Who gets equity in a spinout?

The founding academics, University, and investors.

For IP-based spinouts from the University’s MPLS and Medical Sciences Divisions, the University’s founding equity will be shared with Oxford Sciences Innovation through their partnership with the University.

Some research funders also expect to share some equity if they funded the research underpinning the technology that will be exploited in the spinout.

Any investment will dilute the founder shareholding and there is always a negotiation with investors.

The University aims to foster innovation and entrepreneurship in order to maximise the global impact of the University’s research and expertise, and therefore expects a low equity stake for the University, which enables the spinout to incentivise founder researchers and attract experienced management teams and investors. This stake is in recognition of its role in:

• providing the environment for the development of the intellectual property and the spinout opportunity

• providing permissions for academics to become and stay involved with the spinout, alongside their employment

• providing substantial protection to the founders compared with a non-University entrepreneur

• providing Oxford University Innovation to help with the whole process

• allowing the spinout to benefit from association with the University’s name and reputation

The University usually takes ordinary shares with no anti-dilution provisions, so the University will be diluted at the same rate as academic founders by any investment.

The University’s policy is explained here. It sets the founding equity share in spinout companies at 80% for founder researchers and 20% for the University in nearly all cases. There are some conditions under which the split will be 90% for founder researchers and 10% for the University. A review of this policy will be carried out after three years to check for any anti-dilution issues.

Find more information about starting a company.

Oxford University Innovation does not take an equity stake in the spinout company but acts to bring the spinout together and to license the technology. Oxford University Innovation manages the University’s shareholding after the formation of the company, and can invest in subsequent investment rounds.

The Startup Incubator ventures are a little different – Oxford University Innovation takes equity but the University does not.

Incoming managers of the new business may also need a stake, either at spinout formation or through a share option scheme.

All individuals involved need to take professional tax advice on their shareholding.