How to change the rules on academic spinouts
By Creator Fund | August 1, 2022
Jamie Macfarlane (first appeared in Times 5th September 2022)
Imagine there are two professors. They are equal in every way. Except one works at Cambridge and the other is at Leeds.
Each professor decides to start a company. This should be good news for everyone. They have decades of experience in their fields, and they will be using this to create jobs in the local community.
However, on day one the Cambridge professor will own close to 100% of their company, while the Leeds professor may own less than 50%.
Universities should be one of the UK’s biggest drivers of growth. They bring together the world’s leading technical talent from diverse disciplines in institutions focused on discovery. However, their potential is being held back by erratic IP rules.
"On day one the Cambridge professor will own close to 100% of their company, while the Leeds professor may own less than 50%."
Jamie Macfarlane
Way forward
One answer is to look to Sweden. The Swedish government has a policy of “Professor’s Privilege”. All academics in Sweden own 100% of the companies they create. It is why professors move to work there, and it has seen Swedish universities become factories of unicorns like Klarna or Voi.
Closer to home look at Cambridge. Its policy of fast spinout processes and low equity stakes has turned the city into the UK’s answer to Palo Alto.
The university has also set up an in-house VC seed fund, and founders have the freedom to choose whether to takes its money. Cambridge companies attracted £1.5 billion in funding last year, the second-best performing city in the UK despite having a population of 150,000 people.
A perennial question in UK technology is: how will this country create its own Google?
Universities are the place to answer that question. Which other institution attracts the brightest minds from across the world to work together on humanity’s unsolved challenges? But we need a national IP policy to allow universities to fulfil this potential, and to make sure that the British Google is as likely to come from Leeds as Cambridge.
The issue is not just equity. Depending on the university, it can take anywhere from a month to a year to allow a company to “spinout”. By the time a year has passed, the company may well have been out-innovated before it has even started. The process can be opaque and require approval from a multitude of university stakeholders. Many would-be academic founders just give up in the face of a protracted negotiation with an employer-turned-shareholder who holds all the power.
Many of the universities with the worst IP policies are in parts of the country that see the least start-up activity. According to the Royal Academy report, the top universities in the North and Midlands are taking 30% — 60% equity. One academic I spoke with at a university in Yorkshire said he was thinking of moving to Imperial before founding a start-up because it would mean he’d start with ten times more of it.
A perennial question in UK technology is: how will this country create its own Google?
This a solvable waste. The UK has 29 of the world’s top 200 universities. They are unique as an institution in being so evenly spread across the country. Many have a seven-century track record of generating world leading innovation. More recently, Manchester University invented the contraceptive pill, MRI scanners were created in Nottingham, and LCD scanners came from Hull. These institutions could be addressing the UK’s technology imbalance, where 81 pence in every pound of VC funding goes to businesses based in London.
In the UK, universities are free to set their own rules for what happens when a professor starts a company. The rules are administered by the TTO (Technology Transfer Office), three letters which depending on the university, can strike fear into the heart of an enterprising academic.
A recent report from the Royal Academy of Engineers showed that universities are taking anywhere between 0% to 60%. This number matters. It is the incentive that persuades someone whether to take the risk of starting something in the first place. It also determines whether venture capitalists will back the company in future rounds. Investors want to see equity in the hands of motivated founders, not concentrated at the TTO.
