Science and Technology Committee (Lords) transcript: University Spin-out Companies - Mar 19

Members present: Baroness Brown of Cambridge (The Chair); Lord Berkeley; Lord Borwick; Lord Drayson; Baroness Neuberger; Baroness Neville-Jones; Baroness Northover; Lord Rees of Ludlow; Viscount Stansgate; Lord Strasburger; Lord Wei; Baroness Willis of Summertown; Baroness Young of Old Scone.

Evidence Session No. 1              Heard in Public              Questions 1 - 10

Witnesses

I: Professor Chas Bountra, Pro-Vice Chancellor for Innovation, University of Oxford; Dr Andrew Williamson, Managing Partner, Cambridge Innovation Capital.

USE OF THE TRANSCRIPT

1. This is an uncorrected transcript of evidence taken in public and webcast on www.parliamentlive.tv.
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28

Examination of witnesses

Professor Chas Bountra and Dr Andrew Williamson.

Q1                The Chair: I welcome our witnesses to the committee’s one-off evidence session on university spin-out companies: Professor Chas Bountra, Pro-Vice Chancellor for Innovation at the University of Oxford; and Dr Andrew Williamson, Managing Partner at Cambridge Innovation Capital.

The session is being broadcast on parliamentlive.tv and a full transcript will be made available shortly after the meeting for you to make any minor corrections.

Thank you, both, very much for coming today. I shall kick off by declaring my interest: I chair Frontier IP, a company that works with academics and other researchers to support them in spinning out their companies. I have a personal interest, and you will find that many members of the committee also have strong personal interests in this area.

I ask you both to make a brief opening statement about your work in undertaking the recent review of university spin-outs—what work you undertook and, perhaps, your three key conclusions.

Dr Andrew Williamson: It was an honour to be asked to conduct the review.

My background is that I am a PhD physicist. I grew up in an academic family. My father was a professor at Imperial, and I have spent the past 30 years of my career as an academic, a founder and, for the past 20 years, an investor in founders. This is literally my life’s work.

The vast majority of my career was spent in the States. After graduating from Cambridge, I went to the US for 20 years, so I felt uniquely positioned to compare and contrast between the US and UK.

There have been a number of reviews over the years that we should acknowledge, and they are all cited in the review, but the origin of this review was an increasingly heated debate, particularly in the press—with fairly regular cadence, it was making its way on to the front page of the Financial Times—about equity splits and how the ownership in the early years of a university spin-out business is apportioned between the founders of the business, the university and the investors. That became quite acrimonious, so we were asked by the chancellor to conduct a fairly comprehensive review to see what the facts were.

We can get into the details, but at a high level we tried to do the most comprehensive review that has ever been done—I am a physicist by training, so this is all about the data rather than the anecdotes.

We tried to speak to pretty much everybody who is anybody in this ecosystem. We did the most comprehensive survey of founders ever conducted: over 650 founders of university spin-outs; we believe that there are about 1,000 in existence, so 65% of spin-outs responded to our survey.

We spoke to everybody who has invested in a university spin-out in the past decade or so—30 or 40 investment firms. We spoke to a large number of tech transfer offices and the senior leaderships of universities around the country about their policies. The idea was to get the most comprehensive dataset and see exactly where things stood.

The high-level conclusion, which we can dig into, was that this is a good-news story. The rate at which spin-outs have been formed and the amount of capital being invested in them are growing quite rapidly—5x in the past few years.

The terms under which businesses are being set up are moving in the right direction, to what would be regarded internationally as best practice, and we can dig into that. The glass is definitely half or three-quarters full. That was a very positive outcome for Chas, Irene and me. We are now trying to propagate that good news and drive the sector even more quickly to adopt the best practices that we have recommended.

The Chair: It is great to hear good news. We are, of course, always looking to see what we could be doing better.

Professor Chas Bountra: I think that Andy has covered it all.

I should first apologise. Irene could not make it because she is on jury duty; I am the reserve candidate. My contribution was to help Andy and Irene wherever I could.

Andy summed it up beautifully. The sector is working well across the UK, sharing best practice, clubbing together and creating VC funds, with a number of universities coming together. As a sector, we are trying to learn from other parts of the world—the US, and so on. We are a lot more ambitious, so it is exciting.

The big message that I would like to share with colleagues is that as to all the problems and challenges that we all worry about—healthcare, climate, inequality, food production, or whatever—across the university sector in the country we are working in all those spaces. The solutions to those problems sit inside universities, which are churning out talent, have networks across the world, are working with corporates and have alumni all over the world. There is a really exciting opportunity in the next few years.

The Chair: Did anything from your review surprise you?

Dr Andrew Williamson: My investment practice is based in Cambridge, and we do a lot of work in the golden triangle. As part of the national review, we spent a lot of time talking to colleagues around the country, and this is definitely not a golden triangle story. I was very keen to include in the appendix case studies from some of the universities with which we spoke. Places such as Edinburgh and Sheffield are making remarkable progress, and that was a very pleasant surprise to me. There were numerous case studies like that.

Professor Chas Bountra: The nice thing for me was increased recognition that UK universities, brilliant as they are, are very different from those in the US. We are often compared with the US. Universities in the US often are private. They charge $100,000 a year. They have $75 billion endowments. It is a very different ecosystem. It is a lot more mature, but we are catching up and learning from them. I am sure we will talk about that later in the meeting.

The Chair:  We will certainly come back to the regional issue.

University spin-outs make up a tiny proportion of high-growth companies—only about 3%, and you mentioned about 1,000 university spin-out companies. Are there any other unappreciated factors that might be easy wins in helping us to have more of those companies and, crucially, in helping them to grow and be real contributors to the economy?

Dr Andrew Williamson: The staffers were kind enough to share that question and stat in advance. It is not a statistic I recognise, so let me share a slightly more positive one.

We describe the broad sector in which we invest as the knowledge-intensive sector—businesses based on fundamental intellectual property, science and technology. My firm buckets that into the life sciences and deep technology sectors, but it broadly covers things with which I assume this committee would be concerned.

We fairly regularly study data for private growth companies raising money in the knowledge-intensive sector. Some 30% or 40% of the high-growth, private knowledge-intensive companies that have raised money in the past three or four years are university spin-outs. Within the knowledge-intensive sector, it is a very large market share. Of course, there is an opportunity for it to grow.

