Boosting the UK’s science superpower status through university spinouts

Posted on: 21/05/2024

Boosting the UK’s science superpower status through university spinouts

A new guide designed to accelerate and support a new generation of innovative software spinouts has been launched by a leading group of universities, including UCL, with the advice and backing of major investors.

Spinouts are companies usually formed by academics or researchers based on the intellectual property or research they developed at a university.

The University Spinout Investment Terms Software Guide (USIT) aims to build on the success of last year’s industry-wide guide and boost the UK’s potential as a science superpower.

Like the original guide, it aims to simplify and shorten the process behind universities spinning out new companies, providing direction and advice specific to software spinouts in such areas as equity share and licensing improvements.

Before the publication of last year’s guide, deals between universities and venture capitalists often were created from scratch, which is both inefficient and sometimes fails to learn the lessons from previous success stories.

Due to the breakneck speed with which the software industry changes, getting their products to market for software spinouts is particularly important.

A key part of any deal is the share of equity – the guide recommends that university technology transfer offices (TTOs) take a relatively low 5% to 10% equity share in software spinouts due to their products’ shorter development times, the relatively low initial funding and need for rapid growth.

UCL already has a bespoke process in place for software spinouts, but Vice-Provost (Research, Innovation and Global Engagement) Professor Geraint Rees said the new guide could benefit software spinouts at universities across the UK and abroad.

He said: “This new guidance will help accelerate the formation of software spinouts from our leading universities. Building on the success of last year’s USIT guide for life sciences companies, these new guidelines will simplify and streamline company formation, build investor confidence and increase the number and quality of spinouts from our world-leading universities.

"Importantly, these guidelines have been produced by both investors and technology transfer businesses working together. At UCL our technology transfer company UCLB is already highly successful at creating innovative software and technology companies that deliver productivity, jobs and growth.

"Adopting these guidelines will help us accelerate the formation of more staff and student businesses.”

Minister of State at the Department for Science, Innovation and Technology Andrew Griffith is due to attend the launch of the new guide at Mansion House on Monday, May 20.

Many of this country’s most successful technology firms – Solexa, Oxford Nanopore, Synathesia – started off as spinouts from a university. A Government review of the sector found that UK university spin-out investment increased five-fold from £1.06 billion in 2014 to £5.3 billion in 2021.

UCL already offers bespoke support for software spinouts through its subsidiary UCL Business’s Portico Ventures Programme. The programme, which launched in June 2018, helps UCL researchers set up technology-based businesses that can thrive in a fast-moving ecosystem by providing spinout companies with an exclusive and royalty-free licence in return for a fixed percentage of equity (company ownership).

Dr Anne Lane, Chief Executive of UCL Business said: “With software spinouts – more than many other spinouts that we help set up – speed is of the essence.

“The ability to agree terms to enable founders to get their software solutions to market quickly is essential. Having this clear framework helps hugely in setting expectations on all sides and allows founders to do what they do best – create great software innovations that have real-world impact.”

Beneficiaries of UCLB’s Portico Ventures Programme have included Mycardium, which was founded in 2022. It developed superhuman AI for measuring the heart and a clinically-led laboratory service. In Mycardium’s case, the fixed percentage of equity was around 4.3%.

Mycardium Chief Executive Officer and co-founder Professor James Moon (Institute of Cardiovascular Science) said: “When we founded MyCardium in 2022 as a spinout from UCL after years of research, our biggest motivation was in delivering fundamental improvements in cardiac care, redefining certain diseases and making a global difference. We are now a company of circa 50 people and are growing quickly.

“To take the software and expertise to market, a commercial vehicle needed to be created, and having a straightforward process of agreeing equity splits was key to us progressing at speed and with confidence.

“That is why the USIT guide is so valuable – it will help the next generation of founders to strike deals with investors and universities quickly and easily.”

The group of universities involved in producing the guides are known as TenU. Its members are the technology transfer offices of UCL, University of Cambridge, Columbia University, University of Edinburgh, Imperial College London, KU Leuven, University of Manchester, MIT, University of Oxford, and Stanford University.

The process of developing the new guide included working with representatives from investment firms Oxford Science Enterprises and Cambridge Innovation Capital, IQ Capital, LocalGlobe, and Octopus Ventures.

The first USIT guide, published in April 2023, focused on the life sciences. Its recommendations were reflected in the Government-commissioned independent review of spinouts released in September last year.

The review put forward recommendations to accelerate the UK towards the rapid creation of spinouts on market-competitive terms and encourages further collaboration across the UK’s innovation ecosystem.

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