In late 2019, Professor Sir Anton Muscatelli, Principal of the University of Glasgow, published a report on industry engagement and the contribution to economic growth by Scotland’s universities. The report was commissioned by the Cabinet Secretary for Finance, Economy and Fair Work to look at how the innovation and research activity being undertaken in universities can help to drive economic growth. One of the ways in which universities contribute to the economy is by establishing spin-out companies.
A spin-out company is a new company formed to commercialise and exploit the product or outputs of research undertaken within a university. Commercialisation of university research is an important generator of new and innovative businesses, products and services, taking new ideas and disruptive technologies from research stage in an academic setting out into the wider economy.
Spin-outs can operate in a variety of sectors and industries, but some of the areas in which Scotland has a track record of producing spin-out companies include life sciences, aquaculture, informatics, fintech and other emerging knowledge-intensive industries.
Generally, a spin-out company will involve the university transferring or licensing (granting rights to use) the intellectual property rights arising from research conducted by it to a new “spin-out” company. In return for allowing the company to use these rights, university will usually receive shares in the spin-out company, and may also receive a royalty (a payment for use a right). The academics or researchers involved in the research (commonly known as the founders) may also become shareholders in the company, and may become employed by the company either on a full time or consultancy basis. Third party investment will often be sought by the new company from early stage venture capital investors or angel investment syndicates to help fund the company to develop the new product, service or technology into a viable commercial business.
From a university’s perspective, stimulating economic growth is one of the key expectations of the Scottish Government from the higher education sector. Spin-out companies contribute to this by providing new and innovative businesses to the economic landscape, which generally provide skilled and well paid jobs, and stimulate entrepreneurial activity. A university will also expect to benefit from a financial return from a spin-out company in the form of dividends from the company, possibly from royalties from the use of the intellectual property rights, and (if the company is successful) by way of payment for the university’s shares on a sale of the company. These returns are then available for reinvestment in the university’s research activity.
As the Muscatelli report highlights, Scotland’s universities have a strong track record of producing successful spin outs, with over 1100 spin-outs generating an estimated turnover in excess of £600m during 2017/18. By exploring and taking on board the recommendations of the report and building on the work of Scotland’s world-class universities, it is to be hoped that many more successful and innovative spin-out companies will be founded in the future.
Robbie Francis is a Corporate Solicitor specialising in the education sector. We are always delighted to talk without obligation about whether we might meet your needs. Call Robbie on 01382 229111 or email rfrancis@thorntons-law.co.uk
