Well done 👏 Brian, Tannya, Lisa-Maree and everyone at Turing Fest for putting on a great conference last week. I hope you're not reading this and instead lying on a beach somewhere.

This week, CivTech 9 has opened, fundraising news from Exergy3, Converge winners, new Geovation cohort, and funding news from the Scottish Government.

But first - we need to talk about spinouts. Here's your Campfire for 3rd of July 2023.

💼 This issue of Campfire is caffeinated by Shepherd & Wedderburn, the legal firm that's there for you every step of the way.

Universities are sinking spinouts

By Robert Gelb

The other week, I heard a story about a leading university in Scotland's response to a statement about equity. Wanting 20-40% of a spinout company without any cash investment, they were told that Stanford often asked for 5-10% at the most. Their response? "Well, sounds like Stanford has a lot to learn."

The arrogance in that statement is indicative of a wider problem that Universities have in Scotland and the UK in general. It leads to a perception that they believe their resources and pre-incorporation efforts justify saddling a newly minted spinout with 20-40% of dead equity.

For a new company (with a few notable exceptions), equity's value should be allocated based on the future opportunity that transaction affords the company. For example, an employee pool enables an incentive to attract top quality talent, or an investment provides cash to take rapid action that's otherwise not possible through revenue alone. And if a cofounder leaves a team, there would be an expectation of a return of significant equity, favouring increasing future opportunities over recognition of past performance.

So, what ongoing value does a university provide?

I'm not saying a university cannot or does not provide ongoing value, nor that IP should be valued at 0, but how often is that question asked when planning a spinout?

Instead, as is often discussed, there's an attitude that the value of the IP alone is worth such a high premium. It flies in the face of the commercial reality that the ability to execute—rather than the idea or IP—is the difference between success and failure.

From bureaucratic challenges and growing tensions to founders themselves sounding the alarm about UK universities insisting on 2.7x the equity that EU universities and 3x of US universities require, there's widespread concern about the state of UK spinout equity. Widespread that is, aside from within many universities themselves.

Dead equity kills high-growth companies. High-growth companies often need multiple rounds of funding. Future investors want to know the founding team has adequate incentive to stick around as the stakes get higher. When you combine dead equity and toxic rights held by a university team that rarely has power venture commercial experience in startups and scale-ups, you risk dissuading high-growth, experienced investors from even coming to the table.

40% of £0 is still 0.

In a commercial setting, a premium is paid for team and commercial traction (no matter how early), not an idea. Aside from IP, what actual tangible, commercial value will a university provide to a spinout? Direct access to customers? Partnerships? An ability to get a product into a market faster than a competitor?

If you're taking 20-40%, what are you doing to support and make this company a success to justify that figure?

If you can't answer that question, you shouldn't be using the unique nature of how spinouts develop to sink a company before it learns to swim. If you're offended by the question, you probably shouldn't be playing in the startup space at all.

What's an alternative? No one asked my opinion, but I can't resist providing a few ideas anyway:
1) Look to successful spinout ecosystems that breed hyper-growth companies and offer more advantages for less equity. Learn from others and check the institutional ego at the door.
2) If you want a larger chunk, put money in. Either invest in the company directly and earn a higher stake that way, or construct a pro-rata agreement that gives the university a guaranteed right to invest over a certain number of rounds to preserve optionality.
3) Wildcard: Universities should look at a model similar to Piece Future. Take your unused IP and patents and make them available for existing startups to acquire/use in exchange for (a very small amount of) equity in their business.

What gives me the right to say any of this? I've never operated a spinout, nor have I advised a university on deal structures, but I've now heard this from enough people who have done both, that it feels worth raising as a wider discussion. This is a significant part of the ecosystem, so we need to talk about it, which is what we started Campfire to do.

But this is just one perspective. Do you work on the university side and think I'm full of crap? Do you run a spinout and disagree? Have a different view? We'd love to share an alternative perspective, especially if it contradicts the above. We need more open debate if we as an ecosystem want to improve.

🌊 Updates

🏗️ Civtech has opened CivTech 9 with £7.8m in funding available to companies able to solve challenges from various government agencies and organisations in Scotland. FS DIG

👕 Edinburgh-based sustainable clothing brand Meander Apparel is raising £150k in equity crowdfunding with a pre-money valuation of £2.7m. IN

🥇 Converge Challenge held their pitch event for founders to win £500. Winners included Education Evolved (lifelong learning platform), FireHorse (renewable briquettes from horse manure), and Hubble Bubble (AI platform for international students in the UK). CON

🗺️ Geovation Scotland (organisation supporting acceleration in location, land and property technology innovation in Scotland) announced its 5th Accelerator Programme cohort: EMMA, Unbagged, Rethink Carbon, Mortar IO, MYtown MYcommunity, and MARKED . ROS

📝 ScotlandIS (digital economy membership org) launched a platform called Future Ready that includes templates, boilerplate language & guidance on "legal planning, governance and compliance, to investor engagement and financial planning." FS DIG

🥇 Glasgow has been named Scotland's top city to start a business in 2023, placing it 5th overall. Dundee is 22nd, Edinburgh is 24th, and Aberdeen is 34th. Data used included average salary, rent, qualification levels, 'startup survival rate', and internet speeds. (@Reader: these 'city rankings' seem to be pretty arbitrary and come out almost every week. Are they of interest? They seem like fluff.) YH TS

💡 Dundee-based Edge Solutions, a wind-turbine blade repair and protection tech company, is raising £2m. PI TS

💰 The UK & Scottish govs are partnering to invest £160m in Glasgow and Aberdeen, naming them UK investment zones. Investment zones are primarily focused on research funding via universities, however also include things like ecosystem projects and tax incentives for business. TH

