The UK’s inferiority complex around university spin-offs is misguided

A government-commissioned review of the UK’s university spin-off scene is due any day. Viewed from the US, British universities are home to some of the most successful innovation engines in the world. Yet puzzlingly, the country seems to lack confidence in the effectiveness of its university innovation ecosystem.

Higher education institutions on both sides of the Atlantic have developed world-class technology transfer expertise, turning academic research into benefits for society and returns for investors.

In the US, this process has given us some of the world’s leading technology companies. In the UK, it has given us the Oxford Covid-19 vaccine and some of the most important developments in gene therapy and quantum computing.

Our models are similar, but time and again we hear from UK stakeholders that the Americans have got it right while the Brits are lagging. That, presumably, is the reason that the government commissioned the review, which is being led by Irene Tracey, vice-chancellor of the University of Oxford, and Andrew Williamson, managing partner of venture capital firm Cambridge Innovation Capital.

The complaint we hear most often is that UK universities ask for so much equity in exchange for licensing their IP that it becomes a deterrent to other funders. US institutions are held up as a model of how to do it right. The comparison doesn’t hold.

It’s true that UK universities take a larger share of equity at formation compared with their US counterparts, but in the UK this dilutes with each funding round. US institutions tend to take a smaller share at the outset, but that share has anti-dilution protection through the Series A round (the first major round of venture capital financing). Both models generally arrive at the same equity position, somewhere in the mid-single digits, long before an exit.

The UK and the US are also comparable when it comes to spin-off efficiency. The highest-performing institutions in both countries generate about two or three spin-outs a year per $100 million (£80 million) of research expenditure. This puts the likes of Imperial College London and the universities of Oxford and Cambridge on par with the best in the world, alongside US institutions such as Columbia, Stanford and the Massachusetts Institute of Technology.

None of this is to say that there aren’t lessons to be learned. The key to spin-off success is a thriving ecosystem comprising research institutions, entrepreneurs, business leaders, investors and professional service providers. The UK has its golden triangle of Cambridge, Oxford and London, but we know our UK colleagues would like to see decisive action from government to supercharge regional innovation clusters across the country.

Celebrating regional strengths is key, as the example of New York shows. In the wake of the financial crisis of 2008, the Bloomberg mayoral administration made a concerted effort to showcase the city’s strengths in innovation and entrepreneurship, attracting sorely needed investment and setting the city on the path to becoming the start-up superpower it is today. When these regional clusters flourish, they generate the infectious energy found in environments where there is a critical mass of founders and investors.

Attracting investment into early-stage ventures is very challenging right now on both sides of the Atlantic. Too many promising ideas fail to make the transition from university lab to nascent spin-out, falling into the aptly titled valley of death.

Part of the solution is broader access to so-called proof of concept (PoC) funding – financial assistance that covers the cost of prototypes, market research and other pre-market expenditures. Without this, innovators can struggle to attract early-stage investment.

Both the US and the UK have programmes in place, but funding is often hard to access. More targeted strategies are needed so that new sources of PoC funding can be unlocked and more of the brilliant, innovative ideas that flow from universities can deliver economic and social benefit.

If you consider the great global challenges of our age, from the climate crisis to biodiversity loss to an ageing population, it’s worth reflecting that the solutions to most of these problems will likely originate in university research labs. As we await the outcome of the government review, it is to be hoped that the UK has the confidence to celebrate its successes and continue to dazzle the world with its science.

Karin Immergluck is associate vice-provost in the Office of Technology Licensing at Stanford University. Lesley Millar-Nicholson is executive director of the Technology Licensing Office at the Massachusetts Institute of Technology. Orin Herskowitz is executive director of Columbia Technology Ventures.