As we head into a general election, we can expect politicians from all parties to underline the importance of science and innovation to growing our economy. There’s no doubt about it – the wellspring of innovation and technology is coming primarily from SMEs, and university spinouts lead the way.
Increasingly, researchers are working with tech transfer offices in universities to form businesses to take their research to market and scale their discoveries and technologies for the wider good. It’s been a trend that’s been gathering pace for some years, so it really does feel like the time is ripe for ensuring founders can leverage the investment they need while getting the right returns that make the hard graft of establishing a business worthwhile.
There’s a lot of talk about the ambition to make the UK a science and technology superpower. And the UK has the potential to achieve that – four UK universities are in the global top 10 and many others are pioneering in specialist areas such as deep tech, and with a naturally entrepreneurial spirit and hunger for innovation.
But we need to make it as easy, fair and as supportive as possible for researchers to establish companies, protect their ideas and attract the right investment to scale and grow.
There’s also been a lot of talk about university equity splits in spinouts. Naturally enough, within the sector there’s a huge range in the equity universities take. This often depends on how much support the spinout has needed from the university before spinning out and any university intellectual property required by the spinout, as well as the length of time that support is required on the road to market.
For biopharma innovations, that can take over a decade, while deep tech can (and indeed must) reach market quickly and nimbly. But overall, university equity splits in spinouts have in fact been on a downward trend for some years, as Tomas Coates Erichsen’s recent research shows.
The University Spinout Investment Terms (USIT) guide launched last year established the rules of engagement for life sciences, followed up last month by a separate USIT guide for software spinout formation, which recommends a landing zone for founders’ equity of 90-95% in their business.
Having been involved extensively in both USIT guides it was great to see the huge engagement that went into them – hundreds of hours of meetings, roundtables and workshops with investors, founders and legal experts.
In fact, the guide set out what’s already been happening for some time in several tech transfer offices. UCLB’s Portico Ventures programme, for example, routinely offers 90-95% equity for non-patentable ideas such as software since 2018. Clarity on licence fees is also a part of the guidelines, and here again a focus on simplicity is key, suggesting upfront payments or annual fees and a common landing zone for royalty rates on net sales of 0.5–2%.
Financials aside, one of the other big challenges is process. Software company founders tell us that universities must work swiftly to help them establish their businesses. So how can we be leaner, more fleet of foot and enable spinout set-up quickly, but thoroughly?
Universities can facilitate by promptly convening all stakeholders to establish fundamental elements, such as clarifying ownership of intellectual property. We can also explore ways to form lean spinouts – being open to options such as bootstrapping to free businesses up to build their market and engage with their customers.
Taken together, that all adds up to removing friction – setting up a spinout, enabling founders to move swiftly into growing their business and engaging with and selling to their markets to achieve the commercial success and societal impact that everyone wants to see.
So it’s fair to say that the whole innovation ecosystem has come together and solid frameworks are now in place. Now, our joint challenge right across the innovation ecosystem is to support their universal adoption by communicating them to researchers across all UK universities.
And whatever the next government is, it’s vital that we work together to find new ways to support the next generation of research-driven entrepreneurs and their nascent companies to grow and flourish here in the UK, so that more people can benefit from the social and economic rewards that successful spinouts bring.
Dr Anne Lane is the CEO of UCL Business Ltd.
Dr Mairi Gibbs is the interim CEO of Oxford University Innovation Ltd.
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