It is by now well established that the UK boasts one of the strongest academic ecosystems in the world, which regularly produces globally impactful technologies and discoveries.
It is, however, also well established that for all the enviable success of the UK’s researchers from institutions like Oxford, Cambridge and Imperial, it seems much rarer for these innovations to translate into companies that grow to a scale worthy of their impact without relying on international support, often in the form of foreign acquisitions or relocations.
The British government and the business and investment communities have recognised the value in UK spinouts, yet even though many are founded and go on to achieve great success, there remains a sense that the UK economy is not benefiting as much as it could be.
“There is no shortage of good ideas,” is how Tony Hickson, chief business officer at Cancer Research UK put it, so the question of how those ideas can translate to the scale of commercial impact they deserve remains.
Hickson set out to answer this question in a new report published by UK Research and Innovation (UKRI) looking at the relationship between universities and investors.
The report highlighted shortfalls in the spinout ecosystem and offered a handful of recommendations for universities, policymakers, public funders and investors.
Access to funding
Though the UK has a sophisticated investor landscape, the report notes that a shortage of funding at the pre-seed and scale up stages, particularly outside of pre-established hubs like the Golden research triangle, remains an issue.
To address this, Hickson called for a more targeted approach of allocating capital to pipeline gaps in key sectors, notably those that align with the government’s existing Modern Industrial Strategy, including quantum computing.
The report suggested system-wide collaboration across all concerned parties that would see a significant boost in pre-incorporation and pre-seed funding from organisations like UKRI, a contiguous funding pathway that integrates council awards with public funding bodies like Innovate UK and the British Business Bank and an expansion of specialist deep tech capital access, with UKRI mapping the gaps in seed, venture and scale up funding across regions.
It also noted that measures to allocate pension capital towards such ventures is an effective policy but urged the government to accelerate this process.
University-investor relationships
Another issue highlighted in Hickson’s research is a “cultural mismatch” between universities and investors.
Part of the problem, it claims, is that because universities are so good at managing a complex portfolio of very early-stage ideas, particularly in deep tech, they tend to spread proof-of-concept grants across a wide range of early-stage projects.
Investors, however, prefer to invest larger sums on a smaller number of more developed ideas, hence the mismatch.
To address this, Hickson suggests that UKRI should adopt a strategic approach to embed entrepreneurship within academic career pathways, while universities should expand access to entrepreneurship education, giving PhD students and researchers more opportunities to develop business skills.
Pace of maturity
The report notes that in the case of deep tech ideas, they take on average 11 months to form a spinout, which it claims can be sped up.
It therefore recommended that UKRI establish a national task force to speed up spinout formation and reduce time from investor interest to deal completion.
This would require investor engagement with universities to be stronger, which could be achieved by embedding more commercial expertise in education institutions and involving investors earlier in university decision-making.
Hickson said that universities’ “relationships with investors are improving” already and that the recommendations of his report could be made a “reality” when organisations including his own partner “further with universities, investors, government and others”.
An investor’s perspective
Responding to the report, Ed Bussey, chief executive of prominent spinout investor Oxford Science Enterprises, spoke to UKTN about his own views in the shortfalls of current efforts to grow domestic spinouts into major successes.
“We’re excellent at seed funding, but high-potential companies hit a scarcity of UK-domiciled scale-up capital as they mature,” he said.
“To keep our most advanced companies anchored in the UK, we need to mobilise domestic growth capital and make scaling in London as attractive as it is in New York.”
Bussey also pointed out that the UK must make itself the “preferred destination” for entrepreneurial talent.
Already it contains an impressive community of researchers, but in his firm’s survey of portfolio companies, Bussey notes that the most commonly cited barrier to growth is “the lack of experienced UK-based entrepreneurs who can lead these businesses”.
Read more: A guide to university spinouts
