Entrepreneurship and the Financial Community
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Entrepreneurship and the Financial Community

Starting up and Growing New Businesses

Edited by Bart Clarysse, Juan Roure and Tom Schamp

This highly accessible book brings together the insights of leading academics and researchers to promote a better understanding of the role of private equity providers in the development of growth-oriented start-ups and the management of growth processes.
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Chapter 10: Private Equity and the Development of University Spin-Out Companies

Mike Wright and Andy Lockett


Mike Wright and Andy Lockett 1. INTRODUCTION University inventions represent an exciting new way to create entrepreneurial ventures. The possibility of creating world-class businesses from the laboratory has captured the interest of governments and universities alike. Academics are increasingly seizing the opportunity to become entrepreneurs through spinning out ventures when just a few years ago this would probably have been anathema to many of them. Yet, ventures spun out from universities face major hurdles if these objectives are to be realized. A key constraint on growth is convincing venture capital firms and other equity financiers to provide funding. The problem is neatly summarized by a venture capitalist aiming to invest in university spin-outs: We manage $2.4bn worth of investments. For us to make money we want to invest $10m to $15m first round, and that investment has to grow significantly to have an impact on our fund. Therefore, we are looking for the sorts of companies that can attract a lot of customers at a high price point, generate revenues and eventually IPO [initial public offering]. So far very few opportunities presented to us by universities for creating new spin-outs have met our criteria. The problems associated with spin-outs obtaining risk capital is exemplified by the fact that only half of the spin-outs created in the UK in financial year 2002 were formed using external equity finance. Over two-thirds of universities did not create a new spin-out in this period but 30 per cent did create one...

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