UK universities urged to reduce equity stakes in their spinouts

The UK university spinout ecosystem is flourishing, with 1,116 active companies as of January 2023.

But to further facilitate this growth, British universities should cut down on their equity stakes, a spinout review commissioned by the government advises.

According to data from Beauhurst, between 2013 and 2022, academic institutions took an average stake of 23.9%. For instance, Oxford, the UK’s top spinout generator, owns an average stake of 21.6%, while the University of Manchester and the University of Leeds own higher percentages of equity, at 30.9% and 42.3%, respectively.

The review recommended a 10% or lower stake for software spinouts, which are less IP-intensive and typically require a smaller amount of university support. For life sciences startups, it suggested a higher limit between 10-25%, while equity for hardware and engineering companies should be somewhere between the other two categories.

“UK universities tend to retain more than double the amount of equity compared to their European counterparts. This disparity is even higher for US university spinouts,” said Ekaterina Almasque, General Partner at OpenOcean VC.

“This reduces the likelihood of funding from investors, as the potential returns are comparatively smaller,” Almasque added, noting the importance of a call for equity limits.

Other recommendations in the review included further government support for proof-of-concept funds, more data and transparency through a national register of spinouts, and increased support for founders.

Academic institutions across the country, such as the University of Oxford, the University of Birmingham, and Imperial College London (ICL), have largely welcomed the report.

“This review recognises the importance of universities investing in sustained, curated support and infrastructure for innovation,” said Simon Hepworth, Director of Imperial Enterprise at ICL.

“We welcome its findings and hope its recommendations will galvanise stakeholders across the university innovation ecosystem to help UK spinouts generate even more impact.”