That 3% probably includes a lot of lighter-tech companies—consumer companies, social media companies, food delivery apps—that are important businesses but that do not fall within the remit of this review.

The Chair: So the perspective would be of the economy as a whole rather than any one sector of it.

Dr Andrew Williamson: Yes. I also chair the Venture Capital Committee of the British Private Equity and Venture Capital Association. We look at the data from across all the sectors. We have seen the knowledge-intensive sectors emerging in the past 10 to 20 years as growth sectors. If you rewind to the turn of the century, you find that the vast majority of venture capital and private equity investment in the UK was in the non-knowledge-intensive sectors. There was some fintech in London, but it was in more traditional businesses.

The life sciences, in particular, have been a wonderful story for the UK in the past 10 or 20 years. We are now seeing deep-technology sectors such as AI and quantum computing starting to grow as well.

We are seeing a leading indicator, and the universities are a big part of that.

Professor Chas Bountra: I work in a wonderful university, but historically, universities focused on teaching the next generation and being research powerhouses. Increasingly, funders and society expect universities to use that research to create solutions to some of the world’s biggest problems and to create impact.

With the impact pillar and agenda, we are growing that ability. It is fair to say that we are behind some parts of the US, et cetera. We need to help our students and many academics by making it easier for them to do that. Increasingly, they want to do it and are excited about doing it. We have a lot to build on.

I keep talking about universities. The UK has some of the best universities on the planet, but we also have some amazing national infrastructure, such as at Harwell, the Cullen, Daresbury, Crick, Turing and Sanger. We have also created amazing resources: UK Biobank, Genomics England and probably the biggest patient resource, the NHS.

As a country, we have a great track record in innovation and enterprise. We have more VC funding per head than any other country in Europe. We do not have as much as the US, but we still have a lot.

Those are great strengths to build on. You bring all that together and build on the fact that we have alumni spread all over the world, collaborations with corporates all over the world and networks of colleagues who want to help us. Let us make use of that and be more positive, confident and ambitious.

Q2                Lord Strasburger: The Government have accepted all your recommendations and set out their plans to implement them. Do their proposed actions address all your recommendations? If not, are there any major gaps?

Dr Andrew Williamson: The short answer is yes. We are very pleased with the actions adopted by the Government. The vast majority of the recommendations did not, by design, require significant government policy and certainly not significant investment by the Treasury. That was part of the brief.

It was more about putting in the public sphere a set of best practices that should be adopted by all stakeholders and participants in the ecosystem. There certainly were some sweeteners from the Government.

Our recommendations on founding businesses, equity splits and the economic and legal processes around that were that the university sector, the tech transfer offices, should take care of their own business—self-regulate—and they had already set up TenU, the 10 leading universities’ commercialising sector. It had come out with a number of recommendations, particularly for the life sciences sector. We recommended that those be expanded to look at areas such as software. That has already happened and will be published soon.

We identified a gap in translational funding. Typical academic funding for intellectual property that can be commercialised from UKRI funding—MRC, BBSRC—often advances technology only to a certain point and there is a gap before it is ready for commercialisation, which is called translational funding. A £20 million fund was announced as part of this review to provide additional translational funding. That is a fairly modest amount, but it should be borne in mind that it typically represents cheques of perhaps £250,000—that is 80 businesses, if my maths is correct, and I should never do maths in public. That will help 80 businesses to launch that otherwise would not have done so. I very much hope that if it goes well in the first couple of years it will be expanded.

We asked every university leadership about one thing holding them back, and unanimously, I think, we heard that the translational funding gap was a problem. We are very pleased to see that addressed, or at least to see a modest start.

On the other recommendations on speeding things up and adopting best practices, government is involved to the degree that Research England is starting to apply some subtle pressure to university leaderships: “How quickly are you adopting these best practices? Tell us what is going on”. I believe that is already starting to happen.

Professor Chas Bountra: I will make three comments. I am not looking to government to provide us with lots of solutions; it is partly our job.

Role models are incredibly important. One of the ideas that Andy and I have been chatting about —perhaps government could do this—is whether we could invite some amazing scale-up entrepreneurs from the US: the Bill Gates, the Elon Musks, the Jeff Bezos-type people. We could get them to tour some of our universities, give lectures and talk about their stories. Students and research faculties would find that inspiring and energising. It would make our universities even more connected. It would build our networks across the world, and perhaps we would attract inward investment. The main point is that role models are incredibly important. That is how we produce a culture change.

Secondly, we all try to learn from the US, for many reasons. In the US, there are 800 billionaires who give money to universities—and lots of it. There is much more of a philanthropic, alumni-giving culture than in the UK. There are many more venture capitalists out there. On the doorstep of Stanford, there are now seven companies, each worth more than $1 trillion. Apple is $3 trillion, Microsoft is $3 trillion, NVIDIA is £2.2 trillion, Meta is £1.2 trillion, Alphabet Google is £1.7 trillion, Amazon is £1.8 trillion and Tesla is about $1 trillion.

You can imagine the funding that is going from those companies into Stanford. You can also imagine the job opportunities in those companies for kids from Stanford. They have such a rich ecosystem.

In Europe, I do not think we have any company that is worth more than $1 trillion, so that must be our ambition.

Thirdly, I love this country and have been here most of my life. I love working in Oxford. However, I recognise that we are a small country of 70 million people. We are competing with the US with 330 million, China with 1.4 billion and India with 1.4 billion. I realise that many of the problems that we are talking about—dementia, ageing, mental health, AMR, rare disease, green energy, carbon capture, biodiversity and food production—require scale and urgency. To get that scale and urgency, we will have to open our arms and collaborate—with peers, with corporates and with other countries. We in the university sector are in a great place to do that.

Lord Strasburger: What needs to happen over the next year to convince you that progress has been made on your recommendations?

Dr Andrew Williamson: On the technical topic of the legal and financial terms of setting up businesses, one of the challenges when we started the review was that there was very little data. There was lots of speculation, lots of anecdotes and lots of things in the press, but it was difficult for government to make policy or to recommend policy because it did not have the data.

One of the recommendations is that DSIT will collect that data from universities as they spin out businesses. We will quickly see whether the ranges of terms we have recommended and the speed at which businesses should be created is happening. We will have real data to see that. I look forward to seeing it.

