Spin-out success needs less fighting over the spoils and more risk-taking

The great American inventor Thomas Edison is famously quoted as saying that genius is “1 per cent inspiration and 99 per cent perspiration”. That is still very much true today – particularly when it comes to taking an invention all the way to market success.

These days, much innovation has its origins in universities. And it isn’t just universities that want the companies they spin out of their research to succeed. Without significant numbers of high-value university offshoots – including billion-dollar-valued “unicorns” – the UK government’s “science superpower” ambition will not be achieved.

Campus resource: how to handle the jump from HE to a commercial venture

But at the point of spinning out, these ventures are little more than ideas; the hard work is just beginning. Smoothing spin-outs’ path to success will require all parties – universities, investors, corporates, advisers and, crucially, founders – to overcome the fear of failure and be willing to take bold risks to achieve the most audacious successes imaginable. To that end, they must be incentivised to shift their mindsets on innovation, focusing on creation, rather than squabbling over the spoils before those even begin to emerge.

The equity stakes demanded by institutions reflect a reasonable desire to extract “fair shares” for interested parties, including taxpayers. It is understandable that universities balk at the idea of giving away a big chunk of what might be the next Oxford Nanopore, Graphcore or Exscientia: all billion-pound-plus university spin-outs. But for the sake of UK plc, they should reduce their equity stake demands and agree licensing terms that enable, rather than restrict, founders. Imperial College’s recently updated Founders Choice terms represent a good step in the right direction.

Another proposal – raised recently by The Entrepreneurs Network – is the need for a Swedish-inspired “professor’s privilege” to give academics, rather than institutions, control over intellectual property created. But although giving control to the brilliant individuals behind breakthroughs sounds appealing, I’d argue that this concept ignores how universities and academic researchers operate.

While it would prompt some senior academics to commercialise more freely, many would – legitimately – continue pursuing their academic interests. This is their lives’ work after all: forsaking it to ride the start-up roller coaster strikes many as unappealing.

In my experience, early-career researchers and PhD students are usually involved in making relevant breakthroughs and are then much more likely than their senior colleagues to follow up those discoveries in the lab with the dogged pursuit of commercial success. It is the younger researchers who are more likely to fully commit their careers to taking their ideas on the long and fraught journey to market, embracing all the risk-taking that transformative change depends on.

However, junior researchers have the least influence in universities and typically lack commercial experience, personal capital to invest and established professional networks to draw on. When support is absent or the rational interests of senior academics or the institution are not aligned with their commercial ambitions, junior researchers pursue other opportunities, leaving high-potential technologies to gather dust on lab shelves.

Ultimately, then, although institutions like the idea of impact, its realisation is often constrained by a status quo that favours publication and risk-averse licensing and spin-out models.

In a commercial context, healthy organisations manage a creative tension between two broad groups of functions: sales and marketing departments strain to “get it done”, while finance and legal ensure it’s “done right”. Typically, universities concentrate both functions in a single place, the Technology Transfer Office (TTO), which both administers licensing agreements and spin-out terms and manages support programmes and business development activity. TTOs sit within universities’ administration centres, which are appropriately risk-averse, exhibiting instincts approximating to governance rather than business development.

Universities could accelerate the spin-out mindset shift by mirroring commercial norms and separating governance from business development. Keep governance within the administrative centre in the TTO, but place business development in the schools and faculties that house the inherently inquisitive, risk-taking researchers and students. After all, it was Stanford University’s dean of engineering in the 1930s, Frederick Terman, who first encouraged faculty and graduates to stay in California to launch tech companies. His advice was first followed by Bill Hewlett and David Packard and ultimately led to Silicon Valley as we know it.

With an effective separation of function, government and the private sector might be more willing to collaborate with universities on meaningful, expansive, high-risk projects, with business development-oriented investments linking directly to the high-potential innovators at the grassroots. Providing targeted finance through schools and faculties will incentivise them to provide the time and facilities that are so critical for pursuing audacious ventures. Many of these will undoubtedly fail – but not only will some succeed spectacularly, but the learning accumulated along the way will also be immeasurably valuable, leading to other successes, both commercial and academic.

Becoming a science and technology superpower is within the UK’s grasp. But we must adopt the mindset behind Silicon Valley's success, embracing risk in the pursuit of extravagant outcomes at scale. By building a culture that exalts our boldest innovators and backs their grassroots discoveries at the earliest stages, UK universities can unlock the potential to change the world.

Ben Clark is director of Future Worlds, the on-campus early-stage startup accelerator at the University of Southampton.