Managing intellectual property and technology transfer Contents

4Finance, funding and support

54.Commercialising research, whether through the licencing of IP to existing companies or through setting up new ‘spin-out’ companies, requires investment and support. In many cases, such investment needs to be long-term. A study by Columbia University found that in cutting edge areas of science (eg machine learning and regenerative medicine) universities were “often filing patents that are 10 years or more ahead of industry production—hammers waiting for a nail to appear”.99 This chapter considers some of the difficulties accessing long-term finance, as well as other support that is essential to foster technology transfer.

Access to finance

55.Accessing finance to commercialise research can prove challenging. The 2015 Innovation Survey, published by the Department of Business, Energy and Industrial Strategy in July 2016, found that the ‘availability of finance’ was the most cited factor constraining innovation.100 Much of the written evidence we received focused on a lack of early stage funding (known as ‘seed’ and ‘proof of concept’ funding) where ideas need capital to start turning them into a reality. The Royal Academy of Engineering stressed that:

effective and successful research commercialisation requires sufficient and appropriate (pre-)seed stage funding, which can help to fund ‘proof-of-concept’ activities and bridge the ‘valley of death’ between the development of a prototype and a product or service that is an investable proposition.101

56.Imperial Innovations told us that proof of concept funding was “not as widely or consistently available as it should be”, adding it was something that “must be addressed in order to further unlock the potential of TTOs to be transformative agents in the commercialisation process”.102 Similarly, Universities UK drew attention to “the long-standing dearth of early stage, proof of concept funding in the UK”, and suggested that the private sector’s “inability to fill this gap” was a “constrain to research translation”.103

57.Anne Glover from Amadeus Capital Partners explained that ‘proof of concept’ funding needed “to be readily available very quickly to be effective” and that “more funding” would be “welcome”.104 However, it was the absence of a ‘ladder of financing’, and a lack of later stage funding, that Ms Glover thought was still proving problematic, four years after identifying the same problem to our predecessor Committee:

The positive [change] is that we have two more steps upwards. The negative one is that there is an even greater chasm at the top. The ladder is still needed [ … ] We have to find a way to get our capital markets interested in technology companies again. There is capital in the UK. It is just not very interested in technology, at the top end in the large asset managers.105

58.Mike Conroy from the British Bankers Association highlighted that the funding gap was particularly apparent for “fast-growth businesses seeking venture capital of between £10 million and £25 million”.106 There was disagreement in the written evidence, however, about the availability, and overall suitability, of venture capital finance for technology transfer. The University of Sheffield saw problems with the venture capital (VC) model, stating that:

It does not incentivise academic participation, as it is a narrow approach to the application of research [ … ] The VC model is generally looking to spin-out or licence early-stage ideas, with a view to making the best financial return at the optimum time. One in 50 of the opportunity disclosures looks like a venture capital opportunity. One in 10 of these might get funded. One in 10 of those might succeed.107

Others suggested that venture capital was unsuitable for particular sectors, such as the biosciences. Cambridge Enterprise noted that VC funds typically backed “ideas over the short-term and [required] a quick exit” which, it argued, was “not particularly suited to bioscience with its long development and regulatory timeframes”.108

59.Several steps have been taken to try to address these problems. The Wellcome Trust announced in May 2016 that, as a charity, it would use its “financial independence” and its “freedom to take on problems others would find very challenging” to work “earlier and later in the translation pathway”.109 A number of universities also highlighted that they had established their own ‘in-house’ investment funds known as ‘patient capital’, described by the Russell Group as:

‘evergreen’ funds [that] take a much longer investment time horizon than traditional venture capital companies as they do not have fixed term investment periods. Instead they reinvest any proceeds back into new start-ups and their existing portfolio of companies to make returns over longer, open-ended periods. Investors in patient capital companies are willing to forgo an immediate return in anticipation of more substantial returns further down the road.110

60.Cambridge Enterprise, the TTO of the University of Cambridge, told us that its in-house patient capital fund—Cambridge Innovation Capital—and Imperial College’s fund—Imperial Innovations—were each:

investing at a rate of around £60m p.a. each in early stage technology companies compared with the British Venture Capital Association membership which (excluding Imperial Innovations) is only investing £48m p.a. across early stage tech and non-tech.111

