Are research company ‘spinouts’ the key to levelling up?

• This blog was kindly authored for HEPI by Professor Iain Gillespie, Principal and Vice-Chancellor, University of Dundee.

The most compelling argument that we in Higher Education can make for public funding is that we deliver a strong return on taxpayers’ money. One of the most straightforward ways we can do this is by pointing to the economic impact of ‘spinouts’ – companies that are formed based on research undertaken by academics at a university.

I can speak on this subject with some pride as a new report published last week by Octopus Ventures, one of Europe’s largest venture capital teams named my institution – the University of Dundee – as the UK’s top university for producing spinouts.

Gateways to Growth: The Entrepreneurial Impact Report examined factors such as the number of patents, new companies created and recent portfolio success. The fact that Dundee was ranked higher than any of the UK’s traditional powerhouses may have raised eyebrows in some quarters but for those who have been following the University’s development over many years it comes as no surprise. Dundee has been the UK’s top-ranked university for biological sciences in the last two Research Excellence Framework exercises and a great deal of work has gone into developing a culture of entrepreneurship that allows our academics to translate their work into company formation.

Our most commercially successful spinout to date is AI drug design company Exscientia Ltd, which became one of the largest ever UK spinout exits upon its £2.2 billion launch on the NASDAQ exchange. The basis for this success is exceptional life and biomedical sciences activity, something that underpins our track record in innovation over the past two decades.

World-leading research does not lead to company formation on its own, however. Commercialisation may be anathema to those who take a very fundamentalist view of the academy’s purpose but there is also an increasing realisation of market realities that must be navigated to deliver health and social benefits. Exscientia, for example, is helping to ensure that new treatments reach patients much quicker than through traditional drug discovery methods. At Dundee, we have many entrepreneurial researchers who want to see their work have real-world impact and realise that creating spinouts is a way to do this.

To this end, we take a pragmatic and flexible approach to working with investors. Each prospective spinout’s individual circumstances necessitate bespoke management and investment packages to launch and grow the business. At a time when diverse institutions have issued warnings about the health of the UK’s spinout environment and have proposed standardising or fundamentally changing the rules of engagement between universities, funders and investors, Dundee and other institutions are proving that results can still be achieved if you have the right science, right proposal and right attitude to investor relations and deals. At a policy level, access to a very early-stage source of funding at the proof of concept/ pre-seed stage would make a big difference to the number of commercially investable spinout projects.

Forming companies is central to our institutional strategy as we see ourselves as having an important role to play in regenerating our city and region. As Octopus noted in their report, any university seeking to foster innovation must develop the support system to enable this activity and fully commit to it at a corporate level. Dundee’s determination to create high-growth ventures is reflected in our flagship infrastructure projects. These include a new Innovation Hub, partly funded by the Tay Cities Deal, due to open in late 2024.

This will fill a critical gap – the ability to keep spinouts in the region. A lack of appropriate facilities means spinouts are often lost to the towns and cities that birthed them. Our Hub will accommodate a strong pipeline of new companies through their high-growth phase. Company formation will be powered by increasing inward investment and will provide high-quality employment, backed by training opportunities delivered by the Tay Cities higher education sector.

This is vitally important as, despite being the UK’s top university for both biological sciences and spinout successes, Dundee has not benefited from our innovation as we would have hoped. Some of our biggest spinouts are now based wholly or partly outside Scotland.

More coordination between universities, Government, local authorities and development agencies is necessary for areas of the UK beyond south-east England to create the infrastructure to keep spinouts and jobs from being sucked into the golden triangle or leaving the UK altogether.

For those of us at Scottish HEIs, there are additional concerns that must be addressed. Between 2014/15 and 2022/23, the research excellence grant in Scotland has been cut by 31% in real terms. This gap is projected to grow to 41% by 2024/25. In contrast, Research England’s Quality Research grant is forecast to increase by 34.8% (cash terms) for the three-year period from 2022.

At Dundee, our aspiration is to develop an Innovation District to anchor our companies here, with an ultimate vision to help our city become a magnet for high-value jobs in the health and life sciences sector. Universities across the UK have their own strengths that, with the right institutional leadership and investment support, can prove transformative for their town, cities and regions.

If Government is serious about levelling up, then one of the best ways to do this is by letting innovation thrive where it originates and providing support as targeted as ours is for our spinouts.