In the United States, academic institutions typically take a small stake in spin-off companies in exchange for a license to the patents, typically in the range of 5% to 10%. The Bayh-Dole Act of 1980 gives universities the right to patent technologies developed with federal grants, providing an incentive for universities to pursue technological innovation.
The UK is gradually moving to a similar system, taking decreasing percentages of shares depending on whether the technology being developed can be patented: the University of Bristol, for example, plans to take up to 20% from “IP-intensive” companies developing medicines, 5% from software-only companies with less IP, and 0% from those with no IP at all.
Andrew Wilson, head of commercialisation at the department for research, enterprise and innovation, said universities had recently changed their previous policy of taking 45%, 30% and 15% stakes respectively in spin-out companies.
Other top universities, including Oxford and Cambridge, have followed suit and agreed to reduce the caps on their investments in future spinout companies, but many believe the percentages are still too high, and complex royalty and licensing agreements make it more difficult for companies to raise capital from other sources.
“[Universities] “They’d rather have a big piece of a small pie than a small piece of a much bigger pie,” Alex Chalmers, platform lead at Air Street Capital, a venture capital firm focused on AI companies, told Semaphore. “If they take 20% of your company and then force you to go to an affiliated spin-out fund that takes a piece of theirs as well, it’s going to mess up your cap table and most VCs are going to stop investing in you.”
The hope is that negotiations will be quicker as universities offer less equity to startups and make deal terms clearer. The tech industry, and AI in particular, is moving at breakneck speed, and slow adoption of new tools and capabilities can mean the difference between success and failure, he said.
Owen Nicholson, CEO and co-founder of Slamcor, a computer vision company that spun out of Imperial College in 2017, doesn’t think universities should take any equity at all. “If universities want to get rich off intellectual property, make their academics rich,” he told Semaphore. “Then they’ll use philanthropy to sponsor libraries and new buildings, or donate some of their revenues. The loyalty to your alma mater that’s so common in the US isn’t really seen in the UK.”
The number of start-ups spun out of academia has increased fivefold, and capital has been poured into them, creating an industry worth 5 billion pounds ($6.5 billion) a year, said Andrew Williamson, who co-led an independent government review that analyzed the process. “When you get to that level of growth, of course there are going to be growing pains,” he said.
