Translating university research into commercial value

“Ubiquitous, mobile supercomputing. Intelligent robots. Self-driving cars. Neuro-technological brain enhancements. Genetic editing. The evidence of dramatic change is all around us and it’s already happening at exponential speed,” wrote Klaus Schwab in The Fourth Industrial Revolution.

“The world is undergoing a technical revolution, which is of a scale, speed and complexity, unprecedented, with the fusion of technologies that is blurring the physical, digital and biological world. We need to be clear where our distinctive advantages lie, building on our existing strengths from cybersecurity, machine learning, microelectronics design, biotechnologies such as genetics and cell therapies. We must do this as a partnership between businesses, scientists, investors, educators and policy makers,” argued the 2017
UK Government Industrial Strategy white paper.

Against this very dynamic but challenging backdrop, how is the UK doing and specifically how is the partnership between businesses, academics, investors and policy makers working?

My focus today and the recommendations in my review are on the businesses, academics, policy makers and investors. The wider issue of commercialisation of research was looked at by Prof Trevor McMillian with his work with the Higher Education Funding

Council for England on university knowledge exchange. I would encourage you to read his excellent report and the proposed Concordat for Universities.

I also will not be covering student startups, which were outside the scope of my review, but are a very important part of the university entrepreneurial ecosystem.

In my review I focused on three key questions:

• What are the traditional strengths of university research that the UK is leveraging?
• Is the UK capable of translating research into commercial value or is it true that “Britons discover and the rest of the world cashes in” ?
• What can be done to build on current trajectory and to realise the future ambition?

In answering these questions, I will refer to data you can find in Tomas Coates Ulrichsen’s report issued by UKRI in July 2019.

Let me start by maybe focussing on the first two questions together.

One of the UK’s great historic strengths has been as a global leader in research of science and technology, consistently topping in measures of research excellence and home to three of the top 10 global research universities.

On a head-line basis, Arm, DeepMind, Darktrace, Improbable, Autolus, Oxford Nanopore, Ceres Power, CMR Surgical, Quell Therapeutics, to name but a few, are great examples of what is possible.

These companies, based on deep science and technology, are essential to improving productivity and solving major societal challenges in healthcare, the environment, energy, infrastructure and security.

The essential ingredient, both in the UK and increasingly around the world, to creating these companies is access to research-intensive universities, where they have academics and labs for scientific exploration and technological development – and at the same time educate future talent, and work in collaborative partnerships with industry and support, mentor and incubate startups.

Having three universities in the world top 10 is directly related to having three of the top 10 universities globally by number of spinouts – and this together with the historic reputation means that five of the UK universities are in the top 10 globally by value of capital raised by their spinouts.

More broadly, evidence shows that technology transfer from research in UK universities compares well internationally.

Oxford, Cambridge, Imperial, UCL, Manchester and Edinburgh regularly benchmark their performance across a range of technology transfer parameters.

Adjusting for relative scale, in invention disclosures per £100m ($130m) research and in patent productivity, these universities slightly outperforms the US.

In IP income, they are catching up: the US achieves around 4% of research resource, the UK 3%. And in industrial income as a percentage of research resource, the UK top six attract around 10% against 7.5% in the US.

However, there are some additional views of the global position which are important and make the depth of the strengths more pervasive.

First, the strengths actually go deeper than just the top six research universities. Across the broader spectrum of 162 higher education institutions in the UK, in the last 15 years by number of spinouts, over 80% of the spinouts have come from others than the top six universities.

And taking the sector as a whole, the picture looks just as competitive as looking at the top six on a global basis when comparing measures such as patents granted and spinouts per £100m of research resource.

Secondly, the spinouts are very diversified by sector, which is critical given the increasing fusion of disciplines. The diversity is well demonstrated by the companies I referred to earlier, which ranged from cybersecurity, life sciences and medical devices to AI, material sciences and energy. This reflects the diverse range of the disciplines in which UK university research excels.

Thirdly, the survival rate of these spinouts is significantly higher than the broader population of startups with over 75% of spinouts surviving five or more years. This compares with only 40% of the broader population of spinouts lasting five or more years. The length of survival has a direct correlation to the increasing number of people employed by such companies.

And lastly, these spinouts have been well supported by access to capital, which has grown significantly both in aggregate, average deal size and across individual stages of capital need.

Over the past five years there has been a 20% increase in the number of funding deals done by spinouts and a 40% increase in the aggregate amount raised. Average deal size also increased across all the stages of funding with the largest growth shown in the average deal size at the growth funding rounds.

On a global basis, five UK universities are in the top 10 globally by value of capital raised.

The one negative on capital is the geographical distribution within the UK with a disproportionate amount being raised in the golden triangle and less in the rest of the country.

A lot of this impressive progress has been underpinned and supported by an emerging ecosystem of core capabilities and supportive public policy moves.

On the ecosystem, there is increasing acknowledgement of this expanding outside the traditional areas of expertise of the golden triangle, for example the role played by SetSquared and through projects from Research England’s Connecting Capability Fund (CCF) initiatives, such as Micra in the Midlands, Northern Triangle Initiative in the North West and Yorkshire and Northern Accelerator in the North East.
The same is also true for bodies of expertise and capabilities such as IP Group, Oxford Sciences Innovation, Frontier IP, PraxisAuril, Knowledge Transfer Network, Innovate UK, UKi2S, National Centre for Universities and Business (NCUB) and programs such as ICure, to name but a few.

