TLDR:
- UK universities, influenced by groups like TenU and government policy, are lowering equity stakes in spinouts to attract more VC investment.
- The University of Southampton recently reduced the equity it takes in IP-heavy spinout companies to 10%, changing a decade-long policy of taking a third of shares.
Influential university groups like TenU and the policy agenda of the new UK Labour government are leading to a rethink on the appropriate ownership that universities should take in spinouts. After consultations with entrepreneurs, spinout founders, and investors, the University of Southampton decided to lower the equity it takes in IP-heavy spinout companies to 10%. This shift in policy is not only aimed at appeasing investors who prefer university shares in spinouts to be below 20%, but also at incentivizing founders and increasing the number of spinouts from the university.
The move towards lower equity stakes is part of a larger trend among UK universities, driven by recommendations from TenU to limit equity in life sciences spinouts to 25% and even lower for software companies. This push for lower equity shares is also supported by the UK government’s focus on boosting economic growth through increased spinout numbers. As a result, many top UK universities are now doing deals with equity stakes ranging from 5% to 15%.
While some investors believe that equity stakes have little impact on spinouts’ ability to attract VC investment, others argue that royalty-bearing licenses can be more valuable in the long run. As UK universities navigate these changes in ownership terms, they are also exploring creative deal structures to offset lower equity shares, with the University of Southampton adopting a higher royalty fee approach similar to the US model.
Efforts to lower university equity are also influenced by stark regional differences in venture capital ecosystems, with spinouts in London, the south east, and east of England receiving the majority of investment. To address this imbalance, new investment vehicles like Northern Gritstone and Midlands Mindforge are being set up to boost spinouts in more deprived regions and create more favorable environments for founders to attract VC capital.
