Deepening university-investor links is an independent report written by Tony Hickson – Chief Business Officer, Cancer Research UK and Cancer Research Horizons – for UK Research and Innovation (UKRI).
Read the full report, along with its technical supplement.
Foreword to the report
The UK’s strongest differentiating asset is the quality of our research and innovation system which by most metrics is, per capita, best in class and is to a very great extent driven by our extraordinary university system. We have both quality and depth of quality with four of the top ten universities in the world, five of the top 30, and 17 of the top 100.
Our universities produce more spin-outs and more start-ups than any other country in Europe and are second only to the US in the value generated from university spin-outs. Much more than institutions that teach and undertake research, universities are engines of economic growth both in the regions in which they are each situated and through the collective strengths they share and deliver to the UK economy and in particular the role they play in generating companies that will be increasingly important to our future.
Recognising the enormous potential to deliver more and accelerate the benefits of successful university spin-out companies, I commissioned this review to examine how deepening university-investor links might bring about what I might call a third age for this activity. To move beyond the role given to universities in the last decades to individually deliver in a competitive environment the best return on university generated intellectual property. To a new age whereby we work collectively to convert research into durable national value by optimising across all parties end to end support for founders and companies, create the conditions that might anchor spin-out companies in the UK, and deliver the environment in which they can scale and grow at pace.
University spin-outs drive economic growth across the country, with the majority remaining within the cluster from which they began. They attract investment from across the world, with the majority of lead investors at the latest stages (£100 million and over) headquartered outside the UK. However, this is a highly competitive global environment and a whole-system approach is needed.
More widely the government has announced a range of further support to enable companies to scale in the UK, including increasing the total financial capacity of the British Business Bank and launching a consultation on how the tax system can support entrepreneurs. The review looks in detail at the environment in which universities, investors, and founders operate to explore how the system can develop further and operate more effectively as a whole.
I welcome this report which reflects what a tremendous asset this ecosystem is and how far we have come. It sets out with great clarity as well as detail the opportunities and tangible actions that can be taken to further unlock its potential and drive economic growth.
The report focuses on solutions and the whole-system approach needed to unlock the opportunity to generate economic and social benefits from university spin-out companies including across capital, culture, systems and regional considerations. We will take forward these key new insights and actionable recommendations to deepen university-investor links and further unlock the full potential of the research base across the country to drive both national and regional growth.
At UKRI, our mission is to advance knowledge, improve lives and drive growth. The government is putting record investment into research and innovation to make it the engine of national success. UKRI invests around £10 billion each year, and our responsibility is to ensure this investment delivers meaningful outcomes for the UK public. Importantly, this includes enabling companies to start, to scale, and ultimately to stay in the UK.
We invest in the best discovery research even when its impact may be felt years down the line, and often it goes on to have applications we hadn’t necessarily expected, including growing companies and providing high quality jobs and economic growth. The Industrial Strategy sets out a clear direction for the sectors that matter most to our future economy and we are already responding by aligning tightly to these priorities. As this review shows, universities are a vital element in delivering this strategy with 70% of the top 20 UK start-ups based on cumulative venture capital raised in sectors such as Semiconductors, advanced manufacturing and life sciences originating as university spin-outs. We have seen recent unicorns such as OrganOx and Oxford Ionics which are already improving lives and livelihoods.
I thank Tony Hickson for the work he has undertaken for the review and the many individuals and organisations that have participated and provided data and evidence during the process. Now is the time to work together to address capital gaps, accelerate the speed of innovation, address investor readiness, and continue to drive forward culture change. I agree that we have the bedrock from which to build, and now is the time to act.
Professor Dame Jessica Corner
Research England, Executive Chair
Executive summary
It is evident that the UK continues to have a university and investor ecosystem that is thriving. However, the full potential of the UK research base across the country is not being realised, and there is an opportunity to further drive economic growth which we must grasp. Our innovation landscape remains fragmented and needs better access to specialist capital, a healthy entrepreneurial culture and a consistently applied long term vision to achieve our aims as an economy.
We have cultivated a dynamic ecosystem of accelerators, seed funds, angel investors and venture capital resulting in one of the most intensively incubated economies per capita in the world. There is no shortage of good ideas and the long-held myth that the UK excels at research but struggles with commercialising ideas out of academia is increasingly outdated.
Huge progress has been made in areas from spin-out equity harmonisation to the generational shift unfolding in entrepreneurial activity and culture. University and investor relationships are strengthening, with many examples of exemplary practice and long-term partnerships, but context and mutual understanding remain key.
Our focus now should be on strengthening the base of the pipeline and scaling and retaining companies in the UK. Simply reallocating money around the system is not enough: we need to attract more capital into innovative high growth areas.
