New database on university spinouts highlights dissatisfaction

A new open source database on university technology spinouts, also referred to as spin-offs, detailing terms negotiated between academic institutions and research entrepreneurs indicates a high level of dissatisfaction among company founders, especially those spinning out of universities in the UK.

Published by Nathan Benaich, a partner at the UK-based venture capital firm Air Street Capital, the Spinout.fyi database currently contains over 140 entries reporting on 71 institutions, predominantly in the UK, European Union, and US. Roughly half the companies that contributed data are software firms. Medical and therapeutic spinouts account for 17% of entries and materials spinouts for 11%.

Data on spinouts launching from UK universities dominate the database, accounting for about half of all entries. Those universities are by far the most demanding in terms of equity stakes taken in spinout companies, according to Spinout.fyi, requiring approximately three times the shares reported on average at institutions in the US and the rest of Europe.

The average university equity stake in spinouts is 12.8%, with actual stakes ranging from 0-70%, according to the database. The data indicate that a third of the universities took no stake in spinouts. Another third took 1-10%. About 45% of universities charge royalties on sales.

Overall, contributors to Spinout.fyi rate their experience at 4.6 on a scale of 1-10. Cambridge University notably ranks as second-best behind the Swiss Federal Institute of Technology (ETH) Zurich among company founders submitting data, despite the poor showing of UK institutions. More in keeping with overall trends, Oxford University ranks second worst and University College London worst.

In a blog post launching the project, Benaich writes that contributor comments indicate the spinout process is opaque and bureaucratic. The project’s goal in publishing the data, he writes, is to “level the information playing field for spinout founders who too often enter negotiations with their university Tech Transfer Offices not knowing what to expect.”

Benaich proposes the adoption of a standard deal template by which universities receive $25,000 per in-licensed patent and a choice of either a 1-5% equity stake, a 1% royalty on net sales, or a 1% consideration in the instance of an acquisition or initial public stock offering.

Ken Malone, managing director of Early Charm Ventures, a Baltimore-based business incubator, says many companies sign nondisclosure agreements, which might limit Spinout.fyi’s access to data. “The diversity of the technologies is so wide that I’d be shocked if deals were even remotely similar,” he adds.

Alán Aspuru-Guzik, a chemist and computer scientist who launched two spinouts from Harvard University, notes that the number of spinouts contributing to the database is a miniscule representation of all the companies that have launched from universities. But the trends reflected in the database ring true, says Aspuru-Guzik, a professor at the University of Toronto and an advisor to venture capital firms in Europe and Canada.

“I have heard horror stories about the UK,” he says. “My impression is that Canada and the US in general have good IP officers, but the UK seems to be very rapacious in terms of what they want from their start-ups.”

In an e-mail, Benaich says Air Street Capital views university spinouts as the greatest opportunity for addressing key global problems. “We need companies working on energy independence, biotechnology, manufacturing, semiconductors and computing platforms, novel materials, space, and other domains that are deeply scientific,” he writes. “These companies will naturally emerge from university environments and therefore will be spinouts.”