61.Such funds, however, are not widespread. Anne Glover stated that there were “not many investors” that would support patient capital funds and that there was “a limited pool in the UK”.112 The Royal Academy of Engineering was concerned that while the recent increase in patient capital investment vehicles had “created a welcome market of investors for universities to choose from”, the existence of exclusive deals—“whereby the investment vehicle has the exclusive right to commercialise all IP from a university”—can restrict “academic founders [ … ] in the choice of initial investors for a spin-out”.113 This, in turn, can “mean a spin-out misses out on investment and support that is more appropriate for their company”.114

62.The Minister described the development of patient capital by “some of our best-known institutions” as “hugely welcome”, noting that “10 years ago this simply did not exist”.115 Highlighting the Government’s forthcoming review of patient capital, announced in the 2016 Autumn Statement, the Minister told us that the challenge now was “to ensure that these pools of capital become available more broadly across our system”.116 According to the Government, the review is to be led by HM Treasury and supported by an industry panel drawn from “leading investors and entrepreneurs” and chaired by Sir Damon Buffini.117

63.Difficulties accessing long-term finance have been a persistent barrier to commercialising the UK’s scientific and technological breakthroughs. A handful of UK universities have been at the forefront of developing the ‘patient capital’ model to address this funding gap. It is therefore surprising that the terms of reference for the Government’s forthcoming Patient Capital Review do not mention universities, nor is there any indication that they will have a place on the ‘industry panel’ that will support the review.

64.The Government’s Patient Capital Review must engage with the university sector and learn from those universities that have developed patient capital schemes.

IP valuation and negotiations

65.Under UK law, notably the Patents Act 1977 and the Copyright, Designs & Patents Act 1988, IP generated in the course of a person’s normal employment belongs to the substantive employing organisation.118 Universities typically assert ownership rights to intellectual property developed using its resources, so that when efforts are made to licence its IP, or spin-out a company around it, the university would usually value the IP. Universities tend to take an equity stake in a spin-out company or royalties in licensing deals, though practices vary between institutions.

66.Reaching an agreement with academics (and investors) can involve universities in complex negotiations A survey undertaken as part of the Dowling Review found that negotiations taking “too long to complete”, and processes being “difficult to navigate or taking too long”, was the number one barrier to collaboration cited by businesses.119 There have been suggestions that negotiation delays arise from technology transfer offices overvaluing IP in a bid to generate short-term income, or taking a disproportionally large equity share, though the evidence we heard did not confirm whether this was common practice. The Dowling Review identified a tension between “the desire [for universities] to earn short-term income from their IP and the need to deliver wider public benefit, and potentially greater long-term return on investment from this IP”.120 Dame Ann explained to us that:

technology transfer offices are quite often asked to bring in enough money to pay for their running costs. If they do that, they tend to look to shorter-term licensing than spin-outs, which have a much longer time to grow.121

67.There was mixed evidence on whether the tension set out in the Dowling Review reflected the experiences of our other witnesses. The BioIndustry Association (BIA) noted that Dame Ann’s findings “[resonated] with many BIA members”122 and the Royal Society told us that:

Some academics reported a sense that universities have strategic interest in pursuing one avenue for commercialisation over another, in particular to prioritise short-term revenue generation to make the TTO financially sustainable. This may make TTOs risk averse and is perceived to be a cause of the high equity shares and IP valuations that they expect.123

The Wellcome Trust’s research into technology transfer also reported that “a pressure to create revenue can lead to overvalued IP, licencing terms that disincentivise deals, and insufficient consideration of quality measures”.124

68.The Russell Group of universities, on the other hand, strongly disagreed:

Any suggestion universities and TTOs are focused on short-term returns from IP is misleading [ … ] Universities must cover the cost of the research they conduct, and it is reasonable to require payments for IP generated from university research in order to support further activities. This is not a form of short-term return but a fair and proportionate return on investment for the university’s intellectual contribution.125

