The government-backed spinout review, which recommended universities take reduced stakes in startups created by their faculty and students, has been met with widespread approval from universities and investors.
Published on Tuesday, the review included a recommendation for universities to take a 10% to 25% stake in IP-intensive spinouts – such as life science firms – and no more than a 10% stake in less IP-intensive startups.
Matt Clifford, co-founder of Entrepreneur First, described it as an “excellent outcome” and a “really important foundation for UK tech”.
“The recommendations in the spinout report will unlock the latent potential within the UK’s innovation ecosystems and are a roadmap to the UK government’s ambitions of the country becoming a science superpower,” said Diarmuid O’Brien, chief executive of Cambridge Enterprise.
Other recommendations include a standardised term spinout term sheet and a national register of spinouts for greater transparency.
The Treasury-backed review, first announced in March, looked at ways to encourage more investment in spinouts and establish best practices between universities and investors.
There has at times been tension between the two groups, with investors arguing that universities are taking too much equity in spinouts and deterring external funding.
Universities on average own around 22.8% of startups founded by faculty and students at the time of spinning out, according to data from Beauhurst, but at some universities it’s as high as 42%.
However, the spinout review has been universally well-received by both camps.
“We have struggled historically in the UK to translate the game-changing research developed in the labs and classrooms at our top universities into world-beating companies,” said Tim Mills, managing partner at ACF Investors.
“With the policies outlined in the report, angel investors and early-stage venture capital funds will gain confidence in working with universities to invest in companies developing the technology that could shape our future.”
‘Gamechanger for science’
Cambridge Enterprise, the department within the University of Cambridge that works with the institution’s spinouts, celebrated the release of the review along with the rest of TenU, a collaborative organisation of technology transfer offices (TTOs).
Dr George Baxter, chief executive of TenU member Edinburgh Innovations, said the group welcomes the review and is “particularly pleased that the review recognises the significant work already undertaken at universities to nurture entrepreneurial ecosystems and provide dedicated, bespoke support to unlock innovation and benefit society”.
Adam Workman, head of investments and new ventures at Oxford University Innovation, added that he was hoping the review recommendations lead to greater “inward investment into the UK” as well as increase the size of funding rounds for later-stage companies.
Workman added that he would also like to see a “boost in early-phase funding to give our founders the best chance of kick-starting their companies”.
The review also included a recommendation encouraging further collaboration between TTOs in the form of a UK-wide shared transfer office.
Moray Wright, CEO of growth fund management firm Parkwalk Advisors, said the review could be a “gamechanger for UK science”, but warned that quick action was needed to see benefits.
“Every week, another exciting startup is driven overseas in search of the investment and conditions they need to grow,” Wright said.
According to Wright, providing “greater clarity on equity shares” will “unlock opportunities for founders and investors” but still ensure universities are “rewarded for nurturing new ideas and talent”.
Need for speed
Richard Hague, professor and director of the Centre for Additive Manufacturing at the University of Nottingham, agreed that the recommendations should be “implemented quickly with all parties being able to agree spinout deals and equity splits on market terms”.
He added: “In the vast majority of universities in the UK, there is a disconnected pipeline between research and tangible commercial outputs.”
Hague called for a “fundamental rethink of the way in which we view the role of academic researchers and universities”.
VC firm OpenOcean’s general partner Ekaterina Almasque said that universities “often exert excessive control over spin-offs” that discourage VC involvement and hold back what is otherwise a “thriving university spin-off ecosystem”.
Almasque said: “Unless these barriers to progress are addressed, spin-offs will struggle to realise their full potential.
“It’s important for the U.K. government and universities to seize this opportunity and give founders all they need to scale.”
The spinout review was published by the Treasury on Tuesday ahead of the Autumn Statement, set to be delivered by Chancellor Jeremy Hunt around midday on Wednesday.