In the US, academic institutions typically take smaller stakes in spinoff companies in exchange for licensing patents, typically in the range of 5% to 10%. The Bayh-Dole Act of 1980 gives universities the right to patent technology that resulted from federal grants, which incentivizes them to pursue tech breakthroughs.
The UK is slowly moving to a similar system, lowering the percentage of equity they take, depending on whether the technologies being developed can be patented or not. The University of Bristol will take up to 20% from “IP intensive” companies developing drugs, for example, 5% from IP-light, software-only businesses, and 0% from ones that don’t use any IP.
Andrew Wilson, head of commercialization at the Division of Research, Enterprise and Innovation, said the university recently changed its previous policy, which took a 45%, 30%, and 15% stake in spinouts, respectively.
Other top institutions like the University of Oxford and the University of Cambridge have followed suit, too, agreeing to cut their maximum shares in future spinouts. But many believe the percentages are still too high, and that complex royalty and licensing agreements make it more difficult for companies to raise money from other sources.
“[Universities] would rather have a big piece of a small pie rather than a small piece of a much bigger pie,” Alex Chalmers, platform lead at Air Street Capital, a VC firm focused on AI companies, told Semafor. “If they take 20% of your business, and then force you to go to affiliate spinout funds, which take their pound of flesh as well, it will leave you with a cap table that’s so messed up that most VCs won’t invest in you.”
Lowering the amount of equity universities will take in startups and making the deal terms clearer will hopefully lead to faster negotiations. The tech industry, particularly AI, moves at breakneck speeds, and being slow to launch a new tool or feature could be the difference between success and failure, he said.
Owen Nicholson, CEO and co-founder of Slamcore, a computer vision company that spun out of Imperial College in 2017, believes universities shouldn’t take any equity at all. “If they want to get rich off the back of their IP, make their academics rich,” he told Semafor. “And they will use philanthropy and come back to sponsor a library, or a new building, or just give some of their earnings away because that alma mater loyalty, which is so prevalent in the US, isn’t really here in the UK.”
There has been a fivefold increase in the number of startups spinning out from academia and capital being poured into them, giving rise to an industry worth £5 billion ($6.5 billion) a year, according to Andrew Williamson, who co-led the government’s independent review analyzing the process. “When you have that level of growth, of course, you have growing pains,” he said.
