The publication last week of the Royal Academy of Engineering’s annual Spotlight on Spinouts report gives us new key evidence of the continued successful maturing of the UK’s university spinout ecosystem.
2021 was marked by record investment in university spinouts of £2.54Bn, 23% of the total investments raised in the ten years since 2012 and a 69% increase in the previous record set in 2020. The positive upward trend in number of deals has continued too, with 2021 having the second highest number of deals on record. The size of the average capital investments made in university spinouts is also at a record high, with a continuing upward trajectory since 2012.
While there is evidence that some of the heights reached are as a result of deals being held back during the Covid-related economic slowdown, and some significant deals taking place, every indication is that the UK’s university spinout ecosystem is going from strength-to-strength. The evolution of university IP policy in recent years demonstrates that while this may be a cause for celebration, it has not been met with complacency.
Decreasing Equity Stakes
A striking statistic in the report is the gradual but steady decline in equity stakes held by universities over the last 10 years. Of the 583 spinouts where universities held an equity stake in the year of spinning out, and that met the criteria for inclusion, the average stake held has fallen from 25.7% in 2012 to 20.6% in 2021. Over the entire decade that the report considers, the median equity held at one year after formation is 54.2% for founders, and 22.1% for universities.
This analysis excludes the 520 cases where the universities held no equity, almost as many as where universities took equity. This indicates that universities vary their approaches depending on the nature of their opportunity, no doubt reflecting the complex landscapes that spinouts operate in. It is important to understand the different models that may be appropriate on a case-by-case basis, for different technologies, sectors, and locations. We applaud the work of the UCI unit at the University of Cambridge as an important vehicle for generating policy evidence on the topic.
It is notable that the equity stakes claimed by universities have been consistently decreasing as the total values invested have risen, a potential early indicator that that increased investment funding is producing a shift to a new equilibrium.
This is reinforced by the evolution of IP policies over recent years. Comparing the policy summaries in the report with an academic analysis of the topic published in Nature Biotechnology in 2015[i] confirms this downward trend in equity. The report highlights how a number of universities generating spinouts at scale have developed a variety of approaches for different types of IP and intensity of support received. This demonstrates a sensitivity and responsiveness from the sector that no doubt is reflected in positive figures presented in the report.
This situation will continue to evolve as numbers of spinouts and deal flow increases over time, and new models continue to be developed to best meet the individual opportunities that arise. In terms of the 1130 spinouts as of January 2022, 28% (313) are at venture stage. The majority of active spinout (59%, 672) are at seed-stage, indicating a healthy pipeline for future spinout growth, and reflective of the important role that universities play in nurturing their early-stage spinouts.
One key milestone in the lifecycle of a spinout is when they surpass the need for venture funding and are operating as an established firm. Of the active spinouts analysed in the report, 62 (over 5%) have reached this stage. A different criterion of maturity is a successful exit, usually by an acquisition or IPO. 164 spinouts have successfully completed an exit since 2012, 26 of them in 2021. While these figures in terms of the absolute spinout population are low, spinouts exiting today will have been developed and grown to a point where they are able to generate societal and economic impacts over years or even decades.
But spinouts are only part of the story
University spinouts will undoubtedly continue to make an important contribution to the UK’s future prosperity, but we must always remember that there are other routes by which university IP is exploited to society’s collective gain. IP generated under research collaborations and agreements can be straight forwardly licensed and assigned to industry. Technology transfer professionals can help find users for unassigned IP. In terms of volume 14,218 non-software licenses were issued by UK universities in 2019/20 alone. In the last 5 years for which data is available 62,000 non-software licenses have been issued – including software increases this figure to 300,000.[ii]
At Research England we believe that our own support for universities in this area has helped achieve these results. This includes the uplift to HEIF by £90M/year from 2020/21 with strengthened focus on commercialisation and business engagement, the £125M CCF similarly focussed on commercialisation, and the provision of improved benchmarking information through the KEF.
We are committed to working with universities and other partners to further understanding and development of all parts of the spinouts ecosystem. One aspect of our work has been international comparisons with a UK/US study that gave us insights on the importance of scale, and in May we will publish a new investigation on UK/European ecosystems which gives new insights on quality factors.
We welcome the publication of this report as a valuable source of insight and understanding into the sometimes mysterious world of university spinouts. We look forward to seeing how this picture develops as the system continues to mature.
[ii] HESA data.