Research England has published an independent report by Tony Hickson, Chief Business Officer at Cancer Research UK, following his review of relationships between universities and investors.
The UK research and innovation sector has much to celebrate.
It has the leading start-up ecosystem in Europe and is second only to the US in the value generated from university spin-outs.
The sector embodies the UK’s ability to advance knowledge, improve lives throughout the country and to drive growth in a myriad of sectors.
To fully utilise the UK’s research and innovation as engines for growth, Tony Hickson has identified 20 recommendations for:
- universities
- policymakers
- public funders
- investors
Access to finance
Despite a sophisticated investor landscape, issues remain such as a shortage in funding at pre-seed and scale-up stages, and disparities in access to investor hubs especially outside the golden triangle of universities.
The report suggests that a more targeted approach of allocating capital to pipeline gaps and key sectors, such as fusion, quantum and creative industries, could support spin-outs in these areas.
The report acknowledges that initiatives made possible by public investment from UK Research and Innovation (UKRI) are delivering high returns, such as Research England’s Higher Education Innovation Fund.
Call for system-wide collaboration
The report calls for system-wide collaboration across universities, investors, funders and policymakers. Specific interventions recommended within the report include:
- significantly boost pre-incorporation and pre-seed funding, including UKRI expanding funding for proof-of-concept to £100 million annually (funding should be available in a hybrid model including open competition)
- a contiguous funding pathway that integrates council awards with Innovate UK funding and others such as British Business Bank would improve visibility for founders
- the government should accelerate pension reform to utilise capital from pension funds
- expand specialist deeptech capital access, with UKRI mapping the gaps in seed, venture and scale up funding across regions and in the eight priority sectors identified in the Modern Industrial Strategy
University-investor relationships
The report describes a ‘cultural mismatch’ between universities and investors.
The report highlights the strength of universities in managing a complex portfolio of early-stage ideas required for deep-tech.
Universities therefore tend to spread proof-of-concept grants across a wide range of early-stage projects.
Investors, by contrasts, are more likely to prefer more developed ideas, investing larger amounts of funding in fewer high-potential ventures.
The misalignment of expectations appears to be a common cause of breakdown in university-investor relations.
More specifically, the recommendations include the following to improve university-investor relationships:
- UKRI to adopt a strategic approach to embed entrepreneurship within academic career pathways and curricula
- universities to expand access to entrepreneurship education and combining business skills with hands on experience for PhD students and researchers in start-ups
- improve institutional support and infrastructure with universities and investors building internal venture teams and seed funds
Addressing barriers to formation
The report raises concern that too many spin-outs form too early, lack investment readiness or are unlikely to secure funding.
Although maturation of deep-tech requires longer time-scales, taking on average 11 months to form a spin-out, this could be sped up further.
It is recommended that a number of actions be taken to streamline and better support formation, including UKRI to:
- establish a national task force to speed up spin-out formation and reduce time from investor interest to deal completion
- strengthen early investor engagement and interfaces with universities, embedding more commercial expertise and involve investors earlier in university decision-making
Room for improvement
Chief Business Officer at Cancer Research UK and Cancer Research Horizons, and report author, Tony Hickson, said:
The UK spinout ecosystem is thriving but there is room for improvement. There is no shortage of good ideas coming from UK universities across the country, and their relationships with investors are improving.
Cancer Research Horizons looks forward to partnering further with universities, investors, government and others to make the recommendations in this report a reality and bring breakthroughs to patients sooner.
Whole system approach needed
Tony Hickson is clear that a whole system approach is needed; however, there is no silver bullet and a suite of action is required.
Some contributors offered interesting suggestions that may be considered in future:
- UKRI should develop a 10-year vision for developing spin-outs, incentivising behaviour change, defining success through clear outcomes, timelines and measures
- contributors to the review suggested wider reforms, such as supporting talent to relocate to the UK through immigration reform, regulatory reform to maintain international competitiveness, and capital markets reform
UKRI response
In response to the report, UKRI is committed to developing a vision structured around seven key themes:
- explore expansion of proof-of-concept and pre-seed funding
- work with the British Business Bank, the National Wealth Fund and institutional investors to unlock new flows of pension capital
- support universities to integrate entrepreneurship into their teaching and staff development
- promote harmonised intellectual property and equity frameworks and encourage clear, published policies
- back shared services and sector-specific accelerators to build investor-readiness
- align interventions with regional strengths: innovation is everywhere, and opportunity must be too
- work with partnerships to expand specialist training in deeptech for investors and bring international best practice
Where intervention can benefit spin-outs
Executive Chair of Research England, Dame Jessica Corner, said:
From rolling out how quantum computing can have everyday uses, to ensuring chemical safety by identifying toxicology solutions, our spin-outs can help advance knowledge, improve lives and drive growth.
Research England commissioned this report to understand where our intervention can benefit UK spin-outs. We will be working on developing a long-term vision that will explore the expansion of early-stage funding, how we can unlock pension capital and look to align interventions with regional strengths so every area can benefit.
