Nathan is on a mission to improve the university spinout ecosystem, particularly in Europe, to support the creation of more science-based companies.
In this interview, Nathan sheds light on what made him initiate Spinout.fyi and why Europe is lagging behind in science commercialization. We’ll also go through the key findings of Spinout.fyi’s recently released university spinout database, and three things that need to change in the university spinout ecosystem.
This topic of university spinouts is close to my heart. University spinouts have immense potential to bring radical innovations into the world and make an impact. Tackling the climate crisis requires, for example, these innovations.
An effective university spinout process is crucial in enabling the fast implementation of innovations for climate and humankind’s survival.
Before introducing Spinout.fyi and hearing more from Nathan, let’s start with a brief introduction to university spinouts.
Researchers make incredible inventions in universities and research institutions. Sometimes these innovations and the related IP have commercial value. In this case, the IP can be sold or licensed to an existing company. Alternatively, the innovation and its IP to be “spun out” into a new company from the university. This is called a university spinout.
Spinout.fyi is the open database for university spinouts.
It aims to bring transparency to spinout deals and catalyze a re-write of the spinout playbook in favor of future founders. It crowdsources and publishes university spinout deal terms.
In June 2022, Spinout.fyi published the crowdsourced university spinout database, and Nathan wrote the first analysis of the data. The database is the largest of its kind, with 143 entries from 71 universities worldwide.
Spinouts hold the biggest untapped opportunity in startups. SaaS is overly competitive and priced to perfection.
Europe wants technological sovereignty in areas like biotechnology, artificial intelligence, semiconductors, green energy, and quantum computing. All these areas emerge from academic institutions.
Europe has many world-leading universities and research institutions. It should be the hotbed for spinout creation, but it isn’t. Europe is behind in research commercialization. This needs to be changed.
Why is Europe behind in science commercialization?
Three key areas are holding back the potential of European university spinouts.
1. Short-term greediness
European universities tend to be short-term greedy instead of long-term greedy. They fear letting “the golden goose” off with a too friendly deal and not profiting from it as much as they could have had.
The short-term greediness also prevents universities to view spinouts as a way of creating wealthy, happy alumni who would evangelize and financially support their universities later (e.g. donations).
2. Deal customization
The TTO industry takes the view that every deal is unique and therefore implementing open standards doesn’t make sense. As a result, doing a deal takes a lot of time and effort and creates an uneven playing field for the scientists who too often enter negotiations with their TTO, not knowing what to expect.
3. Making it hard for academics to take a leave of absence
It is currently hard and sometimes impossible for European academics to take a leave of absence to create a spinout from their promising research. Taking a leave of absence almost always jeopardizes their tenure tracks. The tenure track is an academic’s career path toward a full professorship in a university.
You published the amazing open-source Spinout.fyi database and the first data analysis on university spinouts in June 2022. What were your key findings?
The database includes 143 entries from 71 universities. In this dataset, 47% of the universities are based in the UK, 37% in Europe, and 11% in the US.
1. Founders are unhappy about the spinout process
Founders find the spinout process long and cumbersome compared to regular company formation and financing.
66% of spinout deals take longer than 6 months to complete, and 27% more than a year. For reference, raising a startup seed round typically takes 3 months.
Dissatisfaction with the university spinout process may also affect founders’ willingness to donate to their university in the future. 64% of the founders said they wouldn’t donate back to their university.
2. Significant geographical differences exist in the university’s equity share
Universities took a 12.8% equity stake in spinouts on average. However, this hides significant geographical disparities.
UK universities demand the highest equity share (19.8%). This is 2.7x higher than the average equity share taken by EU universities (7.3%) and 3x higher than that of US universities (5.9%).
It is noteworthy that EU universities’ mean average equity stake is held down by founder-friendly universities like KTH in Sweden, where Professor privilege rules exist (researchers enjoy full rights to their innovations), and ETH Zürich in Switzerland. Excluding 0% equity deals raises the average equity share taken by EU universities to 14%!
3. Royalties are not a thing of the past
Royalties were part of the spinout deal in 45% of the cases.
Interestingly, they are not restricted to hardware and biotech companies but are also extensively used for software companies. 48% of deals with royalties of 5% or greater were for software companies.
4. The success of a spinout is not only dependent on the founding IP
In 77% of the cases, the spinout was clearly founded around IP that was developed at the university. However, one-third of the founders said that their company is not depending on the original IP today.
Thus, the justification for aggressive spinout deal terms can quickly become obsolete. The ability to execute may matter more than its founding IP in how successful a spinout is.
What should be done to address these problems concerning university spinouts?
We need a hard reset to the university spinout playbook.
The goal of spinouts is to create value for the world by commercializing new inventions developed in an academic environment. Now, also universities and their funders need to start supporting this by adopting a long-term view.
Firstly, we need to clarify how spinouts are done. We should create standards for university spinous with precise steps, timelines, service level agreements (SLAs), and terms. Markets are efficient when there is information and predictability.
Secondly, we should champion the entrepreneur. The more successful founders become and the more universities enable their success, the more willing they will be to pay it forward to future generations. This means making, for example, alumni donations.
Thirdly, universities and their TTOs should not focus on making short-term money. TTOs are notoriously not a great business and essentially cover their cost base. What moves the needle is donations and having large companies generating significant revenues and employment in Europe. Enjoying the support of alumni will be crucial in this, as happy alumni will donate for and evangelize about their university.
✨Carbo Culture, a carbon removal startup, is hosting the Carbon Removal Afterwork next Wednesday, August 24, 5-7pm in Helsinki, Finland! If you are interested, message Charlotta Liukas for more details.
🔬I listed the 11 best programs, fellowships, and venture studios for scientists and entrepreneurs who want to build a deep tech climate startup. Find these resources also on the Survivaltech.club website.
🌍I also made a thread about the upcoming Climate Tech Conferences in fall 2022