Future Ready: the Path to Growth
Increasing high-growth spinouts
Unlocking the potential of the UK’s world-class research across science, technology, humanities, and the arts through spinouts will require consolidating progress universities have already made in implementing the recommendations of the spinout review. However, structural underfunding restricts the progress universities can make alone, especially at the early stage of the pipeline where there is less opportunity to attract private investment.
"To increase the number of high-growth university spinouts and keep them in the UK as they scale, we need a coordinated approach to address funding gaps and ensure we have the right facilities in the right places."
Kathryn Chapman, Executive Director, Innovate Cambridge
Addressing the early-stage funding gap for spinouts
Both our Expert Panel and the spinout review identified access to early-stage funding as a key barrier to increasing the number of spinouts. This funding is crucial to advance ideas into investable propositions, covering proof-of-concept work, leadership team development, and securing experienced advisors.
At this stage, the proposition is too risky for traditional private investment and therefore requires government and university funding to progress. Currently universities try to pull together different blocks of funding from multiple sources to support this activity including from UKRI, philanthropy and regional funds. However, the landscape remains fragmented and difficult to navigate.
We recommend funders such as UKRI, Innovate UK, and the British Business Bank (BBB) coordinate efforts to create a seamless continuum of funding for early-stage spinouts with high-growth potential.
A 'Spark Fund'
A new Spark Fund is needed to plug the gaps at the early stage of the spinout pipeline. This would increase the number of spinouts that successfully de-risk their plans enough to raise investment from the private sector.
The Spark Fund would be supported by co-investment from universities at the earliest stages and from private sources such as university-affiliated
patient capital funds.
Scaling spinouts
Many promising companies, once de-risked and ready to scale, face barriers that lead them to leave the UK, taking their potential with them. Universities already play a critical role in overcoming some of these barriers by providing access to facilities, technical expertise, and resources from business schools. However, unlocking the full potential of high-growth companies will require a coordinated effort.
The government will need to address gaps that universities and the private investment cannot, in funding, talent and infrastructure.
A crucial part of scaling spinouts is ensuring they have access to the private funding needed for growth. The government will need to consider place-based interventions to ensure that all regions have the support they need to foster successful spinouts.
Scaling isn’t just about finance – it requires the right infrastructure and talent. We recommend that R&D facilities and business incubators are included in any streamlined planning regimes to help drive growth in Industrial Strategy sectors.
Creating a culture of entrepreneurship
Researchers who choose to commercialise their work or spin a company out of a university are still a minority – but creating a more widespread culture of entrepreneurship in universities could be a big win for the UK.
Our panel noted that research-intensive universities have already started to develop and embed solutions to create more entrepreneurial cultures within their institutions. Significant shifts in culture like this take time and the government can support these efforts.
This could include introducing flexible funding mechanisms to encourage collaboration and mobility between academia and industry, supporting entrepreneurial training for academics, and ensuring the Industrial Strategy establishes shared goals to align academic research with industry needs.
Creating demand-side pull for innovation
A number of the proposals in this report focus on stimulating investment in the commercialisation of ideas and talent from universities either into new standalone companies, or into established businesses or other organisations – for example in the public and third sectors. Whether this ultimately leads to commercial success or not will depend on the market’s willingness to buy novel products, services or other solutions.
Numerous studies have identified public procurement as an important mechanism for stimulating demand for innovation. In developing the Industrial Strategy, the government should look closely at initiatives that have already been successful and what more it can do to stimulate demand-side pull for innovation using its own procurement power.
Solutions
What can research-intensive universities offer?
- Improve the UK spinout process to make the system easier to navigate and more attractive to investors building on current activity.
- Support the building of business incubation and scaling space including through partnerships to share space for spinouts where appropriate.
- Build on existing best practice to incentivise cultures which support entrepreneurship and commercialisation within universities.
What can the government do?
- Join up the UK funding and investment ecosystem to support high growth spinouts.
- Create a new ‘Spark Fund’ to bridge the early-stage funding gap that is limiting the number of spinouts available for private investment.
- Support the scaling of spinouts by working with the VC community to foster cross-sector expertise and reduce perceived risks in sectors like deep-tech and life sciences.
- Improve R&D infrastructure for spinouts by providing funding or co-investment for incubators, accelerators, and specialised facilities.
- Use public procurement power and the full range of regulatory, legislative and financial levers available to stimulate demand-side pull for innovation, aligned with the government’s wider missions.