The Burden of University Equity Stakes for Spin-outs: Evidence from the UK

91 Pages Posted: 25 Apr 2023 Last revised: 1 May 2025

See all articles by Thomas F. Hellmann

Thomas F. Hellmann

University of Oxford - Said Business School; University of Oxford - Said Business School; European Corporate Governance Initiative

Junida Mulla

University of Oxford, Saïd Business School

Matthias Qian

University of Oxford

Date Written: May 01, 2025

Abstract

Universities are an important breeding ground for innovative ventures, yet there is considerable controversy about the appropriate ownership stake universities should retain in their spin-out companies. This paper examines the extent to which higher university stakes inhibit spin-outs from raising venture capital funding. The analysis is based on a formal theory of spin-out formation and fundraising, and leverages detailed data from UK spin-outs. Using an instrumental variable based on precedents set by prior spin-outs within a university, we find that a 1% higher university stake reduces the likelihood of raising venture capital funding by 0.8-0.9%. The effect is heterogeneous: stronger for companies located in the Golden Triangle (London plus Oxbridge); weaker for deep tech spin-outs; and stronger in the presence of outside managers. The rate at which spin-outs are formed within the university also declines by 0.6–0.8% for every 1% increase in university stake.

Keywords: university spinout, equity allocation, fundraising

JEL Classification: L25; L26; G24

Suggested Citation

Hellmann, Thomas F. and Mulla, Junida and Qian, Matthias, The Burden of University Equity Stakes for Spin-outs: Evidence from the UK (May 01, 2025). Available at SSRN: https://ssrn.com/abstract=4416303 or http://dx.doi.org/10.2139/ssrn.4416303

Thomas F. Hellmann (Contact Author)

University of Oxford - Said Business School ( email )

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HOME PAGE: http://www.sbs.ox.ac.uk/community/people/thomas-hellmann

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0)1865 288937 (Phone)

HOME PAGE: http://www.sbs.ox.ac.uk/community/people/thomas-hellmann

European Corporate Governance Initiative ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Junida Mulla

University of Oxford, Saïd Business School ( email )

Matthias Qian

University of Oxford ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 7958 921145 (Phone)
OX1 1HP (Fax)

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