Cultivating giants: How nurturing university spinouts fuels innovation ecosystems

Op-ed by Rick Hao, Partner at Speedinvest, leading and managing DeepTech investments


Cultivating giants: How nurturing university spinouts fuels innovation ecosystems

Innovation thrives at the intersection of academia and entrepreneurship. Universities serve as breeding grounds for startups poised to disrupt industries with their novel ideas and cutting-edge technologies. 

Yet, the path from academic breakthroughs to commercial success is laden with challenges, particularly for DeepTech companies with extended development timelines and hefty capital requirements. Here, venture capital emerges as the indispensable catalyst.

Venture funds play a pivotal role in bridging the gap between academic research and commercialisation. They provide not only the necessary capital but also invaluable mentorship and industry connections, essential for navigating the complexities of bringing transformative technologies to market: 

According to a recent Financial Times survey of 620 business founders, two-thirds assert that without the backing of these institutional investors their ventures would never have got off the ground. In this way, venture capital acts as a lifeline for university spinouts, propelling them from concept to commercial success.

Despite the invaluable role of venture capital, the path from academic research to market-ready technology remains arduous. Ensuring the commercialisation of university spinouts, particularly in aligning their intellectual property with market needs, remains a pressing concern. 

Moreover, fostering a robust spinout ecosystem in Europe — one that cultivates an entrepreneurial mindset and encourages collaboration among universities — should be a paramount focus for policymakers in the region.

With nearly a decade of experience investing in and supporting early-stage startups in DeepTech, I’ve witnessed the pivotal role of nurturing university spinouts in fuelling innovation ecosystems. Early-stage investors like us play a crucial part in this process. 

We not only provide financial support but also offer valuable networks of expertise, potential market pathways, and strategic guidance. Our aim is to assist founders and their teams in navigating the transition from the research environment to the commercial marketplace, thus bridging the gap between academia and industry.

Commercialisation of intellectual property

The majority of university spinouts are born from novel IP, offering immediate differentiation from the get-go — something all DeepTech startups need, and all investors look for. 

The research upon which university spinouts are based is usually targeted at some of society’s biggest problems, meaning there is strong potential for both significant financial returns and societal impact. Academic environments are unique in their blue-sky thinking, largely free from the immediate pressures of market demands and profitability that often constrain corporate R&D departments. 

European universities, who traditionally lag behind their US counterparts, are now catching up. They’re increasingly acknowledging the imperative to facilitate the transition from academia to commercialisation. Initiatives such as Imperial College London’s Institute for DeepTech Entrepreneurship are working to understand and address the critical barriers to the commercialisation of DeepTech ventures. 

This is done through developing focus areas such as a funding and support model, specific to the commercialisation challenges of these ventures as well as building a research platform to inform evidence-based best practices. 

Transitioning technology from academia to commercial use presents a significant hurdle, particularly in Europe where the process is not as seamless as in the US. This gap could be due to fragmented institutional knowledge in commercialisation, leaving many university spinouts without the necessary resources to develop scalable products, especially in the DeepTech sector.

If Europe truly wants to fast-track spinoffs, they need to remove a structural hurdle. Varying equity stake standards across universities add another layer of complexity. Implementing a unified equity stake regulation could simplify commercialization, freeing founders to focus on both R&D and commercialising their innovations. 

Moreover, bridging the gap between cutting-edge research and investable spinouts requires increased translational funding availability, such as grants and fellowships, to facilitate the transition into the commercial realm.

The ecosystem at large

The numbers underscore the untapped potential: despite comprising only 2.52% of high-growth businesses, the 1,166 active UK academic spinouts play a significant role in the innovation ecosystem. 

They highlight the promise of academic entrepreneurship and emphasise the need for infrastructure to support their growth. Moreover, academic spinouts often boast founders who are among the most intellectually capable investors can find to invest in.

The underlying issue is risk averseness: In Europe, university spinouts are often viewed as high-risk propositions for potential commercial co-founders and early hires. Ideally, a cultural shift in attitudes toward these spinout companies would be necessary for them to attract top talent and secure better funding. 

A solution to this would be the creation of a more robust startup ecosystem, leveraging expertise from government, VC community, academics, and entrepreneurs. This would boost the pipeline of talent and advance DeepTech innovation across the region. 

A good example is the University of Cambridge, which has excelled in commercialising scientific and technology-oriented research. Their integrated approach, involving a VC ecosystem and a business angel network, nurtures, and scales DeepTech startups and establishes a centralised innovation hub.

To unleash the untapped potential of the DeepTech sector, universities should prioritise collaboration, sharing knowledge, and cultivating entrepreneurial talent. This collaborative mindset should also extend to industry partnerships, ensuring founders have early access to the commercial world. 

Efficiency should be embedded across the entire ecosystem with governmental incentives such as subsidising technology transfer office operational costs to encourage universities to optimise for the overall success of companies. 

The policy landscape

Governments across Europe must grow to realise the potential in Europe and look to foster an environment for the growth and development of the science and technology sector. The UK in particular has a strong track record, with government initiatives like the Science and Technology Framework in place to support young talent emerging from academia. 

This blueprint for transforming the UK into a science and technology leader involves an investment of £320 million in home-grown STEM startups, as well as University Enterprise Zones, designed to spark innovation and commercialisation of research.

Similarly, France’s “French Tech Initiative” provides a financial lifeline and support system for tech industry startups, whilst Germany has strong pedigree when it comes to academic partnerships with venture capital funds. The Technical University of Munich (TUM) for example has a dedicated startup lab which boasts a sprawling network spanning industrial groups, SMEs and government. 

The German government also looks to play a more direct role, supporting founders through its EXIST programme which aims to improve the entrepreneurial environment at universities and research institutes. Public sector partnerships like these are central to the nation’s ambition to become a startup hub for future founders.  

Nurturing university spinout ecosystems is crucial, particularly in emerging tech hubs like Austria, renowned for its talent in the hardware sector, notably quantum technology. These ecosystems not only stimulate technological innovation but also foster entrepreneurial spirit, drive economic growth and create a virtuous cycle of innovation that positions burgeoning tech hubs like Austria as a global leader in the tech industry.

Venture capital’s role

Private capital must continue to drive the surge and commercialisation of innovations emerging from academia across Europe. 

To facilitate the commercialisation of DeepTech startups, increased investment in European venture capital is essential. These funds not only provide financial backing but also offer invaluable mentorship, strategic guidance, and access to an extensive network of industry experts and potential partners. Such support is indispensable for guiding these budding technologies from university laboratories to commercially successful products.

As stakeholders in the innovation ecosystem — investors, universities, entrepreneurs, and policymakers — we must collaborate to create environments where the most audacious and pioneering ideas can thrive. 

In the realm of DeepTech innovation, one thing is crystal clear: to thrive, this ecosystem needs ample capital fuel. Universities provide a platform for breakthrough research to meet commercial potential, and venture capital propels these innovations to market. 

Technologies like quantum computing, semiconductors, and AI have undeniable impact, but without enough investment and government support, their potential is untapped.

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