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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is vice-chancellor of Oxford university and co-author of the 2023 independent review of spinouts
Ahead of the Budget, the chancellor is grappling with how to address a significant fiscal black hole while driving up Britain’s economic growth. One answer can be found in Labour’s election manifesto, which commits to supporting universities to create spinouts — companies formed from academic research.
UK universities produce groundbreaking research with the potential to transform industries and society. Since 2014, 1,300 spinouts from 91 UK universities have generated more than £20bn in investments and created nearly 29,000 jobs.
Yet, many of these ideas fail to make it to market, trapped in the so-called valley of death. This funding gap occurs between the point where researchers exhaust research grants and the point where technologies are viable enough to attract venture capital. It poses a serious threat to the UK’s economic prospects as a home for innovative companies.
Proof-of-concept (POC) funding is the bridge that can help researchers cross this valley of death. It allows academic inventors to test and demonstrate the viability of their ideas as marketable technologies. It provides the insights needed for decisions to be taken on further investment.
In the UK, however, this type of funding is alarmingly scarce. Without adequate POC support, we risk losing our competitive edge. Other nations, notably the US and Belgium, outpace us in translating university research into commercial success. Only universities with generous endowments or steady IP income are in the strong position to carve out dedicated initiatives to get the process right.
And they readily do so. Research-intensive universities such as Cambridge, Oxford, Imperial and UCL have established funds to support academic innovators, which explains why they lead nationally in terms of spinout success. But most UK universities do not have this privilege.
The advantages speak for themselves. Two Oxford professors, Simon Davis and Richard Cornall, received £30,000 in POC funding from Oxford university Innovation’s UCSF, enabling the two founding professors to demonstrate the potential commercial application of their research into the therapeutics to tackle inflammatory diseases. The company subsequently raised more than $130mn in investment and was acquired by Gilead Sciences for $405mn in 2022.
Similar stories elsewhere demonstrate how much this type of funding makes the difference. Prior to spin out in 2014, Autolus Therapeutics, received £183,000 from UCL Business to help demonstrate commercial uses for its cancer and autoimmune disease therapies. The company has since raised $921.6mn — including $250mn from Blackstone Life Sciences, one of the largest-ever private financings of a UK biotech. It now employs 450 people.
Andrew Williamson and I recognised the need for POC funding across the UK while conducting the government-commissioned independent review of university spinout companies nearly one year ago. The last government pledged £20mn for the whole of the UK over three years. A step in the right direction, but far short of what is needed. To put this into perspective, single institutions like Stanford University and KU Leuven command similar amounts yearly.
If we are serious about increasing economic growth through innovation, the UK must up its game. TenU, a consortium of leading research universities, proposes an addition of 4.3 per cent on all public core research funding, earmarked for sustainable, self-managed POC funds at universities. This approach would ensure rapid deployment to the most promising technologies, enabling the journey from lab to market. At current core research funding levels, it would equate to about £108mn a year.
I recognise the huge pressure on public finances. But this modest addition to core research funding could unlock vast benefits. Consider this: US estimates suggest that every dollar invested in gap funding attracts an average of $29 of venture investment; the UK examples above by far exceed these estimates.
Bolstering POC can ensure that UK inventions are de-risked and primes projects for investment. Attracting more domestic and international capital will create more jobs and drive more innovation.
If we continue with the current inadequate funding levels, though, we will miss the opportunity to expand the pipeline. Now is the time for bold investment in the UK’s future businesses. Better proof-of-concept funding can ensure that our world-class research translates into world-leading innovations. The stakes are high, and the benefits are clear.