Over 310 new businesses have been spun out from 37 UK universities since July 1998, a three-fold increase compared with previous spin out activity from these universities, according to figures produced by corporate finance house FirstStage Capital.
These up-to-date statistics endorse claims made this month by Minister for Science and Innovation Lord Sainsbury of Turville that government’s encouragement of the enterprise culture in academia is now bearing fruit. Speaking at a FirstStage Capital/Robson Rhodes breakfast meeting on technology transfer from UK universities he cited the success to date of the University Challenge Seed Funds, introduced in March 1999. “In the first year of operation, these funds approved 127 projects for funding and committed £8.3 million of investment. 44 new spin-outs were created, 13 new patent applications were made and £4.8 million of investment was attracted from third parties.” This initiative is now entering its second round.
Chairing this event, Jason Purcell, CEO of FirstStage Capital, called for business angels and venture capitalists to continue to commit investment to UK early stage technology companies. Citing companies such as Virata, Oxford Glycosciences, Autonomy and ARM as role models he emphasised that, that in a knowledge-driven economy, defensible intellectual property is a core competitive advantage. Universities which are currently undertaking leading edge research could spin out their work into stand alone companies, or license others to commercialise it. However as the US experience has demonstrated, there tends to be a greater correlation between the number of spin-outs and the size of the tech transfer departments rather than the amount of research output. Value creation therefore tends to be primarily dependant on the effectiveness of the tech transfer unit.
Panellists Iain Wilcock of Quester, Walter Herriot of St. John’s Innovation Centre and Tim Cook, Isis Innovation agreed that there was pent-up value inherent in universities which could be realised either through spin-outs or through developing clusters of expertise around universities. More than 60 university technology transfer offices are now geared to exploit this. Creating a bridge between research-oriented academics and profit hungry investors demanded both diplomatic and business skills but the arguments for enterprise in today’s underfunded environment were compelling.
VCs need new mindset
The panel highlighted the need for a new mindset from venture capitalists. While academics may suffer from lack of interest in commercialisation or over-confidence in their own commercial acumen, venture capitalists who applied conventional risk models to academic research were missing a trick. University start-ups often had no business plan, a very sketchy revenue model and no clear working product. Investors needed to adopt a very fluid, collaborative response. As Iain Wilcock commented: “Venture capitalists can’t just play the usual role of a gatekeeper who says “No” if an entrepreneur doesn’t make the grade. They need some vision and the willingness to enter into a dialogue.”
Concludes Jason Purcell: “Historically we have failed to exploit our proven innovative capabilities which are respected globally. Government is creating an environment, which helps us to put that right. It is now up to the university technology transfer offices to create investor ready businesses, and for the investment community to reassess its risk criteria. This will enable all parties to profit from the burgeoning opportunities arising from our universities.”
About FirstStage Capital
FirstStage Capital is a corporate finance house that specialises in securing funding for early stage technology companies.
We seek out and identify companies with exceptional promise, and design fund raising strategies appropriate to our client’s individual requirements. We identify the most appropriate investors from our extensive knowledge of the early stage venture capital community in the UK, and make the necessary introductions. We will then advise on any offers received, assist in negotiations and manage the fund raising through to completion.
For access to advice, forums and articles relevant to building high growth technology businesses see http://www.firststagecapital.com.
Catherine Webster/Magdalen Bush, Key Communications 020 7580 0222
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