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Fundraising by spinouts hardly affected by university stakes, new data shows

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Critics have long argued spinout companies from UK universities become impossible to fund due to the level of equity the universities take in them.

But new data from Saïd Business School shows, for the first time, the stake universities take in their spinouts has hardly any statistically significant effect on subsequent funding outcomes.

The paper - ‘How does equity allocation in university spinouts affect fundraising success? Evidence from the UK’ - gathered systematic data on a sample of 650 UK spinouts between 2010 and 2021. While there are small negative effects on the probability of raising venture capital, especially for IT based spinouts, there are no statistically significant effects of a university’s stake on a spinout’s probability of raising equity, the amount raised or its valuation.

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Thomas Hellmann, DP World Professor of Entrepreneurship and Innovation at Oxford Saïd, co-authored the research with Junida Mulla, a Doctoral Candidate, and Matthias Qian, a Research Fellow in Finance and AI. He notes:

‘This often-heated debate about a university’s stake in their spinouts happens in a data vacuum, based on opinion and anecdote. We are addressing this gap by analysing systematic data on the relationship between university stakes and subsequent fundraising outcomes. The results speak for themselves, there are some specific effects but the broad-brush argument, that higher university stakes make spinouts unfundable, is not supported in the data.’

The research defined a university spinout as one where a UK university owns at least one per cent of the company’s founding equity. The average university stake across the 650 spinouts sampled was 31 percent. The data showed 66 per cent of spinouts raised equity from investors and 30 per cent from venture capitalists.

Professor Hellmann adds:

‘Another surprising finding is that less than five per cent of university spinouts in the UK ever raise more than £25 million. How to improve the overall quality, funding, and performance of university spinouts, remains an important challenge.’

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