Founder-friendly blueprint aims to boost UK software spinouts

Leading universities and investors have collaborated to create software spinouts quicker and with less friction

TenU – which represents world-leading universities including Imperial, Cambridge, Oxford, UCL, Manchester and Edinburgh – has joined forces with top investors and professional services firms to launch an expert guide for the rapid and efficient formation of software spinouts from cutting-edge research universities.

The USIT for Software Guide will be launched at an event later today (Monday 20 May) at Mansion House.

Spinouts

Among the UK’s most successful technology firms are companies that started out as university spinouts – examples include Solexa, Oxford Nanopore and Synthesia.

A recent Government review of spinouts highlighted the importance of such companies to the UK economy, and their potential to support the UK’s goal of becoming a science and technology superpower. The report found that university spinout investment had increased fivefold between 2014 and 2021, from £1.06 billion to £5.3 billion.

The USIT for Software Guide reflects the unique characteristics of software spinouts and provides a common approach to negotiations across the sector to make the process more efficient.

Developed through hundreds of hours of engagement with investors, professionals and founders, the guide proposes equity and royalty terms and process improvements that will incentivise and support spinout founders.

Simon Hepworth, Director of Enterprise at Imperial and Chair of USIT for Software, said:

“Maximising the real-world impact of cutting-edge university research is crucial to advancing the UK’s reputation as a world leader for innovation. 

“The new USIT for Software Guide demonstrates the sector’s continued commitment to building stronger relationships between TTO offices of leading universities, investors and founders, for the benefit of spinouts, the economy and society.”

Equity and terms

The new guidance creates a ‘landing zone’ of equity and terms that should be acceptable for founders, investors and universities. This includes a recommendation that universities take between 5 and 10% of the equity in software spinouts, and that university royalty levels are between 0% and 2%. The guide also recognises the importance of a clear process that can be followed at the requisite speed to give software spinouts the best chance of success.

Imperial’s new Founders Choice terms, launched in August 2023, align with this landing zone.  Further information on Founders Choice can be found on the Imperial Enterprise website.

Imperial’s software and AI expertise

Imperial is a hub for software and AI innovation. Recently announced initiatives and centres include:

• AIChemy, the UK’s flagship AI for chemistry hub, led by Imperial and the University of Liverpool
• The AI SuperConnector, an AI startup accelerator initiative that aims to help early career researchers launch high-potential companies using AI to solve real-world problems
• The UKRI AI Centre for Doctoral Training in Digital Healthcare, which will train PhD-level researchers to develop AI systems that address healthcare challenges.
• I-X, Imperial’s flagship AI initiative

Many software businesses have formed at Imperial, often combining research expertise with software innovation to deliver impactful solutions that solve industry challenges. Companies in the news recently include:

• Monolith and About Energy, which are partnering to help electric vehicle makers predict how the battery pack designs will perform
• Quaisr, a spinout developing a platform to help industry build reliable digital twins of systems or processes, which recently raised $3.1 million investment
• Breathe Battery Technologies, whose adaptive charging software will be integrated with Volvo Cars’ battery management platform
• Polaron AI, a spinout from the Dyson School of Design Engineering using generative AI to help companies design higher performing materials for applications such as batteries

"Imperial’s unique combination of expertise, facilities and connections to industry and investors make it a beacon for founders. Our research and discovery environment is supplemented by tools and support for innovation and impact, underpinned by a strategy that drives us to apply new knowledge for the benefit of society. I am pleased to have chaired the USIT for Software group and to have brought forward recommendations that will boost the formation of software spinouts at Imperial and across the UK."

Dr Simon Hepworth, Director of Enterprise, Imperial College London