Universities are engines of growth and to think of them as solely focused on teaching and research does not reflect the reality of their role in the UK’s innovation environment. Enabling impact and growth through mechanisms including internal capacity building, collaboration across universities and partnering with external venture builder and investment organisations, is now a core responsibility for universities and they must be appropriately empowered and resourced to fulfil it. They will play a key role in delivering the Industrial Strategy with spin-outs already playing a disproportionately significant role in sectors such as semiconductors, advanced manufacturing and life sciences. However, their financial health and sustainability is a critical factor in expanding the supply of investment-ready spin-outs.
UKRI’s full potential to bridge the gap between research and innovation remains unrealised. The multitude of well-intentioned programmes offered by the research councils, Research England and Innovate UK has created a complex and often confusing landscape, making it difficult to navigate the journey from idea to impact. There is a significant opportunity to streamline, unify and scale these efforts, unlocking greater efficiency and accelerating progress.
Whilst the supply of generalist capital is now relatively healthy from inception to scale-up, the limited availability of specialist investment vehicles and investors with expertise in high-tech sectors such as deeptech, life sciences and the creative industries will act as a brake in our ability to scale innovation in line with the country’s productivity ambitions. Over the last two decades the UK has shown notable innovation to address its structural disadvantages, with the British Business Bank taking an active role in increasing supply and university-affiliated investment funds (UAFs) gaining traction. However, there is a limit to the replicability of such UAF models across all regions of the UK and new models may be required.
The current distribution of investment in spin-outs is also highly uneven and fragmented, with London by far the main domicile of venture capitalists. To drive meaningful growth, the country will need to strike a careful balance between regional development and national strategic priorities, an endeavour that will likely necessitate difficult and deliberate decisions such as whether to concentrate or spread resources.
We need to ensure that the future cohort of UK unicorns is not dominated solely by software, fintech and service companies, but also includes a healthy mix of deeptech, life science and creative companies in line with the new national strategy. Achieving this will require a carefully calibrated approach to capital allocation, balancing investment between early-stage pipeline development and the scaling of high-growth ventures.
Ultimately, we must move beyond the search for silver bullets and shift decisively into solution mode. This requires whole system thinking comprising a clear and shared vision, capital (at the right stages), cultural change (incentives and education) and consistency (through reinforcing mechanisms that work well). We need to crowd in more capital, provide more spin-out financing at pre-incorporation and pre-seed stages and incentivise scale-up.
This report builds on the work of others and makes recommendations to enhance collaboration between universities and investors in order to improve alignment and accelerate innovation pathways. Some of these reinforce previous recommendations that have still not been actioned, but most reflect the current landscape and the emerging issues.
I extend my sincere thanks to all those who generously contributed their time to inform this review. The enthusiasm and willingness of everyone to engage were striking indicators of the shared commitment to ensuring that the UK innovation ecosystem reaches its full potential.
Finally, I wholeheartedly echo the view of others that UK scientific innovation represents a ‘tightly coiled spring poised for release’. The untapped potential of university spin-outs to attract both domestic and international investment, to scale at pace and to drive future economic growth for the UK is truly significant.
Now is the time to grasp this opportunity.
Tony Hickson
Chief Business Officer, Cancer Research UK and Cancer Research Horizons
Summary of recommendations
Full recommendations can be found at the end of each chapter in the report.
Access to finance
Recommendations for access to finance include:
- significantly boost funding for pre-incorporation and pre-seed funding
- improve access to scale-up finance for spin-outs
- provide consistency and commitment to key funding programmes. Strengthen, stabilise and continue to invest in mechanisms which are working well
- expand specialist deeptech capital access and widen investor networks to address gaps in investor expertise and capital availability across the UK in line with the eight priority sectors identified in the Industrial Strategy
Behaviours and relationships
Recommendations for behaviours and relationships include:
- strengthen the entrepreneurial culture in academia
- celebrate and recognise success
- improve institutional support and infrastructure
- address misalignment between universities and investors
Investor interactions
Recommendations for investor interactions include:
- enhance transparency and build trust between universities and investors
- accelerate spin-out formation and reduce spinning out too soon
- strengthen early investor engagement and interfaces
- support founders in selecting the right investors as partners
- improve metrics and tracking
Capacity, capability and place
Recommendations for capacity, capability and place include:
- address talent gaps in leadership and expand infrastructure access for spin-outs
- enable models for sector sector-based shared technology transfer offices (TTOs)
- improve investor technical literacy
- advance diversity in spin-outs and investment
- improve the mobility and anchoring of spin-outs in regions and in the UK