If it’s not broken, you can still improve it: leveraging economic gains from better university-investor links

If it’s not broken, you can still improve it: leveraging economic gains from better university-investor links

On 29th July 2019, NCUB played host to a launch event for a review of university-investor links, commissioned by Research England from Mike Rees, former deputy group CEO of Standard Chartered, start-up commercialisation expert and angel investor. In this blog, he lays out some of his high-level findings and sets them in their national policy context.

 

InvestmentWhen I was asked by Research England to provide independent advice on the efficacy of links between universities and investors, I first tried to discover the real nature and extent and activity taking place.

What I found is, I think, consistent with so many of the moving parts that make up our ambition to be a world-leading knowledge economy. Namely – our embedded advantages stack up favourably with almost anywhere in the world; but we fail to exploit them to the fullest.

That isn’t to simply accept the trope that the UK is good at research but ‘bad at commercialisation’. As I and others have seen, this is far from the case. We are in fact a global leader: five UK universities place in the top ten worldwide by value of the capital raised by their spin-out companies. As a nation, we consistently contend at the top of the rankings for reputation for university-industry links, such as those of the World Economic Forum.

In terms of US/UK comparisons, we typically perform comparably with the American university system in attracting research income from industry, efficiency in commercialisation and spinning out – though less favourably in overall IP income. Spin-out performance is improving, with a 76% survival rate for spin-outs formed in 2014. Universities have taken responsibility for leading in the commercialisation of their outputs, with REF impact assessment further embedding these drivers in institutional behaviours. In recent years, numbers of deals and amounts of private investment have grown. And deal sizes have increased at seed and venture stages. The technical note ‘Developing University Spinouts in the UK’, produced by Tomas Coates Ulrichsen to accompany my Review, is rich with similar analysis alongside additional evidence and contextual information.

Our strengths in research and innovation are in high global demand.

Coupled with my findings (based in detailed interviews with university senior management, pro-vice chancellors, investors, businesses and professional services, public funders and Government), the assembled evidence and opinion led me to conclude that the model itself is not broken. Our strengths in research and innovation are in high global demand. You do not have to look far for examples of extraordinary good practice and deserved success. And Government policy direction and ecosystem development, particularly in the formation of UKRI and the joined-up thinking that brings, is moving steadily in the right direction. Ecosystems are growing outside the Golden Triangle; and entrepreneurial activity is increasingly promoted through instruments such as the Connecting Capability Fund designed and delivered by Research England. University venture funds, private and public accelerator programmes and partnership enabling mechanisms are all active in this space.

But any degree of complacency would be a mistake. Successful universities and investors have found means to work with the present circumstances, take advantage of opportunities to commercialise excellent ideas and reap the benefits. But these cases of good practice are often outliers, and their lessons are too often not shared more widely. Other opportunities are left on the shelf for want of a more consistently supportive ecosystem. Access to capital is improving, but again its source, amount and concentration is inconsistent. Tech Transfer Offices face variable remits and work with multiple and complex processes; and sometimes, lack of alignment within their own institutions. There is no common, one-size solution. And these challenges are a very real danger to Government’s aspiration to increase investment in research and development to 2.4% of GDP by 2027. As is the Brexit uncertainty, which could risk our access to the best and brightest talent which is so critical to this agenda.

Positive change is happening. But we need to accelerate its speed to see real, consistent success.

So it is with some caution that I venture that the model is not broken, as we cannot afford inaction. Positive change is happening. But we need to accelerate its speed to see real, consistent success. If we are serious about seizing the opportunities our existing strengths offer us, change has to start at the top – with direction from Government and UKRI. Better alignment between initiatives will be required. And both universities and investors need to have clear-sighted conversations about the strengths and weaknesses in their relationships.

From an access to capital standpoint, we should think in broader terms about available pools of liquidity. The potential of corporate venture funds and pensions should not be overlooked. And challenges around their deployment should be met head-on by Government and regulators where necessary. And while certain CCF-funded projects, and groupings such as SETsquared, are effective at consolidating investable opportunities, replication and expansion of such programmes would deliver scale. And scale is critical to avoiding missed chances.

Similarly, increases in institutional and private capital – and Government schemes such as the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS), Venture Capital Trusts (VCTs) and initiatives emerging from the Patient Capital Review have or are intended to increase access to capital. These sit alongside Innovate UK’s key role in the early development of spin-outs. But average UK VC funds are historically unable to make the returns that make them attractive to investors - and therefore do not always achieve scale; there is not always sufficient alignment with Innovate UK’s investments across UKRI; and the high concentration and increasing aggregation of funding sources has reduced competition amongst investors and created a lack of depth and strategic vulnerability.

But these are soluble problems. A long-term, outcome-focussed direction with appetite for risk; alignment across Government and UKRI, within universities, and with investors; access to human capital; and better communication of success – all will help to fill the gaps left by present ecosystems and reach those investable opportunities that should not, indeed cannot, pass us by if we want to accomplish our national goals.

 

Download Mike Rees' report: 'Advice on university-investor links' here.

Published: 29 July 2019 

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