Public policy changes have also been supportive with universities taking the lead responsibility for commercialisation since the mid-1980s, the introduction of the Research Excellence Framework in 2014, the setting up of British Business Bank in 2012, the creation of UKRI in 2018, the Industrial Strategy Challenge Fund, the Connecting Capability Fund and more latterly initiatives coming out of the UK Treasury Patient Capital Review, again to name just a few.

So, this all looks good and impressive. What are the worries and challenges – is the glass half full or half empty when looked at in the context of the future world and our future ambitions?

Clearly, one of the longer-term challenges is the level of spend on research and development relative to other countries. The current level of spend at 1.7% of GDP is below the OECD average of 2.4% and well below OECD leaders, such as South Korea at 4.5% and Japan at 3.2%.

This issue has been recognised and the government has committed to target a spend of 2.4%. This needs to become a reality or the long-term strength of UK university research in the global rankings will erode, which in turn will have a serious consequence on the ability to attract and retain the right talent. This is a 2027 target, so my question is: will that be enough and is it fast enough?

A second challenge is the ongoing access to capital, and this tends to be where the largest amount of criticism of the UK versus the US gets focussed.

The recent success has been supported by a fairly concentrated supply of capital, which is evidenced by the top five investors supporting nearly 40% of the deals over the past two years. These include IP Group, Scottish Enterprise, University of Cambridge funds, OSI, Mercia Fund Management and a lot of this either directly or indirectly from Woodford Investment vehicles.

For a variety of reasons this is not a situation which can continue to support the existing demand for capital, let alone an increased demand.

In addition, when looking at the financing stages, there are gaps, such as access to seed capital. Currently only 6% of SEIS/EIS funds go to spinouts.

It is also worth pointing out some strengths and the important role that Innovate UK plays in this ecosystem particularly around providing grant finance and connections to investors.

Whilst financial capital is often the focus as a scarce resource, turning an idea into a successful and sustainable commercial venture requires a significant amount of human capital and this covers many aspects.

First is the ability to attract and retain the academic talent, then there is the challenge of depth of experience and capabilities of technology transfer offices, increasing the commercial experience of academic staff, attracting the right kind of experienced commercial resource to work and run and mentor the spinouts, and lastly the changing need and experience of investors. Much of this is down to success breeding success, and the more success is celebrated the more the human capital gets attracted.

It’s always easy to point out what could have been better, but as of today this is a very solid foundation, well positioned globally and one we should acknowledge and celebrated. The glass is definitely half full.

The question then becomes how do we sustain this position in a world of accelerating change and increased competition, building on and leveraging these strengths and foundations? This is made more challenging by the complexity and the fact that, simple, one-size-fits-all solutions are not appropriate.

I have already referred to some of the initiatives underway, such as the 2.4% target and the patient capital review, but what else needs to be done?

I am only going to focus on a few key issues.

The first theme would be around leadership and collaboration.

This has many aspects to it, but success will definitely require all parties pulling better in the same direction. This ranges from commercial leadership in universities, collaboration across universities, clarity of vision and leadership in the Department for Business,

Energy and Industrial Strategy and UKRI and better collaboration and coordination across government departments. As I mentioned earlier, Trevor McMillan’s proposed Concordat for Universities is an example of the leadership approach required.
Critical here is helping to define a vision of what success looks like, and a bigger focus on outcomes rather than input initiatives.

One of the benefits of this would be to help aspects of the ecosystem to combine and work together better to a common vision.

A second theme would be around access to capital, and this is potentially where the most is to gain.

What’s important here is ensuring access to sufficient capital at all stages of development, with good geographical spread.

At the pre-seed or grant funding level, Innovate UK support is critical and there is evidence that those spinouts that received Innovate UK support performed better than those that did not.

The seed stage has been challenging, particularly outside the golden triangle, and here initiatives such as EIS funds for knowledge intensive businesses, funding capacity of UKi2S, and so on, are critical. In my view access to seed capital is a critical pinch point.

At the venture and growth funding stages, delivering on some of the initiatives outlined in the patient capital review are key, such as opening up access to pension fund money and accelerating implementation of the Enterprise Capital Funds and Patient Capital within British Business Bank, to name but a few.

It is also important to think about how to improve the alignment with corporate venture capital, one of the fastest growing sources of capital, and here NCUB has an important role to play.

A third theme would be around celebrating success. Talking up the success stories, rather than talking down the problems and issues, would have many positive impacts.

It would highlight the opportunity for academics to dip a toe in the commercial world leading to more value being created from patented research; it would also attract talent to such companies and attract more investors.

It therefore becomes a virtuous circle with success breeding success. The excellent recent special report in the Financial Times is a great example of what is needed, but on a more regular basis. The question for me on this is not what needs doing but who should do it.

And lastly, there is the question of ongoing public policy initiatives to provide continued support. The challenge here is that given the complexity and range of activities involved and as I said earlier, it is almost certain that one-size-fits-all policies are not appropriate. Examples of what could be done include:

• further CCF initiatives to encourage more university collaboration;
• looking at funding for the Higher Education Innovation Fund, which is critical to the support of knowledge exchange;
• access to seed funding;
• and secondment schemes between researchers in universities and companies.

Let me conclude by going back to where I started, with Klaus Schwab.

He said: “The changes (from the fourth industrial revolution) are so profound there has never been a time of greater promise or potential peril. The concern is that decision makers are too often caught in traditional linear, non-disruptive thinking or too absorbed by immediate concerns”.

The quality of UK university research gives us a distinctive advantage and we are already making significant progress, the question is how to sustain that into a world where change is happening at an exponential speed.

• This is a transcript of a lecture first delivered for the National Centre for Universities and Business in November 2019. It has been edited for style and republished with permission from the author.