I recently attended a conference on the ‘Next steps for university spin-outs and commercialisation in the UK’, convened by the Westminster Higher Education Forum. Speakers including spin-out founders as well as representatives from universities, government, and other supporting groups covered a variety of topics around the process of spinning innovative companies out of universities, the various problems they face, and the support that they can access.
One of the key messages for me was that in recent years, there has been a transition in the approach to spin-out investment – particularly when it comes to either acquiring or licensing a technology. While large companies and investors still have funds to commit, they tend to be looking for fewer, higher value deals. That means the deals are naturally happening at a later stage, which means start-ups need to get further along in demonstrating that their ideas can translate into successful, scalable businesses.
And that takes more support – particularly money, but also in the form of expertise in the process of building a company. There was quite a bit of discussion of proof-of-concept funding from various angles. This refers to initial grants or investments, often of a few tens or hundreds of thousands of pounds – that might come from the university itself, or government and philanthropic schemes.
The principle is to allow spin-out founders to develop their idea to a point where it becomes clear whether the project is investable (and has attracted some additional investment) or whether it should be abandoned. Money buys time to explore the potential market for your technology, but support from experienced advisors is at least as important in evaluating a project’s real potential. That might be university technology transfer offices, individual entrepreneurs who’ve been there before, or institutional support from programmes like the RSC’s Change Makers.
If they make it through that stage, spin-outs – especially ‘deep tech’ chemistry companies that might still be several years away from the point where they might be acquired or have their technology licensed – become dependent on the highly volatile world of venture capital (VC) and ‘Business Angel’ investors. VCs can provide both money and access to expertise, but generally take a share of equity in the company in return.
With longer horizons before a potential ‘exit’ deal, several rounds of VC investment may be necessary, each taking another slice of equity. That can become problematic if, for example, the university from which the company spun out in the first place retains a significant share. It was therefore encouraging to hear that university equity stakes have been decreasing across UK spinouts for several years.
Overall, it seems like UK universities produce proportionally large numbers of high-quality spin-outs, but there is still some way to go to ensure that there is consistent support to enable the viable ones to grow into successful businesses. Efforts to reduce the significant geographic and institutional differences in support – by sharing best practices in technology transfer and improving the visibility of regional spin-outs to investors are welcome steps, and may go some way to helping encourage growing companies to stay in the UK instead of looking abroad for opportunities to grow.
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