Each of the universities is on a journey. The are quite complex processes to go through for university leaderships to change some of these policies—Chas can talk about that. In some cases, there might need to be a change of personnel in some of the tech transfer offices. It will take a year or two for it to percolate, but that is what we are looking to see.

Lord Borwick: We were told in our briefing that you got your response from the Government the day after you published. In Parliament, getting a response that quickly from government is pretty much unknown. What is the secret of your success?

Professor Chas Bountra: You have not met our VC, Irene Tracey.

Dr Andrew Williamson: She is a force of nature.

There was huge support from the Treasury and DSIT. The review took nearly a year to complete. They knew how it was evolving as we were working on it.

Lord Borwick: You helped them with their thinking process.

Dr Andrew Williamson: Yes.

Baroness Willis of Summertown: I ought to declare a potential conflict of interest as a family director of one of the university spin-outs, Natural Capital Research, based in Oxford.

We were talking about translational funding—a strong driver for us—but I read the feedback in your report. One of the issues is bureaucracy and the number of different UKRI schemes. How confident do you feel that the £20 million to be released by the Government will not get bogged down in yet more bureaucracy? Is less more in the funding that comes through?

Dr Andrew Williamson: It was an interesting journey for Irene and me as we went through the review and started to learn about the different initiatives within UKRI—specifically Innovate UK and, to some degree, DSIT—targeted, with good meaning, on trying to accelerate and expand spin-out activity and commercialisation. I have been back in the UK now for seven years, working in this space, and I admit that there have been a few occasions when I have said, “Oh,I had no idea such a programme existed”. That is probably not a good thing, because I probably should.

One of my big-picture requests/recommendations is that we do not need a handful of additional piecemeal policies. A first-time founder or investor needs consolidation and clearer signposting to understand a comprehensive set of support that is available, which they might not be aware of. We spent quite a bit of time with the CEO of Innovate UK. That is one of his priorities, and it is building a new website and laying out all the offerings.

Specifically for translational funding, it is important that that does not get drowned out by a bunch of other programmes.

Baroness Willis of Summertown: An additional learning is that we probably need to step back from being overcomplicated.

Professor Chas Bountra: I think that you raise an important point. When we are trying to produce a culture change, and I think we are, we need to incentivise, to make it simpler, to make it transparent, to make it faster and to lower hurdles.

Q3                Baroness Northover: I should like to pursue further what you would like the Government to prioritise, looking at it from the perspectives of an academic and an investor.

The two of you have similar backgrounds­—you have done it in a different order—in business and academic expertise, so you might come at this from the same point of view, but do you see a different perspective coming from the academic sector and the investor sector on what the Government should do? Do the priorities diverge or align? I will come on to the point you raised about private equity.

Dr Andrew Williamson: Wearing my investor hat, particularly as an investor in early-stage knowledge-intensive businesses, the first thing I want to say is that government does and has done an awful lot. Compared with where I spent most of my career, the US, there are a lot of initiatives and good programmes. To name a few, the British Business Bank, specifically British Patient Capital, which has just had its five-year anniversary, has been transformational for the sector. It is an investor in my fund and in most of the funds that invest in university spin-outs. It directly co-invests alongside us in the scale-up of some of those businesses.

Equally, EIS tax relief for early-stage investment, particularly knowledge-intensive early-stage investment, is very helpful. Many universities, including Cambridge, have EIS investment funds targeted at their spin-outs. The extra tax advantage that EIS provides gives a nudge to bring the capital into something that is a bit more risk-intensive.

R&D tax credits have moved backwards and forwards a little in Treasury policy over the past couple of years, but they are very helpful to the sector.

ARIA has recently launched to challenge and promote some of the most forward thinking in these sectors. The Government are already doing a large number ofthings as an investor that we think are hugely supportive.

Again, my answer is similar to that to the previous question: I do not think we need a lot of additional policy and initiatives. If anything, we need a little stability for things to bed in and let the good policy work.

We might talk later about Mansion House, scale-up and pension capital. That is another big issue.

Professor Chas Bountra: Let us be proud of our universities. They are doing a great job. They are among the best on the planet. They are churning out amazing talents: great researchers, great leaders, great innovators and great entrepreneurs. Let me share three brief stories.

In Stanford, young 17 year-olds or 18 year-olds write one business plan. Before they have it funded, they are writing the second and third. In the UK, we still have a bit of a culture whereby you write one business plan and if you do not get it funded you never write another one. This culture piece is important.

The second story would be in Boston. I have friends in Boston who have worked at Harvard. Then they will leave Harvard and go and work in Novartis. Then they will set up a biotech. Then they will go back to MIT et cetera. With that movement around, they broaden their network and they understand each other’s language and the bottlenecks, and together they do great things. That is what is happening in Boston, where there are people such as Robert Langer, who is a brilliant engineer with more than 1,500 publications and more than 1,000 patents. He has set up more than 40 companies. He is now creating lots of companies, which are working together to create more companies. It is such a rich ecosystem. That is what we need here.

Thirdly, almost exactly a week ago, I was with your colleague Michelle Donelan. She was talking about a programme called BIG, which stands for backing invisible geniuses. Although I had not appreciated it, apparently 16, 17 and 18 year-olds who do mathematics olympiads are 50 times more likely to get the Fields Medal in mathematics later in life than an Oxford or Cambridge maths DPhil. Even at the age of 16, 17 or 18, we can identify the future movers and shakers.

I said in that discussion that, at that age, we can identify a future Bill Gates or Elon Musk who, 10 years down the line, is going to create new industries and platforms, change the world, create hundreds of thousands of jobs and produce many millionaires and billionaires. That is what they have done on the west coast. We should get as many of those young kids into the UK as we possibly can from all over the world. At the moment, many of them are going to Trinity Cambridge and so on, but let us get more of them into our universities across the UK.

Baroness Northover: We certainly hear what you say, and it is probably a good thing that we have rejoined Horizon, given your description of the United Kingdom’s place in this.

Universities are under pressure. One of the issues that you addressed was the split in private equity. Can you dig into that a bit more? You said that some universities had been too restrictive and focused on value capture, which may be understandable in the circumstance of the pressure on them, but you did not feel that the balance was quite right. Dr Williamson, you started by talking about the front page of the FT and its focus on that kind of strife between the different sectors. I wonder whether you could comment a bit more on that.

