Abstract

The low level of private equity investment supporting university spinouts (USO) has attracted much attention in recent years. While literature suggests “poor investor-readiness” on the part of academic entrepreneurs and incomplete assignment of university intellectual property (IP) to USOs as constraints to investment, few studies have examined the effects of the deal making process itself on investment deal outcomes. This study examines the investor readiness profile of USOs prior to investment negotiation and assesses the deal negotiation tactics deployed by academic entrepreneurs, during negotiation with both universities and investors, to consider how they influence investment deal outcomes. Findings lend support to previous studies suggesting a weak investor-readiness profile of university spin-outs. However, this study finds a much more prominent role played by academic entrepreneurs in contributing to the weak investor-readiness of their enterprises and identifies adverse effects of poor negotiating tactics. The paper suggests the need for third-party “term-sheet” coaching for academic entrepreneurs and much earlier deployment of independent legal advice on deal structuring and deal negotiation.

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