Research and teaching in UK universities is widely recognised to be among the best in the world. In fact, the University of Oxford has topped the Times Higher Education World University Rankings 2020 for the fourth year in a row.
However, in November last year, venture capital firm Octopus Ventures published a new measure of UK universities’ success – the Entrepreneurial Impact Ranking.
Instead of focusing on traditional measures of success, such as research, teaching and citation impact, Octopus Ventures’ new index measures UK universities’ effectiveness at translating this research into commercial success via the creation of “quality, investor-ready spinout companies”.
The results are a little surprising – with Queen’s University Belfast reaching the top spot, ahead of big players such as the University of Cambridge and the University of Oxford.
In this blog post, we consider these findings in more detail, and discuss the potential to further capitalise on the potential of spinouts in the UK, and the key factors that underpin their success.
A brief history of spinouts
A university spinout has been defined by Octopus Ventures as “a registered company set up to exploit intellectual property (IP) that has originated from within a university”.
In other words, it is a company that has been established based on ideas derived from a university’s research. Often, former or current researchers are directly involved in the management team, and start-up funding is provided by the university (or one of its connected venture funds).
UK universities have been allowed to commercialise the results of their research since the mid-1980s. Between 2003 and 2018, approximately 3000 IP-based spinouts were created by UK universities.
Since 2010, there has been a notable increase in investment into university spinouts – both in terms of the number of deals achieved and the amount of money invested in university spinouts, from both private and public investment sources.
High rates of success
There is good reason for this increased investment – the survival rates of spinouts are high compared to other types of start up enterprise. Research published in 2018 by law firm Anderson Law found that nine out of ten spinouts survive beyond five years. By way of comparison, only two out of ten new enterprises survive beyond five years in the wider start-up environment.
Indeed, many spinouts not only survive, but thrive. The UK has produced a large number of very successful spinouts – for example, Oxford Nanopore Technologies, a University of Oxford spin-out company that has gone on to reach a £1.5 billion valuation. ARM Holdings is another example – a designer of smartphone chips, established by the University of Cambridge, and acquired by Japanese firm Softbank for £24 billion in 2018.
However, while the UK has seen a number of high profile spinout success stories, Octopus Ventures, argue that there is yet more untapped potential to be realised:
“The UK has produced a host of successful university spinouts, but there are many unrealised opportunities that have been left in labs or got lost on their funding journey. These could be worth trillions of pounds to the UK economy.”
This potential is perhaps best illustrated by looking at the unrivalled success of many universities in the United States. Take, for example, Massachusetts Institute of Technology (MIT). MIT has been the genesis for around 26,000 spinout companies, with a combined annual company turnover of US$2 trillion. This is a huge amount from one university – and is equivalent to around 65% of the UK’s entire annual GDP! The resultant spinouts have also created in the region of 3.3 million jobs. MIT clearly illustrates the huge potential that exists to capitalise on universities’ research.
Back in the UK, this massive potential has yet to be realised. Indeed, one of the key aims of the new Entrepreneurial Impact Ranking is to identify where this potential exists, and which universities are making notable progress towards capitalising on it.
The key data points included are:
- total funding per university;
- total spinouts created per university;
- total disclosures per university;
- total patents per university;
- total sales from spinouts per university.
An interesting element of the index is that it is also adjusted to account for the total funding that a university receives. This means that it is not dominated by Russell Group universities simply on the basis of them receiving the most funding.
Indeed, Queen’s University Belfast was ranked first – putting it ahead of both the University of Cambridge (2nd place) and the University of Oxford (9th place) in terms of its production of spinout companies and successful exits, relative to the total funding received.
Queen’s University Belfast, through QUBIS Ltd, the university’s commercialisation arm, has had a number of spinout successes, including Kainos, Andor Technology, and Fusion Antibodies, all of which have been listed on the London Stock Exchange.
In Scotland, the highest ranking university was the University of Dundee (6th), which has had a number of successful spinouts, including Platinum Informatics, which specialises in the provision of software to analyse ‘big data’.
What makes a successful spinout company?
As well as identifying the most effective universities in terms of spinouts, the Octopus Ventures report also looks at the shared success factors that have contributed to their effectiveness.
There are three key factors:
- Funding – Access to early funding is essential to success. Universities that ranked highly in the index were ones that raised funds to help get ideas off the drawing board. As Simon King, a partner in Octopus Ventures states: “Universities that enable early-stage proof of concepts and prototyping by making early-stage funds available, either internally through their own funds or through collaborative schemes with other funds are more successful at creating spinouts. That’s a key takeaway.”
- Talent – the issue of talent is considered a ‘consistently challenging’ issue for spinouts. There is a huge demand for the right skills, and spinouts are often viewed as being high-risk propositions compared to more established enterprises. Other challenges include a lack of academics’ understanding of the business world, and limited incentives for them to engage in the commercial world in light of the pressure to ‘publish or perish’.
- Collaboration – As well as university-industry collaboration, collaboration between different universities was a key factor in the creation of successful spinouts. Collaboration helps to increase both scale and capacity, whilst also helping to attract and retain top talent.
Future support for spinouts
Measuring the relative effectiveness of UK universities’ ability to commercialise their research provides a number of signposts for the future in regards to how best to support and further develop this potential.
This is increasingly important given the economic uncertainties surrounding Brexit and the availability of a number of European funding streams once the UK leaves the European Union.
The UK’s Industrial Strategy places a clear emphasis on academic entrepreneurialism as a driver of economic growth. And in 2018, the UK Government launched the £100m Connecting Capability Fund to support university collaboration in research commercialisation.
Commercialising academic research is far more complex, risky and expensive than establishing a typical start-up. But their potential contribution to the economy, and wider society, is huge.
Further reading: our blog posts on higher education
Follow us on Twitter to see what topics are interesting our research team.