Dr Andrew Williamson: It is a very important topic. Some of the great universities of the UK have been educating and researching for centuries. The whole commercialisation journey is very new. It started in most universities with a tech transfer office focused on licensing. This involved taking intellectual property and patents developed during fundamental research at a university and licensing it, typically to a larger company. The majority of the revenue came from pharmaceutical licences—a handful of blockbuster drugs.

Over the past 10 to 20 years, the focus has shifted quite significantly from licensing to spin-outs. Spin-outs are a completely different competency. A successful spin-out requires bringing together a founding team, founding capital, the right business plan and all the support infrastructure and resources. It is a bespoke business that requires a lot of expertise and is time and labour intensive.

Universities were asked to get into that business and deliver societal impact through spin-outs from the fundamental research of their academics. That is a big challenge to take on, particularly in an era where university budgets are so constrained. There has been a certain amount of HEIF funding. One of the conclusions of our review is that that is essential for the operations of the tech transfer offices. Most of our conversations with a tech transfer office started around how much they can do with HEIF—they squeeze every last penny out of that—and what they can do with philanthropic support or corporate support on top of HEIF.

Over the past decade, universities have been asked to create start-ups, to come up with the resources to do that and to hire the staff who have the expertise, but with very limited funding. It is perfectly reasonable, particularly given the history of funding those activities through licensing, that universities will look to obtain an equity share—a percentage ownership of those businesses—that would support the operations and activities of the tech transfer offices.

The philosophical change over the past few years in the UK, and earlier in the US, is that that is the wrong way to think about it.

The brief that the Treasury gave us for this review was from a taxpayer perspective. It asked us to come up with a set of terms that would optimise UK plc’s economic growth through the increase in the number of spin-outs and their success, and the return for taxpayers would come from payroll taxes, corporate taxes and all the other benefits of growing businesses, not from universities taking equity stakes at the beginning of the entrepreneurial journey and using that to subsidise their activities.

Essentially, what we have focused on is a societal compact that says that universities will be appropriately funded through HEIF to conduct the vital mission of spinning out these businesses, and, if they are appropriately funded, they do not need to take very large equity shares at the beginning that suppress spin-out activity and disincentivise founders and investment. We can talk about where that disincentive comes from, but they should focus on taking more market-level equity stakes.

A big part of the review was to ask: what is market? What is the level at which investment from around the world will flood into these businesses? What is the level at which the founder of a business will take the huge personal risk of quitting a tenured faculty job, or giving up going to work for an investment bank or a large corporate, and live on a shoestring to build a business over the next few years? A huge amount of risk and effort is required and it needs to be appropriately rewarded. The way in which it is rewarded for founders in the early years is through the equity shares that they own in their own businesses.

It is a philosophical shift from universities trying to offset a material part of the operating costs of doing that spin-out activity from equity shares to one in which they take a smaller, more market-level share and benefit perhaps in the long term from those businesses, particularly from the philanthropy that comes from those founders. We have laid out in the report the ranges and the use of guidelines.

Baroness Northover: Would you have a different perspective? We have heard different perspectives from academics and wider that universities are not benefiting as much as they might do in these circumstances. What you are positing is that the universities and their research are properly funded.

The Chair: Can we try to keep both questions and answers short, because a lot of Members want to come in?

Professor Chas Bountra: I emphasise the comment about culture. In Oxford, I have seen a massive culture change in the past few years. We had a step change when we created a VC fund of £614 million in 2015. It is investing only in Oxford companies. Prior to that, we were doing four to five companies a year. As soon as we did that, it went to more than 20.

I saw another step change during the pandemic when everybody saw what the university did to generate a vaccine by working with industry, government, regulators, funders and so on.

I expect another step change in the next few years as the university works out how we work with the Ellison Institute. Ellison is coming to Oxford and wants to work on all these big problems. Culture change is important.

I am reminded—I hope I do not embarrass Paul—that in 2012 we did a review of innovation in the university. Paul was one of the first people to whom we spoke. I remember almost word for word what he said. First, he pointed to a bunch of us academics and said, “If you want to maintain your elite status, you need to identify alternative sources of funding. Don’t just rely on government. Think of industry, venture capitalists, creating your own companies. Think of philanthropy”.

Secondly, he said, “When a fellow academic drives a Porsche into the college car park, applaud them”. These are important things. Culture is important.

Simplicity is important, too. A few years ago, we tried to simplify the whole equity process in Oxford. We said, “If the university has made a contribution, we will take 20% and the academic will get 80%; if the university has made no contribution, we will take 10% and the academic will get 90%”. It is simple, transparent and binary with no negotiation.

The Chair: As a reminder, we need to keep questions and answers short.

Q4                Lord Drayson: I should declare my interests, but not in Porsches. I have done a number of university spin-outs, including with Oxford University. I am currently chairman of an Imperial College spin-out.

I would like to probe you a little further on the different approaches taken by universities across the UK in accepting the cultural shift that you have described.

First, is it accepted within the university sector, in the context of the current funding challenges that you have mentioned, that wealth creation is the third role for a UK university, alongside research and testing?

Secondly, accepting that your review has told a good news story of the improvement that has been achieved over recent years, there is a massive disconnect between the growth achieved by the cohort you studied and the overall anaemic growth in the United Kingdom during the same period. Is the answer to closing that gap that leading universities achieve a 10x impact or that the impact is spread more evenly across the UK?

Professor Chas Bountra: If I look across the universities in the US, I do not know how consistent they are. Even they are at different levels of maturity. In the UK, Cambridge is incredibly mature; Oxford, I hope, is catching up, as are other places. I suppose this is part of growing up.

On your other comment about whether all the faculty of a university accepts that part of the job is about wealth creation, frankly many of my academic colleagues just want to teach. They are brilliant at it, and we need them. There are some who probably just want to do research, publish papers and get grants. They are brilliant at it, and we need them. There are some individuals who want to translate, commercialise and learn about entrepreneurship. I think that we have all sorts, but, fortunately, in Oxford now—it is different from, say, 10 years ago—we have a number of faculty who are serial entrepreneurs and they are emerging as role models; they are on their fourth, fifth or sixth companies.

Lord Drayson: Is it accepted by the leaderships of the universities that wealth creation is that third role, or is that still open for debate? I accept that there is a mix within the academic body. What I am interested in, given the UK’s growth challenge and looking at the diversity of types of universities, is whether that is seen as a third pillar of the role.

