University spin-outs: could do better?

UK university are failing to capitalize on the rewards to be gained from creating entrepreneurial spin-out companies according to research undertaken at Nottingham University Business School and funded by the Economic and Social Research Council.

According to the research universities are focusing on creating businesses rather than creating wealth. Professor Mike Wright of Nottingham University says: “The proportion of university spin-out companies (USO) that succeed is tiny. Unless universities are prepared to back their spin-outs with appropriate resources, most will continue to fail.”

The poor performance of UK university knowledge transfer activities was highlighted in the Lambert report on university business collaboration. Recent Government policy and funding has encouraged universities to commercialise their intellectual property by launching entrepreneurial spin-outs. This, however, has been set back by last year’s amendments to the Finance Act which adversely changed the taxation position relating to the gain on an academic’s shares in a spin-out – see news analysis page.

The Lambert report reveals that there is a significant distinction between the creation of spin-outs per se and the creation of spin-outs that generate significant wealth. Few spin-outs in the UK, for example, have been sold or floated on a stock market and while venture capitalists expect 10% to 15% of the new businesses they back to generate wealth, the proportion of successful USOs is currently much lower.

The success rate could be greatly increased if universities were more aware of the factors and processes which promote successful spin-out activity. Following a study of technology transfer in 98 UK academic institutions, the research team at Nottingham University Business School identified five phases as central to the development of a spin-out company (research phase, opportunity phase, pre-organisation phase, re-orientation phase and sustainable high growth phase.

Professor Wright concludes: “Our research clearly indicates that successful spin-out activity is not about the quantity of ventures initiated but the commitment shown by universities to achieving successful technology transfer outcomes. At present there is a mismatch between the aims espoused and universities’ ability to deliver. Universities must consider the skills, resources and networks they need and begin to put these in place,” said Wright.