The Spin Out Review: Unpicking the UK’s future as a hub of innovation

The Independent Review of University Spin-outs final report was recently published alongside the Government’s Response, and looked at the most successful university spin-out ecosystems both in the UK and abroad in order to identify how the UK could work to better support spin-out companies to grow more quickly and obtain greater investment. The Government’s hopes for the spin-out ecosystem in the UK are seemingly even more ambitious than a replica of Silicon Valley, which is generally seen as the most active and productive innovation area in the world.

Requirements for a successful spin-out ecosystem

The report highlights a number of requirements that are needed for the UK to become a world-class centre of spin-out creation and these can generally be distilled into three major categories.

Firstly, the availability of organisations, such as universities and large science and technology corporations, provides opportunities for partnerships with spin-outs and for world-class R&D to take place. In such partnerships and R&D, valuable intellectual property is generated, which is the key to spin-outs. Generally, large corporations find it more difficult to innovate rapidly when compared with spin-outs which have less regimented structures and approval for new products can be received much more quickly, so they can benefit from the potential rapid development of new technologies that a spin-out can provide, whereas large organisations have more access to capital and a deep pool of experience in translating research into a final, useful product. More often than not, it is a piece of intellectual property which is the seed for a spin-out and the majority of the value and potential future value of a spin-out lies in intellectual property, whether this is in the form of patentable technology, trade secrets, or knowhow. The Government’s response indicates that it intends to improve the flow of talent between academia and industry by way of funds which buy academic time to focus on commercial partnerships and potential ventures, and also to provide an academic returner fellowship for researchers wishing to return to academia from the private sector. This is an interesting concept and this could potentially be expanded such that the reverse option, namely people who have experience of working in industry enter academia for a while before returning to industry.

Secondly, the supply of talented scientists and innovators is key to any spin-out ecosystem as these are the people who are generating IP in the first place and subsequently developing this into commercial products in order to grow the spin-out.  As mentioned, the Government intends to provide funds which can be used to purchase academic time to focus on commercial partnerships and potential ventures, or adapting funds for industry collaboration to be more accessible to spin-out founders. This will be useful as academics are under a great deal of time pressure and I have seen cases where academic pressures have meant that commercialisation of technologies has taken a back seat.  The Government also intends to support academic returner fellowships for people wishing to return to academia from the private sector. This could usefully be expanded to something akin to a secondment for private sector workers to work in academia for a year or two, and then bring back their newly gained skills and experience to the private sector.

The current UK Government’s recent changes to the minimum threshold salary required to obtain a long-term work visa to work in the UK risk dampening the spin-out ecosystem in the UK as spin-outs will need to dedicate more of their budget towards salaries for overseas employees, which will divert capital from other parts of the spin-out. The increase in minimum threshold salary to £38,700, which is intended to reduce net migration into the UK by making it more difficult for people from overseas to legally work in the UK, is going to have a chilling effect on innovation in the UK as the threshold will make it less likely that young scientists will be able to find a position in the UK. Indeed, in my own experience, at least one company has had to revise job offers for overseas scientists with experience in fields that are vital to the UK’s energy transition, but which relate to technologies which are not served by the courses offered at UK universities. Furthermore, it is very difficult to find battery technologists and scientists for jobs in the UK, whether they are from the UK or abroad, and this change will only add another hurdle in bringing such talent to these shores.  As such, it is important that the UK government considers the effect this new threshold will have on spin-outs as well as general innovation in the UK, and consider how it can ensure that access to foreign scientists and innovators is not cut off, but rather encouraged.  Perhaps the rules can be drafted such that a company officially designated as a university spin-out is able to recruit the necessary experts without meeting the minimum salary threshold.  Since the UK has not had to pay for the schooling or education of such overseas experts, it seems somewhat perverse to put barriers in their way of coming to the UK rather than breaking down any barriers and encouraging them to come to the UK.

Access to capital and support services is the third main strand of what a country needs to be fertile land for spin-outs. This capital may be in the form of physical or financial capital. The UK is already home to world-class financial and legal service providers, but the report found that the spin-out process itself could be improved upon. To achieve this, the Government has proposed innovation-friendly university policies that avoid unnecessary negotiation and also encourage universities to clearly state their expectations for completing the spin-out process, and that approvals for spin-outs be given by selected individuals rather than committees which meet infrequently. These proposals seem reasonable and if they are able to save time and allow decisions to be made more quickly, then they should be supported.

Final Comments

The UK Government’s proposals to support spin-outs in the UK in encouraging, although there are a few areas in which it should go further. With the UK now being arguably the best place in the world to protect intellectual property relating to artificial intelligence, and the Government investing significant sums in the energy transition, it is vital that these efforts are not impeded by more short term goals. With continued Government support for spin-outs, the UK could continue its leading role in worldwide technological innovation and development.