later down the line.
Board seats
The survey also shows that spinouts from UK universities are far more likely to have a representative from their university’s tech transfer office (TTO) on their board. Nathan Benaich, founder of Air Street Capital, says that compared with last year’s survey, the amount of spinouts with a TTO board director has increased from 37% to 41%.
“We’ve seen a worrying rise in TTOs imposing board directors and management to tie the hands of founders,” he tells Sifted. “Considering these conditions, it remains unsurprising that both investors and would-be founders often end up deploying their time, energy and money elsewhere.
“These new results demonstrate the urgency of bold action from government to overturn decades of bad practice from universities.”
Conclusions
The political attention on the issue is ratcheting up as the UK bets big on becoming a global leader in producing commercially successful deeptech companies. But for a country with some of the best universities in the world, this latest report is a reminder that those institutions leave a lot to be desired when it comes to turning world-class research into big, impactful businesses.
UK spinout founders can email spinoutreview@hmtreasury.gov.uk to give their feedback for the government's review.