Similarly, Dr Tony Raven from Cambridge Enterprise, the University of Cambridge’s TTO, told us that:

If we [Cambridge Enterprise] were looking for short-term income, we would do very different deals. Most of the deals we do are not a typical deal, in that we do not ask for big up fronts; we just recover our patent costs [ … ] We are not looking to suck out short-term money.126

Universities UK also stressed that technology transfer was generally a cost to universities and not a source of revenue.127

69.Other witnesses suggested that the very nature of negotiations, together with the challenges posed by valuing new, early-stage technologies, can mean that a degree of delay and difficulty is unavoidable. As Mark Anderson from the Law Society explained, “it is a negotiation: inevitably, there are going to be difficulties sometimes”.128 Dr Toby Basey-Fisher shared his experience of spinning out his company, Eva Diagnostics, noting that the process was:

always going to be challenging, because it involves many different stakeholders with many different views and expectations of what they want and what they would like to see happen and those coming together. It will be a difficult process.129

70.The Russell Group also highlighted how the:

Valuation of IP assets can [ … ] be extremely challenging due to market uncertainty related to early-stage university technologies, including timescales to market, investment needs and avenues to achieving commercially viable outcomes.130

TTOs tend to manage a “breadth of technologies and disciplines” which the Academy of Medical Science thought made it “challenging for TTO staff to acquire the in-depth knowledge [ … ] required to fully understand commercialisation opportunities” and accurately value them.131 Dr Raven emphasised that this was particularly “difficult and challenging for people in the smaller [TTOs]”.132

71.Support and guidance for TTOs appears to be in short supply. According to the Royal Academy of Engineering, there are currently “limited materials” available that “provide comprehensive guidance on approaches to market assessment and opportunity evaluation”.133 The Intellectual Property Office (IPO) has, however, recently updated its Lambert toolkit, which includes a ‘template agreement’ for handling the IP in collaborative research.134 The Government reported that:

research commissioned by the IPO revealed that the Lambert toolkit has been a very useful resource, reducing legal costs, resources and time in negotiating agreements between publicly-funded research organisations and industry.135

Cranfield University described the Lambert model agreements as “a highly effective example of a toolkit that eases collaborative university-industry engagement”, while other universities thought that acceptance and take up of the agreements was relatively low.136

72.In its Industrial Strategy Green Paper, published in January 2017, the Government stated that it will:

commission research on different institutions’ principles and practices on commercialisation of intellectual property, including how they approach licensing intellectual property and take equity in spin-outs [ … ] The Government will then use the findings to identify and spread best practice among universities’ technology transfer offices.137

73.Technology transfer offices (TTOs) should be focused on taking a long-term approach to developing IP. Some, it is claimed, look primarily for short-term revenue, though the extent to which this influences TTO practices is unclear. TTOs are often situated in the middle of complex IP negotiations, balancing competing priorities, with varying degrees of support.

74.We encourage the Government to use its forthcoming research on the commercialisation of intellectual property to examine what skills are needed to successfully value IP and broker negotiations, as well as how these skills may vary by sector. The research should engage with technology transfer offices (TTOs), Innovate UK, the research councils, funding councils and sector-specific bodies. The resulting best practice guidance must be made available online to TTOs, with consideration given to disseminating the material further through training courses and through establishing a mentoring scheme.

Higher Education Innovation Funding (HEIF)

75.The Higher Education Funding Council for England’s (HEFCE) Higher Education Innovation Fund (HEIF) was repeatedly singled out by universities as an invaluable source of flexible funding that had helped them to develop their technology transfer capabilities.138 Cambridge Enterprise described HEIF as an “important funding stream for the success of technology transfer in the UK” adding that “the ring fencing of the funding for knowledge transfer and commercialisation activity is helpful to ensuring a professional and responsive service”.139 Welsh Universities, however, highlighted that there was an “absence of HEIF type monies in Wales” and that with “little or no funding [ … ] available for TTOs”, Swansea University reported that its “commercial throughput [was] severely limited by a lack of predictable funding”.140

76.The Minister recognised that HEIF played “a crucial part in helping fund the operations of technology transfer offices in our universities” adding that the “additional £100 million”, announced at the 2016 Autumn Statement “to fund collaboration between universities in support of knowledge exchange activities” would be “either very HEIF-like or extremely complementary to HEIF”.141

77.The Higher Education Innovation Fund (HEIF) has played a crucial role in enabling universities to develop their technology transfer capabilities. We welcome the additional £100 million investment in knowledge exchange activities by the Government and its commitment to HEIF-type funding. Such funding should be consistently available across the United Kingdom.

