The secret sauce of Oxbridge’s spin-out success – and how others can follow suit

New report from Onward Science Superpower programme

Something special is happening in Oxford and Cambridge. Oxford University is spinning out twice as many new companies a year than in 2015, attracting nearly eight times more investment. Cambridge University has spun out nearly two-thirds more firms and secured 14 times more investment.

And these fledgling companies are surviving too. Oxford has seen the number of companies surviving at least three years double; Cambridge almost triple.

But as our new report Venturing Out underlines (covered in The Times today), the reason they’re spinning out more firms than other British universities isn’t simply a reflection of their pedigree. There are structural reasons, too.

There is exceptional research happening in scores of UK universities. Over 80% of British academic research from across the country is rated at three-star or above. And 15 of the top 20 universities for research grants are outside of the so-called Golden Triangle (the area comprising London, Oxford and Cambridge).

UK universities have been historically poor at spinning out companies from research. But while this is changing, the growth in spin-out numbers is concentrated in a select few areas and sluggish everywhere else. Just six universities have seen a noticeable maturing of their innovation ecosystems in recent years, in the form of more companies formed and capital attracted. Less than 3% have improved their spin-out rates since 2014.

Universities in the Golden Triangle dominate. Since 2014, a third of the UK’s spin-outs have come from the Golden Triangle. And a fifth from just three universities: Oxford, Cambridge and Imperial.

Source: HESA, Onward analysis

The secret sauce: university partner funds

Driving spin-out successes are university partner funds – private investment funds partnered with one or more academic institutions with an agreement providing the fund favourable access to spin-outs. Examples include Oxford Science Enterprises, Cambridge Innovation Capital, and the UCL Technology Fund.

University partner funds have proved vital in bolstering two fundamental drivers of entrepreneurial clusters: capital and expertise.

1. Capital is stuck in the capital

Investor capital is heavily concentrated in the Golden Triangle, especially in London. Of the total 1,081 start-up investment deals in 2022, nearly seven in ten occurred in either London, the South East or the East of England. London struck five times as many deals as any other region. Spin-outs from London and the South East attracted almost 60% of the total external funding last year.

Source: Beauhurst

There is untapped innovation potential outside the Golden Triangle. The ScaleUp Institute found that most regions struggle to attract their investment potential. But the deficit is most pronounced outside the South East. In 2019, the North West only attracted 11% of its potential, compared to the South East’s 26%.

University partner funds help address funding gaps. Since founding their respective partner funds, Oxford has attracted six times more investment, Cambridge 16 times, and UCL 13 times.

Source: ScaleUp Institute

2. Transferring talent

Technology Transfer Offices (TTOs) are university bodies tasked with commercialising research, but many are underpowered.

Funding via the Higher Education Innovation Fund (HEIF) varies wildly between universities and does not reward universities who spin out more companies than others: Southampton received £5 million in 2022-23 but didn’t spin out any companies, whereas Imperial received the same and spun out 11.

Capacity at TTOs varies significantly too. At King’s College London, the office has a dedicated team of 11, Leeds just two. Queen’s University Belfast has less than 10% of the staff of Oxford’s.

Source: Multiple¹

Partner funds can help address this. They bring with them networks of funds and investors. Oxford Science Enterprises brings 60 people to support the work of Oxford’s TTO, Oxford University Innovation (OUI). Northern Gritstone adds 29. Research has shown that relationships among the key figures and organisations within a region can accelerate innovation.

How do we help create more of these partner funds?

To encourage more to be established, the Government should create the University Partner Fund Accelerator. This fund should repurpose:

• £20 million committed in the 2023 Spin-out Review; 

• £49 million from the Regional Investment Fund; 

• £20 million Business & Commercialisation Supplement of the HEIF. 

The Government would then use this £90 million pot to support the creation of new partner funds by matching the funds a university or a group of universities raise externally to establish one.

The Government should also focus on improving the accessibility and transparency of data on spin-outs. A University Innovation Dashboard would make investable opportunities more accessible to investors (domestic and foreign) and help inform the awarding of grants.

From classroom to boardroom: the future of UK innovation

We need investors to venture out of the Golden Triangle to boost innovation and growth across the country. University partner funds have proven their value. A wave of new partner funds would combine academic expertise with commercial insight, creating hundreds more spin-outs to drive UK innovation nationwide.

Read the full report, Venturing Out, here.

1. Sources for TTO headcount and spin-out numbers: OUI, Cambridge Enterprise, University of Manchester Innovation Factory, Queen’s University Belfast, HESA