Spinout versus spinoff: What's the difference?

What is the difference between a spinout and spinoff?

When I talk to entrepreneurs and managers, there is much confusion about the difference between spinouts and spinoffs. This confusion is due to the ambiguous use of these terms both in practice and academia. Although there exist many opinions about the differences between spinouts and spinoffs, I will focus here on the authority behind a spinout or spinoff.

Spinoffs (often called "corporate spinoffs") are the outcome of a corporate decision making process (Agarwal, Audretsch, and Sarkar, 2007). A parent company's managers decide to make a division or subsidiary of the corporation into a separate legal entity with different (albeit often overlapping) owners. Spinoffs are often used to increase corporate coherence and to give new ventures the independence they need to flourish. Spinoffs are a form of corporate restructuring decision that involves divestment. Owners of shares in the parent receive shares in the spinoff, which is a new legal entity with its own equity. The actual implementation of a spinoff may vary, for example, a pure-play, split-off, or carve-out. The term "starburst" is also used in practice to describe a series of simultaneous or sequential spinoffs.

Spinouts (often called "employee spinouts") are the outcome of the independent decisions of employees that leave the parent firm to start new ventures. Neither the parent firms, nor their investors receive any ownership shares in a spinout as spinouts are typically owned and controlled by former employees and their own investors (e.g., venture capitalists). Because they are not authorized, spinouts are often met with hostility from parent firm managers and owners (Walter, Heinrichs, and Walter, 2014). Parent firms often try to litigate against spinouts for violating non-compete, non-solicitation, and non-disclosure agreements, all of which may increase the cost of venturing for the spinout. Spinouts may be considered by primary parent firm stakeholders to be disloyal or treacherous, as in the case of the Traitorous Eight. Nonetheless, spinouts led by employees have been among the most successful types of startups owning to the knowledge they transfer from their parents. Among the most success spinouts involve those with large founding teams, thus taking with them large swaths of talent and their established stakeholder relationships.  

In the education and research industries, academic spinoff usually involve university professors or researchers, but also typically also provide equity to universities. For the sake of clarity, it might be better to use the term "academic spinoff" where the university retain equity, and "academic spinout" where the university gets nothing.

Spinouts are related but distinct from hybrid entrepreneurship.

Sources:

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.


Video about the "treacherous eight":


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