Professor Chas Bountra: I believe so. I believe the REF has encouraged that; funders are encouraging it; society is demanding it; more and more students and faculty want to do it. I think that impact is becoming the third pillar.

Lord Drayson: My second question is about the difference between the technology transfer offices across universities and the different types of universities. Is having a bigger impact for the UK as a whole about getting Oxford, Cambridge and Imperial to 10x, or is it about getting the rest of the university sector to do that?

Dr Andrew Williamson: On the first question, leading research universities are in a global marketplace for talent as well as capital, ideas and intellectual property; they are competing with Stanford, Berkeley, MIT and Harvard for the next generation of global-leading academic talent. Having a compelling commercialisation offering—a kind of infrastructure and ecosystem of innovation—in addition to, “How much are you going to pay me? How big is my lab going to be? How many graduate students can I have?” is increasingly one of the criteria that global talent selects universities on, although not all by any means.

I view it as providing a service to the faculty, and the number of faculty taking it up is changing dramatically. I am sort of the cut-off point. I am 52. As a huge generalisation, when I look at Cambridge, I see that most of the faculty who are older than me come from a more traditional, pure academic research perspective. Most of the faculty younger than me are more interested in generating impact. I use the word “impact” rather than “wealth creation”.

With regard to the golden triangle versus the rest of the country, I think of the golden triangle increasingly as one ecosystem, because the distance between Oxford and Cambridge and London is sort of that between San Francisco and Palo Alto—we are sort of a UK Silicon Valley. We are barely at critical scale in having enough activity and capital that it can feed on itself. We are starting to see that. I can see the signs when an entrepreneur comes back to me and wants to invest in another business, start another business or collaborate with somebody in Oxford and we are co-investing. I can start to see those signals, but we are barely there.

One thing I would be very concerned about is spreading the peanut butter across the UK and killing the golden goose, as it were, that we have in the golden triangle. We are just getting to critical mass here.

There is obviously huge potential in other ecosystems around the country, with varying emphases. They are not all the same. Sheffield is one of my favourites. It is all about advanced manufacturing—it is a different type of innovation; at Edinburgh and Dundee, a huge amount of life sciences is going on. Each ecosystem will be different and it will have its different strengths, but we are all still in the early innings, certainly compared with the US.

Q5                Baroness Young of Old Scone: May I declare an interest? I chair the parent organisation of the London BioScience Innovation Centre.

You talked about regions and spreading the peanut butter too thinly. The Government have done a number of things to try to kick-start this process outside the south-east: national and regional investment funds, growth clusters, investment zones and all those things. Are they the right things for the Government to be doing and are they working, or is it too early to tell? Are there different things that you think government should be doing outside the south-east?

Professor Chas Bountra: Oxford is a privileged environment, but the onus is on us to try to help our colleagues across the country. I will give examples of some of the things that we are doing.

The initiative, Creative Destruction Labs, was set up and funded by Research England through the connecting capability fund. It is based in Oxford, but it is working with many universities across the UK.

Oxford has just signed a deal with the Precision Health Technologies Accelerator in Birmingham. Birmingham has the second-largest hospital and medical school in the country. Right next to that, this accelerator is being built. We have signed an agreement where some of our companies in Oxford may set up there. The advantage for the companies is that the rent is cheaper in Birmingham and they have access to a catchment of 6 million patients; there are benefits.

We are currently in conversation about what we can do in Liverpool. We have been working with Dundee and the Medicines Discovery Catapult, and with Manchester on ageing and so on.

The UK is a tiny country and we have to work with one another to bring scale and urgency. What we need is scale and urgency. None of us can do it on our own.

Dr Andrew Williamson: In my field, I think that the best example in recent years was the setting up of Northern Gritstone, the investment firm focused on Manchester, Leeds and Sheffield. It is a private investment firm, but there was a huge amount off government support. For example, the Office for Investment helped that team to raise its initial capital. That has been transformational to those ecosystems, with £300 million or £400 million of capital going into businesses. Week in and week out, it is investing in spin-outs that would otherwise not have been invested in, and drawing in what is called co-investment capital, so the multiplier effect is very large. Great things like that can definitely be done.

I would caution that it is a little hard inorganically to force an innovation ecosystem to happen. To some degree, they have to grow up organically, and the Government should have stable policy to provide support and seeds, and then you have to let it grow. It takes a bit of time, particularly for the talent base and the culture to mature.

We state in the review that probably the strongest place for public/private partnerships is in the early years of an ecosystem. Gritstone is a perfect example; it is a public/private partnership between investment capital and universities, and that is quite rapidly seeding something, but success will be when government can step back and the ecosystem flourishes on its own. In the end, it has to be mostly private capital supporting those businesses.

Baroness Young of Old Scone: There has been criticism in the past of the lack of clarity about the Government’s industrial strategy and innovation strategy, particularly for sectors that are not part of the missions, as it were. Do you think that is a downside that means that early start-ups have nowhere to go in terms of their market, or is that not really a problem? Is there a lack of investor confidence, for example, as a result?

Professor Chas Bountra: We are a small country and we have limited funds. We have to focus and prioritise. We cannot be brilliant in everything. We have built up lots of capabilities in life science; we have identified these missions. Let us all work together and get behind them.

I would go back to Andy's comment. Boston, Stanford and so on are dense, rich ecosystems. There are great universities, massive hospitals, thousands of biotechs, many large pharma companies, loads of investors, angels, VCs and so on. It has taken 20, 30 or 40 years for those ecosystems to get to that stage. That is our ambition, but we will not get there tomorrow.

Q6                Baroness Neville-Jones: The word “scale” has been mentioned in some recent answers. I want to switch the conversation slightly towards the issue of scale-up and to the perceptions that perhaps this issue leads to. There is a perception that companies get so far but scale up. Scale-up is itself quite a big thing and there are various stages in that. You might want to comment on that. That becomes much harder if capital is not available, so either the company goes abroad to find the money, usually the States, or Americans come hunting on British territory.

The philosophical change that Dr Williamson outlined is that the reward lies in the general benefit to the community and the prosperity of the UK. The institutions that led to it benefit indirectly, but in the end much more fruitfully in a larger and bigger economy. The fear is that that part of the game gets frustrated and does not happen, because the intellectual benefit and therefore the prosperity goes elsewhere.

