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UK B-Schools, Science Research Spin Out Billion-Dollar Start-Up Ventures

Research from leading UK academics is producing spinout companies worth billions. But universities are under increasing pressure to justify their research budgets with commercial success.

Tue May 26 2015

Research from leading UK business schools and universities is producing spin-out companies with billon-dollar valuations. But academics are under increasing pressure to justify their research budgets with commercial success.

Educational institutes are slowly feeding the private sector with start-ups that have been spun out of basic research. Most are commercialized from science research and are clustered around the “golden triangle” of innovation — Oxford, Cambridge and London.

Cambridge University, whose city base is increasingly renowned for start-ups in computer science and life sciences, has produced at least 14 companies valued at $1 billion, including ARM, the Nasdaq-listed semiconductor company whose technology is used in 95% of the world’s mobile phones.

Horizon Discovery, a life science company led by Darrin Disley, an Entrepreneur in Residence at Cambridge Judge Business School, is a Cambridge University spinout that floated on London’s junior stock market AIM last year.

“Here in Cambridge, the business school is at the heart of the entrepreneurial ecosystem,” Joanna Mills, deputy director for Cambridge Judge’s Centre for Entrepreneurial Learning, told BusinessBecause.

“We get an ecosystem developing of alumni coming through the business school and university,” she added. “A lot of those are entrepreneurs and they spin out [their] ideas into start-ups in the Cambridge area.”

But the research that underpins commercial spinouts relies on government backing. Research councils are putting more pressure on universities to justify their funding.

“There’s been a huge pressure in the UK and the US and other countries as well as for us to justify the research that we’re doing,” said Hagan Bayley, professor of chemical biology at Oxford who has spun out multiple companies from his research.

These include Oxford Nanopore Technologies, which develops genome sequencing technologies and which has raised $270 million in funding, and Oxsybio, which is developing 3D bio-printing techniques and recently raised £1 million in funding.

Yet Hagan has been a vocal critic of so-called buzzwords such as “top-driven research” and the pursuit of “artificial goals” to justify research funding for basic science in the UK.

He said that there should be funding that is allocated based on the track record of the individual researcher. But he added: “You just simply can’t predict what is going to come up.”

The UK government has committed to maintaining research funding for science. It will allocate funding of $4.7 billion through research councils for 2015/16, according to documents released this month by the Department for Business, Innovation and Skills. Two sources — the Higher Education Funding Council for England and QR — will provide around $3 billion of that funding.

UK research has produced viable commercial businesses. Oxford spin-out NaturalMotion was acquired by Zynga for $527 million last year. Imperial College London has spun out Circassia, a biotech company, which raised £200 million from its IPO in 2014.  

“The UK’s relatively modest investment in science has led to a lot of incredible discoveries,” said Professor Hagan.

ENDS Carbon, a leading provider of carbon performance benchmarking and risk analysis which works with the FTSE Group, was spun out of University of Edinburgh’s business school by Dr Craig MacKenzie, a senior lecturer in sustainable enterprise.

Aston Business Assessments, a business psychology consultancy whose clients include automotive group Vauxhall and the National Health Service, is an Aston Business School spin-out.

Virtual Centre, the specialist IT company, was spun out of Durham University Business School and Durham’s Barclays Centre for Entrepreneurship.

The excitement around university spin-outs is illustrated by the funds set-up to accelerate promising commercial prospects. University of Oxford this month launched a £300 million joint venture with Isis Innovation to develop research from the university’s mathematical, physical, life sciences and medical sciences divisions, and turn ideas into companies.

“There are multitudes of sources of capital out there,” said Jeff Skinner, executive director of the Deloitte Institute of Innovation and Entrepreneurship at London Business School.

The private sector is active in science investment in particular. The tax breaks in the SEIS and EIS government schemes have encouraged general business angels to come forward, said Dr Shailendra Vyakarnam, director of the Bettany Centre for Entrepreneurship at Cranfield School of Management.

“There has been a greater flow of funds into early-stage ventures,” he said, adding that the UK venture capital scene has developed over the past five years.

The £50 million Cambridge Innovation Capital fund has channelled funding into ventures including Abcodia, a biotech company engaged in the validation and discovery of molecular biomarkers, which has raised a total of about $10 million.

Imperial Innovations has raised about £200 million from investors to accelerate start-ups. A noteworthy investment is in technology company Nexeon, which has raised $65 million and is based on research by Mino Green, a professor of electronic engineering at Imperial College.

“The barriers to starting a business are lower than they used to be,” said Diane Morgan, associate dean at Imperial College Business School. “There are more and more opportunities to enter incubator or accelerator programs and then gain access to funding, both in London and elsewhere in Europe,” she added.