There is a nice note in the European Commission’s recent report into boosting knowledge transfer between universities, industry, governments and civil society about “how the models arguably put too much emphasis on the interrelations of human and social capital in the process of innovation and collaboration.
“The importance of financial capital and financially-driven incentives thereby tends to be ignored.”
Looking at the latest figures from one corner of the European Union, the UK, and it becomes easier to see more clearly the landscape on the ground.
Of the about £3.5bn ($5.5bn) the 160 publicly-funded UK higher education institutions (HEI), plus the University of Buckingham, earned in the 2012/13 academic year from business and community sources, nearly a third comes from contract research, usually with industry. The second biggest chunk (£874m) comes from collaborative research involving public funding.
Commercialising intellectual property (IP), including sale of shares in spin-offs, was barely a rounding error at £86.6m.
Digging down further into the UK’s annual survey, called HE Business and Community Interaction, and you can see why.
There was less than one spin-off per institution – 126 with some HEI ownership and a further 24 not HEI owned. Add in staff startups and you get 212 for the 12 months. Given that about 0.07% of US software startups from 2003 – the most dynamic sector for venture capital – have reached $1bn in valuation, according to data from Aileen Lee, founder of Cowboy Ventures, and you can see the chances of lightning striking an academic spin-out about once every decade.
Prospects might appear better given the number of graduate startups, which increased by nearly a third to 3,502 in 2012-13 from 2,729 in the prior academic year, until you look at average employee numbers of less than two per company across all 8,127 still in operation since figures were started to be tracked in the 1990/00 academic year.
The UK appears in reports as one of the brighter prospects for this form of technology transfer in Europe, which must be daunting for EC policymakers trying to deliver on a near-€80bn ($120bn) seven-year initiative to turn the continent into an “Innovation Union” by 2020.
Turning back, therefore, to the EC’s expert group report on Open Innovation and Knowledge Transfer, published last week, and you can see their thinking about how to build up the financial ecosystem for startups and high-growth companies.
One of its recommendations is for the Commission to “actively encourage” corporate investment and partnering with universities’ and principal research offices’ (PRO) open innovation (OI) and knowledge transfer (KT) programmes, as well as with innovative small and medium-sized enterprises (SMEs) and venture investors.
It adds that: “Particular attention should be given to the interests of SMEs so that corporate investment programs seek a win–win partnership with them.”
One way of “encouraging” such partnerships is through the “introduction of smart co-investment schemes in which European public funding is used to provide a leverage effect to investments from the private sector, ” such as venture capitalist (VC), corporate venturing and angels/family offices.
In order for a scheme to be “smart” means private and public investors should jointly act as “diligent lead financiers” to co-finance small and medium-sized enterprises (SMEs). In this co-financing, the government acts as a strategic investor designed to attract and incentivise private investors by splitting the profits disproportionally in their favour.
Combined with policies to develop online collaborative funding platforms, tie up existing policies to support the funding ecosystem for high-potential SMES and a recovery of IPO market and pre-IPO market for equity and debt financing and the report thinks there is chance of “building a VC ecosystem” in the European Union (EU).
Naturally, there are other “actions” recommended, including:
1 – Putting OI and KT in the spotlight through co-creation of commercial projects across industry and sectors, developing better monitoring systems and implementing a better European IP policy.
2 – Embracing innovative businesses and growing innovative markets, innovation hubs and networks by reconsidering its competition policy frameworks and allowing effectively state-aid “for stimulating the development and growth (or scaling-up) of prospective, infant industries”.
3 – Making universities and PROs more entrepreneurial by having them “supporting the delivery of outputs” rather than “managing innovation relationships [as] evidence suggests that individual scientists are the strongest source of initiating interactions with the stakeholders of innovation ecosystems – often with limited involvement of university administrators”. The role of KT offices “would have to be transformed from isolated entities into fully embedded professional service units within universities and research organisations” through the development and adoption of a charter and code, including “appropriate incentive schemes” for scientists and KTO staff, while “accepting that research institutions become more autonomous and rewarded”.
The report added: “For the EU to secure its global competitive edge, it has to adopt a market-driven approach to innovation.”
There is no clearer signal that the EC and the other constituent parts of the “triple helix” has grasped this then through the creation of university venturing funds as a way of boosting institutions’ return from IP. This would put the continent in line with its international peers, such as Japan’s $1bn programme to fund its four leading universities’ startups, and even its own enlightened institutions that have already been raising university venturing funds over the past few years.