Would you like to comment, first, on the analysis and, secondly, if there is something in this, on what we ought to be doing about it? I am not particularly asking what government ought to do, but what as a society we ought to be doing.

Dr Andrew Williamson: I agree with that analysis 100%. When I arrived back in Cambridge, a lot of people said that Cambridge was the spare parts engineer for the American tech companies.

Baroness Neville-Jones: Yes.

Dr Andrew Williamson: It sounds like other people have heard that. It generates great technology and just when it gets to the point of scaling up it is acquired. My firm was set up a decade ago to try to change that.

How does one go about doing that? The strands for building a successful business are the same as those for scaling a business. People always come first. People, talent, culture, capital and infrastructure are some of the other things that we think about.

Again, it is a good news story that we are moving in the right direction. More and more of the businesses in which we are investing in the golden triangle are scaling up to be larger and larger businesses. We talk a lot about unicorns, companies with a billion-dollar private valuation. We have four in our current portfolio. Cambridge used to create one every few years; we are now creating a couple a year. Therefore, it is increasing.

It takes time. People are the most important thing. We did not have a talent base in this country with the experience of scaling up, particularly knowledge-intensive businesses. To some degree, you cannot short-circuit that. What we have been doing over past years is importing that talent from Europe and the US to supplement particularly the commercial skill sets.

Baroness Neville-Jones: Do you mean entrepreneurship and the running of the business?

Dr Andrew Williamson: Yes, it is the running of the business. Typically, we are backing technical founders, academics, their students and people who are really great at the R and somewhat good at the D, but an awful lot comes after that: productisation, business development, finance, marketing, manufacturing and all the regulatory considerations. Those skill sets were not as well supported here. For example, comparing it with Silicon Valley, when I was building businesses there, I would take the early-stage talent out of Stanford or Berkeley and then pull people from the trillion-dollar companies that Chas was talking about who had those skill sets to come in and supplement them. We do not have that industrial base here, or we are still building it up. Therefore, we have supplemented it inorganically.

One thing I am very proud about is that in recent years we have had much more success in recruiting world-class leadership into businesses, particularly in the golden triangle, that we would not have been able to do five or 10 years ago. They see the opportunity here; they see the science superpower and the level of investment and policy support.

I think we are moving in the right direction. The biggest thing the Government did last year, which I am a big fan of, was the Mansion House reforms. There are very few win-wins in life, but correcting this failure of UK pension funds to allocate any capital to growth equities, particularly British growth equities, will benefit both the returns to pensioners and the growth of those companies. That is a long overdue reform, and it is already bearing fruit. Maybe I will end on that high note.

Professor Chas Bountra: Andy has said it. It is all about talent. In the past few years, Oxford has recruited some amazing entrepreneurs from Boston. Tony De Fougerolles is the CEO of Evox and Ros Deegan is the CEO of OMass. We need to bring some of that expertise to the UK, and it goes back to role models again.

Baroness Neville-Jones: What about training it in the UK?

Dr Andrew Williamson: I think that is happening organically. The more businesses we have that go a bit further, the more people in those businesses have that experience and can do the next one, so it is building on itself, as it were. We definitely want to do that.

Baroness Neville-Jones: Is this explicit or implicit? Is it an objective of policy? Do you think that it should be?

Dr Andrew Williamson: One of the smaller policy initiatives that came out of our review was some training for the next generation of me, so scientists who are interested in investing in businesses.

Baroness Neville-Jones: We are weak on that, are we not, compared with America?

Dr Andrew Williamson: Yes.

Baroness Neville-Jones: How do we do that?

Dr Andrew Williamson: In the US, there is the Kauffman Fellows programme. I arrived in the Bay Area; I turned on the radio in my car and heard an advert: “Are you a scientist interested in investing? Take this fellowship”. I thought, “Oh, wow, that’s amazing”. There is now something in the UK called the Newton fellows programme, which is starting to scale that up. The Government have put out a £3 million tender to offer training for the next generation of technical investors. They are addressing that niche. Learning how to build the supply chain for a medtech company has to be done on the job, and it takes a while.

Baroness Neville-Jones: I suppose that that lay outside your report, did it not?

Dr Andrew Williamson: It was more about setting the table to position for success.

Baroness Neville-Jones: It seems to me that we need a conscious set of ambitions and policies that lead to them, which perhaps has not really been covered.

Professor Chas Bountra: All of us, I am sure, have benefited from great mentors and role models. We have all been used to great academic mentors who have taught us how to do research, and now we are talking about slightly different skill sets around leadership, innovation and enterprise. Frankly, not all researchers are great leaders.

Baroness Neville-Jones: No.

Professor Chas Bountra: They are not great innovators and often they are not great entrepreneurs. Where there is some of that talent, we need to bring it here. They are the role models, the “Tony’s” and the “Ros’s” and so on. You are absolutely right.

Baroness Neville-Jones: Quite a lot of things can be learned, even so.

Q7                Lord Berkeley: I get the feeling from the evidence you have given us this morning that it is very difficult for us as a small country to compete with the United States on this issue.

The golden triangle is well ahead of the rest of the country. You said that you are not going to attract more research or more students to other parts of the country unless they have the facilities, and that needs investment. We are out of balance in three different ways.

How can you ensure that we have investors who understand what needs to be done to make these investments? It is very easy to say, “We want an investment”, and go off to the Middle East and find somebody, but that is not what life is about. Do we have the investors with the right knowledge, particularly in science and technology, and the access to money to be able to achieve this?

Professor Chas Bountra: This is not meant to be an Oxford chest-beating exercise. We can do great things if we want to. I would cast our minds back to the pandemic. What did Oxford do? It worked with AstraZeneca, the UK Government, UK regulators and a number of funders. They came together and said, “We’re going to create a vaccine to get the world out of the pandemic as quickly as possible”. Harvard did not do it. Stanford did not do it. Which other university did it on the planet? It says a lot about the culture that we have, the nimbleness and the flexibility.

Secondly, the RECOVERY trial comprised many of our clinicians, led by Martin Landray and Peter Horby. They worked with hospitals across the country, very rapidly tested if any existing drugs provided any benefit, and showed that hydroxychloroquine, the anti-malaria drug, did nothing, and dexamethasone, a cheap generic anti-inflammatory, was effective.