Advice and simplifying the innovation landscape

78.Academics have varying experience when it comes to negotiating commercialisation deals. Innovate UK found that first-time academic entrepreneurs “frequently confront a deal-making process they do not completely understand” and sometimes “do not fully recognise how the interests of the TTO and university may diverge from their own”.142 The Royal Society suggested that academics, at all career stages, were “likely to need support to develop business awareness before they [could] effectively engage with commercialisation activities”.143 It singled out “training, network building and mentoring” as important aspects of “developing an entrepreneur”.144

79.We heard about several schemes that provide this type of support. Chris Mairs from Enterprise First explained that it typically spent:

six months intensively working with the start-up, mentoring them not so much on the technology [ … ] but on how to build a business, how to go out and raise finance, how to create contracts, how to share data with businesses and so on. It is a very full-on process.145

The Royal Academy of Engineering’s Enterprise Fellowships also provide an “intensive bespoke package of training and mentoring” delivered by “leading engineers with first-hand experience of founding, building and leading successful engineering and technology companies”.146 When we asked one of its Enterprise Fellows, Dr Toby Basey-Fisher, what was more valuable to him—the funding or the mentoring—he replied:

The mentoring [ … ] For us, the biggest requirement has always come from having the right individuals who are very knowledgeable in our space to guide and help us understand how best to allocate the resource that we have been given to achieve the greatest impact for the company as a whole.147

80.Other witnesses emphasised that advice and mentoring were essential to help guide businesses and academic entrepreneurs through the complexity of the UK’s innovation landscape. As Dr Nelki from the Wellcome Trust explained:

I can understand why an SME, particularly without that mentorship and expert advice [ … ] could think, “I am not even sure where to start or who I should go to in order to get further financing”. There is a degree of complexity.148

81.The “complexity of the policy support mechanisms for research and innovation” had been singled out in the 2015 Dowling Review as posing a key “barrier to business engagement in collaborative activities, especially for small businesses”.149 It recommended that the Government:

should seek to reduce complexity wherever possible and, where simplification is not possible, every effort should be made to ensure that the interface to businesses and academics seeking support for collaborative R&D is as simple as possible.150

82.Dame Ann was positive about the progress made in addressing her recommendation. She noted that Innovate UK had done “much to simplify their programmes” and also highlighted Innovate UK’s ‘no wrong door policy’:

No matter how a business first approaches them, Innovate UK internally will do what we refer to as hide the wiring and make sure that business is guided to the right part of Innovate UK seamlessly. That is absolutely a huge step forward.151

83.The Royal Academy of Engineering, however, were concerned about the development of new finance products by Innovate UK. In the 2015 Spending Review, the Government announced that Innovate UK would allocate £165 million of its budget to new finance products by 2019–20. Although the precise form that the new finance products will take is yet to be decided, they will generally involve a move from grants to loans. We raised concerns about this shift in 2015 in our Science Budget report.152 In this inquiry, the Royal Academy of Engineering told us that:

Serious concerns exist about whether the new financial products Innovate UK are developing will be effective in stimulating and supporting early-stage, high-risk and disruptive innovation, or business-university collaboration. Furthermore, there are concerns that accepting a loan rather than a grant may make a company less attractive to downstream investors.153

84.Felicity Burch from the CBI expressed similar anxieties154 while Richard North from Rolls Royce worried that:

loans versus grants would be a big retrograde step [ … ] A loan will be a liability on the balance sheet and it would be like any other form of company investment: whether the loan is from the Government or from a bank, it is capital that we have to pay back. It fundamentally changes the approach to investing in what are essentially high-risk, early-stage technologies.155

