Britain's universities are world-beaters – but they need to do far better at commercialising UK academic research

Oxford university
Oxford University produced 41 spinout companies in the the five-year period to 2016

They are among Britain’s greatest national treasures and a powerful engine of ideas and innovation for the nation’s booming technology industry.

But how good are UK universities at commercialising the research and expertise which springs from their laboratories and lecture halls?

On one level, Britain’s university spinout sector seems to be thriving. 

During the five-year period to 2016, Oxford University produced 41 spinout companies, up from 21 in the previous five years ended in 2011. At Cambridge University, the number of spinouts grew from 13 to 33 over the same timeframe.

They include some of the brightest hopes in UK business.

ARM Holdings, the cutting edge microchip designer acquired by Softbank of Japan for £24bn in 2016, was the creation of a group of Cambridge alumni.

Oxford Nanopore, a developer of gene sequencer machines founded by Professor Hagan Bayley, a chemical biologist at Oxford University, was recently valued at £1.5bn.

Exscientia, a spinout from Dundee University which uses artificial intelligence to automate drug design, is one of a string of others thought to have similar potential.

But not everyone is convinced UK universities have the right formula for nurturing spin-outs into so-called unicorns, or startup companies worth in excess of $1bn.

For many PhDs, setting up their own company with the hope of earning serious cash from research they may have worked on for years in a university lab is a dream.

But it is not a simple process and is fraught with legal and financial risks around intellectual property (IP) rights, equity stakes and technology transfer deals.

Many UK universities have drawn criticism for demanding too big a chunk of the equity in the spinout firms formed by their researchers - an approach many believe stifles the desire of academics to commercialise their ideas in the first place.

In the worst cases, university technology transfer departments have been accused of exploiting academics whose scientific expertise in their field of interest usually far outweighs their competence at dealmaking or financial engineering of new companies.

The most glaring example of this is Oxford University, which typically demands a 50pc equity stake in its spinouts plus a share of IP royalties. 

Other UK universities follow a similar model, although the approach varies. Cambridge and Imperial College London have a reputation for taking smaller stakes - although they are still typically much bigger than the 5-10pc slice asked for by MIT or Stanford - the US universities usually held up as shining examples of how academic research can best be commercialised.

Certainly, there is no denying their extraordinary success. 

From Stanford’s palm-fringed campus on the dreamy slopes above Palo Alto, the university has given rise to a dizzying run of spectacular growth stories which place the achievements of Oxford or Cambridge in the shade. 

Among others, Stanford alumni have gone on to found Hewlett Packard, Cisco, Sun Microsystems, Intel, Yahoo!, Netflix, Paypal, Electronic Arts - oh and Google, whose parent company Alphabet alone is valued at $835bn making it the world’s fourth biggest company.

Stanford has become a central plank of the Silicon Valley success story - closely woven into the fabric of America’s technology industry.

So shouldn’t UK universities simply copy the 10pc model pioneered there if they want to emulate Stanford’s success?

Not so fast, say supporters of the British model, who point to important differences between Britain and the US as justification.

Silicon Valley, after all, is famously awash with venture capital money and technology startups based there find it relatively easy to raise cash if they have a good commercial proposition and a credible management team.

Last year, over 8300 US companies received venture funding totalling $131bn. Contrast that with the UK, where technology companies raised $7.9bn in 2018 - not bad and higher than any other European country but still a fraction of the amount raised across the pond.

In a nutshell, American spinouts are simply less reliant on the support of the universities where they may have emerged than in the UK, where academic institutions play an important advisory role supporting them and justifying their larger stakes.

That, at least, is the argument which has been advanced for years to justify the UK model.

To be fair, there is some truth in it. Many British academics with bright ideas do indeed struggle to plug themselves into the kind of network of financial backers and advisors which makes Silicon Valley so unique and which excels in guiding startups through the process - from seed funding of a research project to (hopefully) a blockbuster IPO of a fully-fledged company.

Nevertheless, it’s important to acknowledge that the UK startup scene has evolved.

Between 2013 and 2017, equity investments into UK university spinouts more than trebled from £309m to £1bn, according to figures from Beauhurst. 

That may fall far well short of Silicon Valley but Britain’s VC sector is today bigger and more sophisticated than ever before. 

Moreover, a variety of new funds are springing up which specialise in precisely this area: the commercialisation of academic research.

Bristol University has launched an Enterprise Fund to support academic spinouts. Last year a group of leading Cambridge University scientists including Astronomer Royal Martin Rees formed Ahren, a $100m fund which to invest in Cambridge companies. 

University College London manages a spinout fund worth more than £50m and similar groups exist at Imperial College.

All these are in addition to the regular network of private VC firms, mainly based in London, which spend their time scouring for exciting new opportunities.

All of this should create more competition in the funding of UK spinouts, which can only be healthy for the wider technology industry.

With time, UK universities should be under growing pressure to offer better deals to their  academics to start new companies. That can only be good news for UK innovation and enterprise.