We have to be creative. It goes back to the earlier point. If we want scale and urgency, we have to collaborate. We have to open our arms and work with people, institutions and organisations that we have not worked with before. As we get better and better at this, we will attract more investors and corporates to the UK.

Dr Andrew Williamson: Maybe I could weave in one other thread. You asked a specific question about whether we have enough investors particularly with a science and technology background. The answer is no. I have a team of 20 and they are getting calls daily to try to poach them to other investment firms, so there is a demand for that skill set.

I grew up in an era when it was a very siloed career path. My father was a professor. I was on the academic career path and fell off it in my mid-30s. We need to embrace the fact—and we talk about this a lot in the report—that careers are no longer as siloed as that. You can move among academia, small companies, large companies and the investment world, and all those worlds are enriched by that porosity or permeability of talent.

I will give you another good news story. Many of the funding agencies—BBSRC and MRC, for example—now allow, and actually encourage, PhD students to take a three-month sabbatical in the middle of their PhD and to go into the commercial world. We have two brilliant 22 year-old or 23 year-old PhD students interning in our office right now for three months, seeing companies present and pitch and hearing us talk about what we are going to invest in and what we are not going to invest in. They have such an amazing window on to this world that I had no idea about until another 10 years later in my career.

We are starting to break down those barriers. They all want to be CEOs and founders once they have a taste of it and they see the excitement of that world. There are good things happening.

The Chair: May I remind everybody to keep questions and answers short, because I have four members who still want to ask questions?

Q8                Baroness Neuberger: This will be quite short because we covered quite a lot of it.

I need to declare an interest. I chair UCLH, which, in partnership with UCL, is involved in some spin-outs and patents.

We have talked quite a lot about USIT. You have talked also about the Government’s £20 million fund. What about areas other than life sciences? Do the Government need to focus on those other sectors? What proportion of university spin-outs are from disciplines other than life sciences? Do we need to give them more support?

Dr Andrew Williamson: In my world, we bucket the world into life sciences and deep tech, and my firm is about 50:50 across the two. Deep tech is AI and all kinds of software and data science—that is probably the biggest—semiconductors and what we call the future of compute. We have Arm based in Cambridge. A lot of Arm alumni are starting the next Arms, and we are backing all those. It goes all the way through to things like quantum computing as well.

I would second what Chas said: we have to pick our battles in this country. We cannot do everything. Life sciences is a battle we have picked, and we are doing extremely well at it. We can also do well at advanced computing and the mathematics that goes with it.

I do not think it is a government funding thing, to be honest. It is more about the infrastructure, the talent, the people and the processes. I am seeing more and more investment flying in from the US to try to get into those best AI spin-outs right here in Cambridge.

Professor Chas Bountra: I will make just two quick comments. Again, apologies, this is Oxford. We have now created probably 16 or 17 social enterprises, as opposed to commercial enterprises, engaging a lot of our humanities and social sciences colleagues. We have not really talked about it, but we have not yet fully harnessed our students’ passion, creativity and energy in the way that Stanford, for example, is already doing. I am optimistic. We are at an inflection point. We are about to take off.

Baroness Neuberger: Could we do more, or do you think it is just going to happen?

Professor Chas Bountra: I think it is going to happen. Just leave it with us.

Q9                Baroness Willis of Summertown: I want to move on slightly to the career trajectory of people who go into spin-outs. One of the recommendations of your report was the academic returner scheme. Do you think that one of the issues is that it is very much either/or and that when you go into these spin-outs companies from the universities you effectively step away from the university and then step back in?

The example that Chas gave about AstraZeneca and the Covid vaccine was very much because people were still within the university, could access university equipment quickly and could scale up. Is there a barrier? Could more be done to create permeability between academia and the spin-out environment?

Professor Chas Bountra: Kathy, I am an academic returner. As you know, I was in Oxford in the mid-80s. I went to industry for nearly 20 years and came back and I absolutely loved it. I tell all my colleagues that they should go and work in industry, in government, in regulators or in biotech because we have to learn each other’s language. There is a real desire to do this on all sides.

When I went into the pharma industry in the late 1980s, the sense was that all the drug discovery expertise sat inside the big pharma companies. That is not the case now. It is sitting in academia, in CROs and in biotechs. When I went to Glaxo in 1988, it funded a few collaborations in academia, but they were mainly for PR. Now, there is a recognition that we have to work together if we are going to crack some of these problems.

Baroness Willis of Summertown: You stepped out into industry and then came back. Given the pressure on university budgets, I cannot see many departments saying, “Well, let’s create a few extra positions for people who are returning from industry”. Therefore, who is going to fund that? What is more, is there not scope for a dual role and the creation of a new approach to academic positions?

Professor Chas Bountra: Maybe. I talked about the Ellison and we are going to work out how we are going to do that. I hope that in the next few years some of our faculty and some of our researchers will have joint positions with the Ellison. They will work part time in the university and part time in Ellison. We have to work together if we are going to tackle these big problems.

Dr Andrew Williamson: I am a huge fan of crossovers. Somebody mentioned that academics do not necessarily make the best CEOs. I would generally second that, but they do make great part-time CSOs or technology officers. That one day a week where the flexibility is provided to do that is a win for everybody.

We are in an increasingly interdisciplinary world. I talked about deep tech and life sciences, but the hottest space to invest in right now is applying AI and large language models to drug discovery and the next generation of antibodies. That naturally happens in a university environment because academics from different disciplines collaborate much more freely than they can inside a large pharma company, Google or something like that.

It is sometimes portrayed that the universities need to learn from the commercial sector, but in this case the universities have more to offer and the commercial sector needs to figure out how to embrace that.

Q10          Lord Borwick: You suggested that American systems are rather different from English systems and that you could compare and contrast them. May I ask you to expand on that?

Dr Andrew Williamson: Yes, in so many different ways. The majority of research-intensive universities in the US are private universities that have very generous funding budgets. The social contract that I talked about at length between providing universities with sufficient funding to do tech transfer activities and not nickel-and-dime on the equities just does not exist in US universities. They have been able to rely on philanthropy and a much stronger fee base. They have well-funded commercialisation offices that can offer quite attractive terms to founders and investors. That is one big difference.

