Government plots university spinout crackdown
The government is plotting to clamp down on the number university spinouts that shift their operations abroad or float overseas, the boss of the body responsible for research investment has said, in a move likely to spark unrest among founders and the venture capital industry.
Sir Ian Chapman, the chief executive of UK Research and Innovation (UKRI), told an event in London that his quango was planning to tighten the conditions it attaches to government grants in an attempt to stem the flow of fast-growing firms being snapped up by foreign rivals and investors.
“At the moment, the UKRI terms and conditions on IP [intellectual property] are the most liberal of any research investor in any of the G7 countries,” he told the UK Private Capital annual summit, adding: “We are having a look at that again. We are consulting and asking for input on whether those terms are right.”
Chapman did not expand on the options under consideration. It is thought they could include forcing IP-heavy spinouts to prioritise a London listing or clawing back investments and grants if they accept a bid from an overseas buyer.
He made the remarks in answer to a question on whether the government was plotting a punitive exit tax on firms that move abroad, a move that UK Private Capital policy chief Isobel Clarke branded “unhelpful and concerning”.
The UKRI boss, who spent eight years at the helm of the UK Atomic Energy Authority, did not rule out the measure, though two people in the fledgling Department for Business, Innovation, Science at Trade said it was not currently being considered as an option.
UK sheds promising spinouts
Britain’s spinouts tend to grow using a combination of venture capital cash and grants from bodies like UKRI and its investment arm Innovate UK. The combination has helped forge dozens of research-adjacent firms now worth billions of pounds over the past decade.
But almost all of the largest and most successful start-ups to have emerged from higher education are now either listed on a stock exchange overseas or were snapped up by foreign rivals, leaving the UK unable to fully benefit from IP generated at its own universities.
Deepmind, the trailblazing artificial intelligence firm founded at the University College London by Demis Hassabis, was bought by Google in 2014. It has since gone on to become one of the best-known players in AI, and spearheads Alphabet’s innovation in the sector.
Cambridge-headquartered Arm – which was bought by Softbank in 2016, is the most valuable company in the UK but is listed on New York’s Nasdaq.
Chapman’s plans to crack down on the departures risks sparking a backlash from Britain’s founder and venture capital community, which have already mounted an aggressive rearguard action against rumours of a so-called exit tax. Critics argue the move would deter early-stage investors, strangling spinouts early growth prospects.
Michael Moore, the chief executive of UK Private Capital, warned any attempt to claw back public grants “risks solving a relatively small problem, while creating a much bigger one”.
“Only a small proportion of UK university spinouts ultimately relocate overseas, yet the prospect of a punitive clawback could be factored into investment decisions from day one, reducing the valuations investors are willing to put on UK-founded companies,” he added.
Harry Stebbings, the founder of 20VC, told City AM: “If your goal is to foster a society of entrepreneurship and innovation, this directly contradicts that.”
In the past 18 months alone, several rapidly growing spinouts have been snapped up by foreign buyers. Quantum computing pioneer Oxford Ionics was bought for $1.1bn (£815m) by American competitor Iong, and Japan’s Terumo acquired life sciences firm Organox for $1.5bn in October.
UKRI and DBIST declined to comment.