6 March 2023

The university spinouts system is broken and it’s holding the UK back


Imagine you’re a talented researcher at a British university. You’ve got a great idea for using a strand of your research to build something. So you think, well why don’t I set up a startup – this could be a big deal. What happens next?

When it comes to commercialising academic research, the attitude of too many UK universities can best be summarised by paraphrasing Mrs Thatcher: ‘you spinout if you want to, this uni’s not for spinouts’.

Unlike our American cousins many UK universities do not value having a smooth process for spinning out. MIT alone has been estimated to have played a role in the creation of over 26,000 businesses, supporting 3.3 million jobs and generating a turnover of $2tn. While in 2022 the UK’s more successful-at-spinouts universities were estimated to have generated more like £2bn each.

At their worst, UK universities can trap would-be founders in a bureaucratic hell, with unclear processes and endless negotiations on terms that really could be standardised – such as ownership, licensing and royalties. In 2022 a survey of 143 spinouts found UK universities demand both more equity and control – including university staff on spinout management boards – than their US counterparts.

This isn’t just one of life’s frustrations, this situation delays startups getting to market and can prove fatal to ideas and products that otherwise have great potential. Most concerningly, many UK universities can demand an eyebrow-raising amount of equity . This makes securing further investment almost impossible and, in the worst cases, effectively strangles a spinout at birth.

Policy-wise, spinouts have been a ‘known known’ for years. We at Coadec are by no means the only ones who have noticed: founders have sued in high-profile cases, investors have compiled spinout league tables and the Government has commissioned its fair share of reviews. The spinouts system is broken and it’s holding the UK back.

Now I’ll let you in on a secret – usually when something becomes a ‘known’ policy problem that hasn’t been solved it’s because even if there’s a policy answer, it’s perceived to be politically intractable. See: Building Houses & Fixing Immigration Policy.

But we don’t believe this is the case with spinouts. It’s just been made to look that way.

Why? Because the debate is often framed as a prize fight. In the red corner, the venture capitalists – loud, brash, online, demanding unis drop all their requirements and stop exploiting founders. In the blue, universities trying to inject nuance and ‘do a good job in difficult circumstances’, pointing to the prep they give spinouts. The prospective startup founders, meanwhile, are often forced to referee…

But whilst it seems like a fight to the death, it’s worth practically thinking about what the implications of both sides are.

If the worst instincts of the universities win, they eat up all the equity from the get-go, the startup becomes uninvestable or worse the IP doesn’t go anywhere. They are then left with a metaphorical warehouse of IP with nowhere for it to go. And no one gets anything.
If, on the other hand, avaricious investors get their way, they get more of a stake, but founders do better and (whisper it quietly) most universities will do better too.

Of course, not all universities are the bad guys. The picture around the UK is mixed and, too often, opaque. It’s worth taking the time to build a system that works for everyone and that likely means a proper consultation involving recent spinout founders, universities and investors.

But right now, the system is too much of a lottery and works for no one – least of all the researcher with an idea and a dream. That’s got to change.

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Camilla de Coverly Veale is Policy Director at the Coalition for a Digital Economy (Coadec).

Columns are the author's own opinion and do not necessarily reflect the views of CapX.