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The financial stress facing many UK universities is prompting them to look for new sources of cash. Here is the bad news for those hoping that spinouts from technology and life sciences research will plug the gap: not only are they likely to be disappointed, but they also could miss a long-term opportunity.
Do not take my word, but listen to Anne Lane, who heads UCL Business, the technology transfer operation of University College London. UCL is in the “golden triangle” of research universities linking London, Oxford and Cambridge and is among the most successful in profiting commercially from the science and healthcare inventions streaming out of its research.
UCL Business last year contributed £6mn in gift aid to the university and gained another £18mn in revenues from inventions such as the technology behind Roctavian, a gene therapy treatment for haemophilia A. It currently has 95 active spinout companies and 24 advanced therapeutics based on its research in clinical trials. It is not, in other words, a financial dunce.
But this is still modest compared with UCL’s income of £2.1bn last year, or within that its research grants and contracts of £538mn. “Academics want to get involved because it gives their work real-world impact. If anyone hoped to [fully] finance research with spinouts, it would be a long wait,” Lane says.
Or listen to Lord Jim O’Neill, chair of Northern Gritstone, the £312mn partner investment fund of Leeds, Manchester and Sheffield universities. Universities “need to appreciate how risky venture investing is and not hope for a guaranteed income stream . . . If they try to dominate the equity and control all intellectual property, they will not be able to attract investors.”
The good news is that despite the financial challenges facing universities, and the fact that many are coming late to the opportunity of research commercialisation, it does exist. Once a few bets on technologies turn into an ecosystem in which a university’s researchers can easily and consistently turn ideas into ventures, it starts to become ingrained.
The more modest a university’s short-term expectations and the more agile it is in spinning out or licensing its intellectual property, the more it stands to gain eventually. “It’s better just to take a little bit of everything than try to play at venture capital,” says David Grimm, partner of AlbionVC, which has collaborated with UCL on two spinout investment funds.
Universities are recognising this, encouraged by a 2023 review of spinouts co-led by Irene Tracey, vice-chancellor of Oxford university. A recent study by the research group Beauhurst found that universities’ equity stakes in spinouts have fallen to a 10-year low of 16 per cent. This opens up more equity to inventors and investors.
Taking less equity and adopting a standard model rather than negotiating individually and slowly over every potential invention brings two benefits. One is that it promotes greater scale, especially alongside partner investment funds. The second is that it gives a university a tangible economic role and attracts researchers who prefer to combine pure and applied research.
One size does not fit all across the range of science and technology research in institutions such as UCL. For software and artificial intelligence, business ideas need to be developed by entrepreneurs to have true financial value. For life sciences, molecules and therapeutics that emerge from university laboratories can have patentable and enduring worth.
Thus, UCLB takes quite an open approach to software spinouts, encouraging anyone with a business idea to develop it and licensing out its right for 5 per cent of the equity. For medicines, it tends to retain bigger stakes or work with academics to license intellectual property to biotechnology companies, which is less risky and offers a revenue flow from royalties.
The fact that UCL has a practised technology transfer office helps. The think-tank Onward last year criticised the offices of many universities as lacking in funding, capacity and expertise. The bigger the university operation, the more likely it is to work well with investors, and draw in proof-of-concept funding for potential spin-offs.
So there are many reasons for universities to take spin-offs seriously, and to enable partner funds such as Northern Gritstone. Forget about trying to fill a hole in the budget, and focus on making universities more engaged and inventive places. It will pay off in time.