We had the head of the tech transfer office from Stanford and MIT on the advisory panel for this review. I talked about the journey you go on where you start with a public/private partnership, but the goal is to evolve to the point where the private sector is taking care of business. They are at that point. The Stanford tech transfer office is pretty much just signposting. An academic comes in and says, “I’d like to create a business in this sector”, and they say, “Here’s three wonderful venture firms that would be delighted to do that”, and vice versa. They do not need to be as hands-on in building the businesses as we do right now in the UK because we do not have the maturity of the ecosystems. We are just in a different place.

Professor Chas Bountra: I commented earlier that in the US there are 800 billionaires giving money to universities. There are trillion-dollar companies giving money. There is a lot more philanthropy alumni and a lot more venture capitalists.

Let me share the example of Stanford. Stanford’s endowment is $75 billion. Every year, without trying, even at 5%, it gets $3.5 billion a year. That is more than the total running cost of the University of Oxford. If we had $3.5 billion a year coming in, imagine what we could do to recruit, to retain, to build infrastructure and to start big, new projects. That is what we are competing against. I am not expecting government to do it. We need to be creative in how we get that.

Lord Borwick: The newspapers suggest that this level of philanthropy to American universities has been reducing dramatically in the last six months. Is that just newspaper talk?

Professor Chas Bountra: I do not know the answer, but the fact is Stanford still has $75 billion and Harvard has $72 billion. I think Oxford has £7 or £8 billion.

Lord Borwick: I know, because I sent two children to American universities, that they start raising money from the parents before the children even arrive at their undergrad places. When do you start raising philanthropy money from the parents of undergrads and from the undergrads themselves?

Professor Chas Bountra: We have a brilliant lady named Liesl Elder who looks after our development office, and Irene, our new VC, is very committed to growing that effort. One of the advantages that Oxford has compared with some of our other peer organisations in the UK is that we can attract large slugs of funding from philanthropy. In recent years, we have had £192 million for the Schwarzman. We have had £80 million for Reuben College. We have had £100 million from Jim Ratcliffe to work on AMR. It is not at the scale of Harvard and Stanford, but our ambition is to get there.

Lord Wei: I declare an interest as an adviser to Future Planet Capital, a VC that works closely with universities to help them with spin-outs and scale-ups.

We have had a lot of talk today about the challenge of many of our start-ups going abroad, particularly to America, and what we can do. Is there anything we can learn from other countries, such as Sweden, that are similar in size to us but seem sometimes to do a better job at scaling up? Israel puts requirements on its funded start-ups, which the Government have some hand in, to stay in the country for a certain time.

While we wait for these billionaires to come here and stay here and build that ecosystem, is there anything else that we can do to bridge that gap so that we can answer the accusation of the harvesting that is going on of our IP to other countries as they get to a certain size?

Professor Chas Bountra: I just reiterate Andy’s earlier comment. This is all about people, people, people. It is talent. If we have the right talent, they will come up with the right ideas, they will build the right networks and they will attract the funds. We need to attract the talent, grow the talent, and keep the talent in the UK.

As you know, globally, it is becoming so competitive. Frankly, if some of the companies that we create in the UK want to grow rapidly and achieve impact rapidly for the world, it is probably better that they move to the US. I know that we do not want to see that happen, but we hope that as the ecosystem in the UK matures—as we attract more investors and so on—they will prefer to stay here and not go to the US.

London is the finance capital or one of the finance centres of the world. We have lots of high-paid finance jobs paying high taxes, but some of those banks are headquartered in New York. We need to start thinking more globally. Let us just be more confident, ambitious and positive.

Dr Andrew Williamson: Israel is an interesting comparison and we have looked at it quite a bit from a Cambridge perspective because its huge strength is in R&D. In its case, it comes from the military and the engineering schools it has there.

I would second what Chas says. I am not a fan of golden handcuffs and of saying, “You can’t go abroad”, or, “We’re taxing you if you leave the country”. We want to be providing such an attractive environment for companies and for talent that they want to stay here. We have that in Cambridge. I am amazed that more people do not leave for the Bay Area, as I did, but the work/life balance and the opportunities are growing all the time.

To end on a high note, we now have a new phenomenon called a “spin-in”. We just did one from Montreal. We have done some from Scandinavia as well. When they look globally for the best place to build at least their R&D centre and tap into technical talent and technical people and ideas, they see that the golden triangle is one of the best places in the world. More companies that may have a commercial activity on the west coast or the east coast are doubling down on what is going on in the UK for their R&D. That is a good place to start and then maybe we can grow from there.

Lord Rees of Ludlow: On the public/private balance, is there a role for more public sector research establishments, especially as full-time research in universities is hard to do, particularly in medical areas and in areas such as batteries and energy, because lots of young scientists are idealistic and would like to engage in a project such as finding cheap, clean energy for the developing world? Would an impetus from public sector research establishments—you said there were successful precedents in the biomedical areas—be beneficial?

Dr Andrew Williamson: It is a really good question. I am a clean-tech guy by training. I am a materials physicist. My first job out of university was at the National Renewable Energy Laboratory. That is a Department of Energy-funded research lab in Colorado. I was working on solar panels; it also does batteries and fuel cells. I went there because I wanted to make a difference on climate and it was a world-class place that had the facilities to do that kind of development, very similar to the medical research labs.

That is obviously one of the big differences between the US and the UK. We do not really have a national lab research ecosystem. We have some stars but nothing to the extent of the FFRDCs, as they are called in the US. It has been a very successful model.

However, I would point out that the level of spin-out activity from the Department of Energy national labs has been very poor. They have got stuck in a level of bureaucracy that makes universities look nimble by comparison, so it is not all roses.

Professor Chas Bountra: I have spoken to Ian Chapman, who is the CEO of the UK Atomic Energy Authority, and to David Gann, who is leading the UK fusion project. They tell me that we need a lot more PhDs in that space and that as a university sector in the UK we are just not training enough of them. That is what I worry about. If we want to be leaders in fusion power, we need to be training hundreds of those PhDs and not just 25 or 30 or whatever it is at the moment.

Lord Rees of Ludlow: Yes, there is a mismatch in the balance of PhD subjects, and not enough are getting the general background and education to take account of the fact that they will not be full-time academics. Only about 10% of them will be full-time academics, so the PhD course needs to be broadened.

Baroness Neville-Jones: We did not talk about the skill supply side, but it is important.

The Chair: We have to leave it there for today. As you say, it is an enormously important area that we have talked about on other occasions. I thank both our witnesses very much for a very informative session.