The Burden of University Stakes for Spin-Outs: Evidence from the United Kingdom

Universities generate breakthrough commercial technology, yet controversy persists regarding the optimal ownership stake they should retain in spin-outs commercializing these discoveries. This paper examines if higher university stakes inhibit spin-outs from raising venture capital funding. The analysis is based on a formal theory of spin-out fundraising, and draws on detailed administrative ownership data from spin-outs in the United Kingdom. Using an instrumental variable based on precedents set by prior spin-outs within a university, we find evidence that university stakes are a barrier to academic entrepreneurship, consistent with weakened founder incentives to raise venture capital. This effect is concentrated in universities that historically had higher university stakes.