Universities have been around a long time. The University of Karueein, founded in Fez, Morocco in 859 AD, still operates today. The role of universities has always been education, but today some are embracing a secondary role: helping young entrepreneurs bring technology-based products and services to market. When combined, education and commercialisation present the opportunity for explosive change. It also helps propel leading-edge tech into the mainstream economy. At least that’s the idea.
Universities and research centres conduct a great deal of groundbreaking research that has the potential to one day become profitable. There have been notable spin-outs from UK universities in recent years. The Oxford Sciences Innovation fund now stands at £600 million and has been doubling the number of Oxford University spin-out companies each year since the fund launched in 2015. In 2017, UK law company Penningtons Manches reported that Silicon Valley investment in the UK surpassed £1 billion, with the majority of this going to software, life sciences and biotech start-up companies operating in the ‘Golden Triangle’ of Cambridge, London and Oxford.
Before considering the Government’s role in commercialising tech, it’s worth looking at the story from the academic viewpoint, by considering the view from the laboratories and workshops of Britain’s top-level universities.
Traditionally, venture capital and angel capital has been the lifeblood of the development and launch of innovations originating from universities. This is known as ‘technology transfer’ — transferring technology from the place of origination and giving it a wider distribution.
The Valley of Death
On average, it takes two years for a university to progress any type of opportunity from initial disclosure to readiness for investor or corporate scrutiny. Many exciting technologies fail to cross this ‘Valley of Death’, not because they are bad projects, but because the potential is not adequately validated to attract investors.
Such investment opportunities are generally deemed ‘high risk’. Investors must therefore make their selections carefully to keep these risks to a minimum and so naturally they ‘cherry pick’ those with the lowest risk and the greatest demonstrable value.
As a result, the highest risk innovations are often overlooked and goal-posts are frequently moved, usually with requests to “come back later” when the work is more fully developed. The result is inevitable: very early stage financing remains elusive for the most innovative tech entrepreneurs.
The funding available to universities is limited. Therefore, cost constraints can hamper their ability to make their own experience-guided decisions to invest in ‘upstream’ and early-stage projects. Potentially impactful projects go no further than the laboratory or workshop, and even fewer reach the stage of proven principle to be able to pitch to investors or corporate in-licensing executives.
The Commercial Licensing Path
There is another route open to research commercialisation: licensing. Compared to venture or angel investing — typically looking for a 5–10 year return on investment — licensing may be a quicker route to market, but there’s a potentially significant trade-off in the form of lower returns.
The double-bind for licensing is that in order to de-risk them in the eyes of the corporates, a technology’s commercial potential must first be demonstrated… which requires financing. Inevitably, only a minimal number of substantial technology propositions will proceed to meet their full value potential through successful licensing. Licenses often become the poor relation within a university’s IP portfolio.
Reshaping the Regional Landscape
With Oxford, Cambridge and London universities located in England’s southern ‘Golden Triangle’ the regional bias needed correction. The 2017 report from Tech Nation is clear in stating the importance of regional collaboration to the growth of the UK tech sector. The industrial revolution itself began in and around Manchester, with more recent local innovations including the first stored programme computer and the contraceptive pill. It’s fitting therefore, that a partnership between Manchester, Leeds and Sheffield universities has formed the Northern Triangle Initiative.
Closer in, in 2004 following the merger of the University of Manchester Institute of Science and Technology (UMIST) and The Victoria University, the University of Manchester created UMI3. Its mission is to bring the University’s ground-breaking research into the commercial world. As Chairman of UMI3, alumnus of the University of Manchester and Partner at Octopus Ventures, my viewpoint spans the two worlds of educational research and commerce.
There are many, many innovations coming out of the University, but it’s our National Graphene Institute that is grabbing most headlines. The point of interest here has been the approach towards commercialisation, following graphene’s Nobel prize-winning discovery in 2010. Traditionally innovations would be patented, then spun out into the market. Following this pattern, it took 30 years for carbon fibre to impact the mainstream.
This time, through a commercial entity, Graphene Enabled Systems Ltd, it’s the immediate and projected needs of the market which have determined the direction of research and innovation. Already, 80 companies are partnered with The University of Manchester working on graphene applications. This is academic research with commercial viability built-in. It’s an exciting landscape, and there are still areas where help is needed.
Encouraging patient capital is always a good thing. However exciting the innovations from start-ups, the risks remain high. Anything Government can do through tax policy and pension fund incentivisation goes a long way to encourage this kind of investment. The Government’s recent consultation on a knowledge-intensive version of the existing Enterprise Investment Scheme, is a good example of forward thinking in this space.
Patenting is also an issue. While the University of Manchester receives c£350 million a year in research income, this is expected to be geared into commercial outputs through the technology transfer office — which itself has an annual budget of only £4 million. The University has to find funds for patenting — a crucial part of the commercialisation process — itself. In a ‘normal’ organisation the percentage spent on this would be orders of magnitudes higher. A broader observation here is that as a country we are still spending less than many other less wealthy countries on R&D as a percentage of GDP.
“Investing in science, research and innovation — we must become a more innovative economy and do more to commercialise our world leading science base to drive growth across the UK.”
– Industrial Strategy White Paper, HM Government
Facilities Make Innovation Possible
There is also a need to help fund the costs of infrastructure to help market and accelerate the projects once they have been identified. Traditionally, university incubation facilities have had a very corporate feel, with a drive toward securing long-term corporate ‘anchor tenants’ in order to make them commercially viable.
To drive true innovation, there needs to be investment in more open working spaces and facilities where networking and collaboration can flourish. Alongside this, resources must be found to attract and maintain talent. This will help projects flourish and avoid the Valley of Death once they leave the lab — as will enhanced, university-managed, financing capabilities.
And finally, my own bold suggestion for a kind of ‘founders’ pledge’ model. Namely, that all universities contribute 2% of what they make from IP into some kind of centralised pot, specifically to help drive the commercialisation agenda across institutions in general.
The Government’s White Paper states its intention clearly. Universities like Manchester are already doing more “to commercialise our world leading science base”. It’s arguably a golden age of technology innovation in Britain’s universities, so let this also be the era of investor enthusiasm and confidence, fuelled by intelligent, far-reaching policy from central government down south.