♻️ Edinburgh-based spinout Exergy3 (ultra-high temperature energy storage technology) raised £400k in investment from Scottish Enterprise and £3.6m in competition grants to pilot a decarbonisation machine to help a distillery become carbon-neutral. They are also hiring (details below). DIG

🏴󠁧󠁢󠁳󠁣󠁴󠁿 The Scottish gov announced £17.5m in funding for the general startup ecosystem. Aspects include adopting many of the Ana Stewart Pathways report recommendations, a return of the Ecosystem Fund, developing pre-start centres focused on encouraging women to start businesses, and the Entrepreneurial Campuses project. SFN IN

🥃 Glasgow-based drinks company Edrington (Macallan, Highland Park, etc) is now worth £1bn. TH

📣 Asks & Offers

💡 Who do you know? Edinburgh-based clean-tech spinout Energy3 (ultra-high temperature energy storage technology) has closed a funding round and is hiring:

🇸🇩 Hire from Sudan: The war in Sudan is wreaking havoc on people's lives. There are several high-quality developers and designers available to hire. More info here.

🙋 Interested in being a COO/CEO? A successful startup (12-15 people) are looking for someone to lead it into its next phase. Seeking a founder mentality who is willing to experiment and explore new avenues while being in charge of the company's operations. A great opportunity for the right person who can have a genuine impact on the company in an exciting industry (Earth Science Tech). Reply to this email for more info.

🎨 Fancy a new adventure? An established Applicant Tracking System (ATS) SaaS platform is looking for a growth & marketing lead. Offering founder-level equity for the right candidate. Reply if interested.

👭 Interested in connecting with possible co-founders? Multiple queries have come in from founders and founder-curious about who might be interested in connecting for the explicit purpose of co-founder matching. Reply to this message if you're interested in being listed on a Scotland-wide cofounder matching group.

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While the entirety of the firm has been a great partner for us, Hannah Bruce in particular has done an excellent job guiding us through a myriad of legal challenges by taking the care and time to understand our business and operations to ensure we are provided the best and most pointed counsel possible. I would strongly recommend Shepherd and Wedderburn as a trusted partner for providing expert advice and support on a wide range of legal and compliance matters." - Kevin Kreuser, Head of Legal, BetDEX Labs, Inc.

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👉 To learn more, send an email starttoscale@shepwedd.co.uk & set up a chat.

📅 Events

🙏 04/07, 09:30 🗺️ Online: Doing More by Doing Less: Understanding & Managing Demands: Highly interactive, 2.5-hour, online workshop we look at this thorny issue of managing our demands, prioritising and saying no so that we can actually get more important work done, by doing less. MORE INFO

🧗‍♀️ 04/07, 09:30 🗺️ Online: Scottish Women in Business July Virtual Meetup: Connect, Communicate and Collaborate with other smart, successful women in business - and are open networking event is for any woman in business, whether running your own company, freelancing or employed at any level. MORE INFO

💻 04/07, 18:00 🗺️ Edinburgh: Edinburgh Tech Meetup: We have some interesting speakers, talks and games lined up with lots of time for networking. MORE INFO

☕ 05/07, 08:30 🗺️ Aberdeen: Unfiltered Aberdeen: Connect with members of the local tech community. MORE INFO

☕ 05/07, 08:30 🗺️ Edinburgh: Unfiltered Edinburgh: Connect with members of the local tech community, the coffee is on us! MORE INFO

☕ 05/07, 08:30 🗺️ Stirling: Unfiltered Stirling: Connect with members of the local tech community, the coffee and hotdesking are on us! MORE INFO

☕ 05/07, 08:30 🗺️ Glasgow: Unfiltered Glasgow: Connect with members of the local tech community, come for a coffee, stay for the hotdesking! MORE INFO

☕ 05/07, 08:30 🗺️ Dundee: Unfiltered Dundee: Connect with members of the local tech community, the coffee and pastries are on us! MORE INFO

☕ 05/07, 08:30 🗺️ Inverness: Unfiltered Inverness: Connect with members of the local tech community, the coffee and pastries are on us! MORE INFO

💻 06/07, 18:00 🗺️ Glasgow: Glasgow Tech Meetup: Introduction to Load Testing by Dougal Matthews, Infrastructure as Code by Sarah Lean, plus lots of time for networking. MORE INFO

💻 10/07, 18:30 🗺️ Inverness: Inverness Tech Meetup: We have some interesting speakers, and talks lined up with lots of time for networking. MORE INFO

🤝 10/07, 18:45 🗺️ Kelso, Eyemouth, Virtual: SOSE Summer Engagement Tour 2023: Come and talk to SOSE to find out more about the region’s economic and community development agency. MORE INFO

🎨 11/07, 12:00 🗺️ Stirling: Marketing Meetup: A quick and insightful in-person meetup, open to all marketers, to share your experience and learn from others. MORE INFO

Deadlines

🎯 Open 💡 Applications are open for the RBS Accelerator programme MORE INFO

🎯 22/08 🏗️ CivTech 9 Challenge call deadline for complanies to submit proposals for a share of £7.8 million of contract opportunities for teams and businesses able to solve problems for government backed agencies and organisations in Scotland.

🎯 01/09 🤓 Applications are now open for the Scottish Cyber Awards. MORE INFO

🇬🇧 Upcoming Innovate UK deadlines:

Ofgem Round 3: Call for Ideas Submissions close 21 August
India – UK Collaborative R&D for industrial sustainability Applications close 6 August
UK-Israel Eureka Bilateral Collaborative R&D: Round 2 Applications close 13 September
Innovate UK Smart grants: June 2023 Applications close 27 September 2023

Are we missing your event or deadline? 👉 Submit it here!

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That’s all for this week - have a great one!

Team 🔥Campfire

Campfire

🎓 Universities are sinking spinouts…