What’s in the spin-out review?

The Treasury-commissioned independent review of university spin-out activity has been released, just in time for the Autumn Statement

James Coe is Associate Editor for research and innovation at Wonkhe, and a partner at Counterculture

Authored by Irene Tracey, Vice Chancellor of the University of Oxford, and Andrew Williams chair of the venture capital committee at the British Private Equity and Venture Capital Association, the report takes a rounded view of the success and pitfalls of the current spin-out ecosystem. The government has already indicated that it accepts all the recommendations made.

The authors of the review have assiduously avoided simplifying the whole matter to one of cash. As I’ve previously argued, spin-outs cannot succeed with misaligned financial incentives between researchers, universities and investors, but to even get to the stage of investment takes an awful lot of work.

The report highlights that average equity stakes taken by universities are moving more toward levels seen in comparator countries like the US. Simultaneously, UK university spin-out investment has grown to £5.3bn in 2021 up from only £1.06bn only seven years prior. This places the UK only second to the US in terms of investment.

The most optimistic view of the world is that the university spin-out ecosystem is starting to find some equilibrium between encouraging growth and return on investment for universities. The significant growth is impressive particularly given that universities made only £244m from licensing intellectual property and only £86m from sales in company shares. This is only 2.1 per cent of research expenditure.

One way to look at this is that universities are dedicating energies to an area which comprises only a small portion of their income. The income trends are also uneven across institutions. Another way to look at this statistic is despite the quirks, and costs, and bureaucracies the UK has managed to build a relatively successful spin-out ecosystem based on its world leading research.

The report suggests that despite recent successes there is latent potential and untapped assets that could make the whole ecosystem even more successful. A collection of recommendations around institutional policies, data sharing, and transparency suggests there is more universities could do in having standard (but flexible) investment terms, straightforward guidance for staff, and clear expectations on how deals will be completed.

These institutional actions are bolstered by calls for more intervention by funding and data gathering bodies. This includes better data on the number of spin-outs and their terms, better use of HEIF funding to cover infrastructure costs within back-office functions, and shared office infrastructure between institutions to encourage collaboration.

In total, these recommendations point toward arrangements for spin-outs that could be more impactful with greater consistency, transparency, and funding that covers the actual costs of building a spin-out ecosystem.

Even with these measures in place it is also necessary to consider the incentives and capacity for building spin-outs in the first place. To this end the report recommends a REF which is sensitive to the contributions and impacts of spin-outs, the targeted expansion of support services to spin-out founders, entrepreneurship training for UKRI-funded PhDs, and the expansion of funds that allows for more targeted investment, more mobility of researchers, and incentivising businesses staying in the UK.

The spin-out review is impactful as it does not narrow down the debate to the appropriate per cent of equity a university should take. Instead, it rightly considers that spin-outs are at the centre of an ecosystem of business, universities, researchers, and capital markets, which all have their own incentives.

The challenge is not simply to do great commercial research. The challenge is not simply to get more investment. As the review makes clear the challenge is to align the interests of a number of parties behind the commercialisation of university research activity. As the report suggests, one way of doing this is through more transparency, more data collection, and more consistency in the way universities support, fund, and enable spin-outs.

One response to “What’s in the spin-out review?

  1. Being part of a dept with a highly successful spinout history I’ve seen a number of Academic’s go from Academia on pi$$ poor pay to millionaires as a reward for their hard work, with many reinvesting back into the University, so as to retain access to the Universities equipment and more importantly ideas, ensuring this is done on a sound financial management basis is critical. Unfortunately Academic envy and undermining of those who are successful also raises it’s ugly head on occasion. Non-Academic’s who’ve contributed to the ideas/techniques and equipment that have enabled the spin out, usually the technical staff, are rarely compensated for their input, with those on short term contracts often made redundant when the spinout launches, some fairer treatment for those individuals would be a good thing too.

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