The UK government recently published its highly anticipated independent review examining the university spinout landscape. Academic spinout companies play a crucial role in our economy, transforming many engineering and deep tech innovations into cutting-edge solutions that can help to tackle some of society’s most pressing challenges. As a method of research commercialisation, spinning out enables academics to contribute to local economic growth and employment opportunities, so there is a strong economic and societal imperative to optimise the conditions for growing more commercially successful spinouts.
It's no wonder then, that this Review signals that a thriving spinout ecosystem is integral to the government’s science superpower ambitions. But what action does the UK spinout ecosystem now need to take, to ensure that we can compete with other world-leading ecosystems and create more spinouts that grow faster and attract greater investment?
Incentivising founders
Much of the debate on spinouts-related policy to date has revolved around the allocation of equity, which remains a complex and contentious issue. Founders of spinout companies need to have a high enough equity stake that incentivises them to commercialise the pioneering engineering and deep tech innovations that are in the public interest and contribute to local economic growth and employment opportunities. The division of equity should incentivise exceptional academic founders to drive the company forward and the amount and quality of support provided by the university should be reflected in the stakes it seeks.
The Review calls for guidance for spinout policies to be co-developed between investors, founders, and universities, who provide equity stakes that are needed to incentivise founders, with clear expectations of the time the spinout process will take. The onus is now on members of TenU, the international collaboration of Technology Transfer Offices, to act and implement these founder-friendly policies.
Training programmes for academics interested in commercialising their research should also be expanded so that they know how to access commercialisation training. Additionally, avenues for rewarding and incentivising commercialisation activity appropriately should be explored by the university sector, for example, by enhancing opportunities for promotion.
More data and more transparency
Further tangible change in the spinout landscape can only be achieved by increasing the amount of data available on UK spinouts. The Royal Academy of Engineering Enterprise Hub has been advocating for more data on spinouts to be published and our annual Spotlight on spinouts report aims to share more data on the landscape so that policy discussions can be more informed by evidence. Similarly, the Enterprise Hub’s Entrepreneur’s Handbook aims to share insights from academic entrepreneurs to help others understand and navigate the challenges of spinning out. The Review’s call for data transparency is most welcome, recommending that stakeholders from across the UK spinout ecosystem – from Tech Transfer Offices, founders, and investors – share data about how different spinout companies have been formed in the past and where they have succeeded and failed. Importantly, there’s also a data gap that needs to be filled as to why some academic innovators who express a desire to spinout ultimately fail to do so. With just nine universities accounting for over 50 per cent of the UKs spinouts in the last 10 years, new initiatives to share best practice and streamline the process for spinning out companies, are most welcome.
As recipients of public funding all university spinout policies should be publicly available, and the realised spinout deal terms published.
Improving access to domestic scale-up capital
From experience of supporting academic entrepreneurs through the Academy’s Enterprise Hub, it’s clear that many spinout companies struggle to secure patient growth capital beyond Series A funding, which often can result in these companies exiting earlier than desirable for the UK ecosystem or having to move offshore, particularly to the US, to seek further investment more easily. The Academy’s upcoming report on the UK’s Deep Tech ecosystem with Beauhurst, the first of its kind in the UK, will publish data that will show that North American acquirers have accounted for nearly a third (32 per cent) of the total of 176 acquisitions of UK deep tech companies over the past 10 years, for example.
The Mansion House reforms announced earlier this year to increase the supply of UK institutional investment to deepen the pool of domestic capital available is an important first step. However, the speed at which these reforms materialise and start making a difference will be key – the UK spinout ecosystem needs government to deliver this change at pace. The government needs to create further avenues to support engineering and deep tech spinouts to access the funding they need to continue to be commercially successful.
It's important that we use the opportunity provided by this Review to reflect on What the future holds for UK spinouts – followed by swift action from all stakeholders across the ecosystem to build consensus and create a more supportive environment for UK spinouts. Continuing to convene all players in business, industry, universities, and government to demystify the spinout landscape and remove current barriers to starting and scaling these highly innovative companies is crucial for maximising the UK’s engineering, and economic, potential.
Ana Avaliani, director, Enterprise, Royal Academy of Engineering
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