From the other side   

We put out a short series of posts over the Summer about our differences of opinion with Golden Triangle standard practice and with aspects of the USIT guides. A recent conversation with an old friend in the heart of the Golden Triangle shed some light on why they operate as they do. 

Policies tend to develop over time, part custom-and-practice, part active decisions, and eventually become part of the wallpaper. It’s not usually that anyone sets out to do anything aggressive or dysfunctional.  

But sometimes, that’s the outcome. 

We do it because we can 

There’s not really much to add to the sub-heading. With a big portfolio of spinouts and a steady stream of investment interest from across the world, the question from the Oxbridge and London universities is, really: what’s the problem? There may be a better way of doing things but, so far, they’re not exactly failing. So, if they want to spin a company out but still keep their dibs on the IP, so be it. If they insist on revenue shares, so be it. There’ll always be a buyer for a good asset. 

Cashflow isn’t such as issue 

The other interesting aspect was the scale of funding. DSW Ventures are becoming past masters at turning even a Seed EIS investment into a seven-figure funding package, tacking together corporate monies, grants, and maybe an intervention fund or two. But cash is still short, so overheads get nailed down, and we have to insist on minimal backflow of cash to the university.  

In comparison, our old friend was weighing up a near billion dollars’ current-year funding budget for his portfolio.  

So, looking at cash obligations to the university, what’s life and death for a regional spinout becomes lost in the rounding in the Golden Triangle. 

Politics 

The other issue is politics. Value from a spinout flows in varied ways (equity, cash) and to varied parties (university, college, faculty, academics, management) in ways that have – despite academia’s fractious politics – been agreed upon. The idea of pooling all that value as equity and re-cutting the pie got a polite smile. 

This is, perhaps, where the regional universities and their spinout founder teams really come into their own. Most really get the importance of spinouts and, we find, are keen to have an intelligent commercial discussion with the priority that the spinout should work. And if that means finding an internal compromise, they’ll do it. There’s a lot of goodwill in these teams. 

Round up 

We’ve said before that a spinout’s best chance of success is when management, university, and investors are in partnership. We think that’s what we have in the regions. We look with concern at the Golden Triangle, its rulebook, and the potential for contamination of the regions. 

Let’s not get held-up when we’ve barely started. 

David Smith 

Partner, DSW Ventures