(Employee) spinout company versus (corporate) spinoff company: What's the difference?
There exists significant confusion regarding the difference between "employee spinouts" and "corporate spinoffs." This is largely due to the ambiguous use of these terms in both business practice and academia (Yeganegi et al., 2024).
The Core Distinction: At a basic level, spinouts involve employees who leave to launch startups (creating new ownership), whereas spinoffs are corporate units turned into independent companies (distributing existing ownership).
1. The Employee Spinout
An Employee Spinout (or simply "spinout") is the result of independent decisions by employees to leave their jobs and start a new venture. These are "employees-turned-entrepreneurs."
- Ownership: Neither the parent organization nor its investors typically receive shares. The new venture is owned by the founders and their new investors (VCs or Angels).
- Relationship: Because they are often unauthorized, they can face hostility. Parent firms may sue for IP infringement or breach of non-competes.
- Success Rate: Despite the friction, these are often highly successful (e.g., Zoom, Intel, Zillow) because founders transfer deep industry knowledge from their previous roles.
Historical Example: The Traitorous Eight
Spinouts are sometimes viewed as disloyal. The most famous example is the Traitorous Eight, who left Shockley Semiconductor to found Fairchild Semiconductor, effectively birthing Silicon Valley.
2. The Corporate Spinoff
A Corporate Spinoff is a top-down strategic decision (Agarwal, Audretsch, & Sarkar, 2007). Managers decide to turn a subsidiary or division into a separate legal entity.
- Ownership: This is a divestiture. Owners of the parent company receive shares in the new spinoff on a pro-rata basis.
- Purpose: Used to increase corporate coherence ("strategic fit") or allow a high-growth division to operate independently.
- Example: When eBay spun off PayPal, eBay shareholders received new shares in PayPal, and the two began trading under separate tickers.
Summary Comparison
| Feature | Employee Spinout | Corporate Spinoff |
|---|---|---|
| Initiator | The Employees (Bottom-up) | Corporate Managers (Top-down) |
| Parent Equity | None (usually) | Shareholders get stock |
| Relationship | Often Competitive/Hostile | Strategic/Collaborative |
| Primary Goal | New Venture Creation | Restructuring/Divestiture |
Nuance and Related Concepts
Academic Spinouts: In education/research, a "University Spinout" involves professors commercializing research. Unlike corporate spinouts, the University usually does retain equity or licensing rights.
Hybrid Entrepreneurship: Spinouts are distinct from hybrid entrepreneurship, where the founder retains their job while working on the startup on the side.
Video: The Story of the Traitorous Eight
Sources
- Adams, P., Bahoo-Torodi, A., Fontana, R., & Malerba, F. (2024). Employee spinouts along the value chain. Industrial and Corporate Change, 33(1), 90-105.
- Agarwal, R., Audretsch, D., and Sarkar, M. B. (2007). The process of creative construction: knowledge spillovers, entrepreneurship, and economic growth. Strategic Entrepreneurship Journal, 1(3–4), 263–286.
- Laplume, A. O. and Yeganegi, S. (2024). Spinout ventures: Transitioning from employees to entrepreneurs. Business Expert Press.
- Walter, S. G., Heinrichs, S., and Walter, A. (2014). Parent hostility and spin‐out performance. Strategic Management Journal, 35(13), 2031-2042.
- Yeganegi, S., Dass, P., & Laplume, A. O. (2024). Reviewing the employee spinout literature: A cross‐disciplinary approach. Journal of Economic Surveys, 38(1), 137-167.