Dr Will West from the BioIndustry Association, however, thought that there might be a place for loans at certain stages of the commercialisation process. He explained that while “some of the very early-stage translational work will be difficult to do without funding it through grants [ … ] loans could have a role in some of the later-stage translational” work.156

85.Witnesses also noted that Innovate UK was “underfunded relative to the rest of the science and innovation landscape”.157 Innovate UK will, however, be responsible for managing the Industrial Strategy Challenge Fund with the research councils158 and, as part of the Industrial Strategy Green Paper, the Government is consulting on “which challenge areas” the Fund should “focus on to drive maximum economic impact”.159 At the time we concluded our inquiry, no details were available on how the fund will be disbursed and whether awards will take the form of grants or loans, and/or if funds will need to be matched by private sector investment.

86.Efforts to simplify the innovation landscape are slowly moving in the right direction. We remain concerned, however, that while Innovate UK has streamlined its funding schemes, the proposed shift away from awarding grants, and towards loans, could undermine the progress that has been made to date.

87.We recommend that the majority of the Industrial Strategy Challenge Fund should be disbursed in the form of grants. A small proportion of the Fund should be set aside to provide support for business training and mentoring, in order to maximise the success rate of the awards that are made.

99 Orin Herskowitz and Brady Butterfield, “Know thyself: how well do you understand your own IP strategy?” Intellectual Asset Management, July/August 2016, p10

100 Department of Business, Energy and Industrial Strategy, The UK Innovation Survey 2015 Main report, Innovation Analysis, July 2016

101 Royal Academy of Engineering (MIP0023) para 5.1

102 Imperial Innovations Group plc (MIP0020) para 5.3

103 Universities UK (MIP0016) para 11

104 Q174 [Anne Glover]

105 Q157, Q162

106 Q174 [Mike Conroy]

107 The University of Sheffield (MIP0024) para 1.8; see also Mercia Technologies PLC (MIP0002)

108 Cambridge Enterprise (MIP0029) para 8

109 Stephen Caddick, The future of innovation at the Wellcome Trust, 24 May 2016, last accessed 2 March 2017

110 Russell Group (MIP0009) para 4.2

111 Cambridge Enterprise (MIP0029) para 17

112 Q187; see also The University of Sheffield (MIP0024) para 1.8

113 Royal Academy of Engineering (MIP0023) paras 5.2–5.4

114 ibid

115 Q283

116 Q283

117 Department for Business, Energy and Industrial Strategy and HM Treasury, Terms of reference for the Patient Capital Review, February 2017

118 The legal rules of IP ownership are different for university employees and non-employees such as students, consultants, clinicians, honorary academics and employees of other bodies. See Intellectual Property Office, Intellectual Asset Management for Universities, June 2014

121 Q248

122 BioIndustry Association (MIP0034)

123 The Royal Society (MIP0021) para 16

124 Wellcome Trust, The UK’s innovation ecosystem, Summary of a review commissioned by the Wellcome Trust, not dated

125 Russell Group (MIP0009) para 3.5

126 Q5

127 Universities UK (MIP0016) para 6, see also Praxis Unico (MIP0014) para 22 & Universities Scotland (MIP0030) para 8

128 Q201

129 Q82

130 Russell Group (MIP0009) para 3.3

131 Academy of Medical Sciences (MIP0012) para 3

132 Q62 [Dr Raven]

133 Royal Academy of Engineering (MIP0023) para 4.4

134 The Lambert toolkit aims to assist “academic or research institutions and industrial partners who wish to carry out research projects together” through providing template collaboration agreements that set out basic principles of collaboration. See

135 Department for Business, Energy and Industrial Strategy (MIP0011) para 33; see also Q293

136 Cranfield University (MIP0015) para 6.3; see also Cambridge Enterprise (MIP0029) para 28, Imperial Innovations Group plc (MIP0020) para 3.5, Q70 [Dr Clare]

137 HM Government, Building Our Industrial Strategy, Green Paper, January 2017, p32

138 University of Oxford (MIP0025) para 8; Royal Academy of Engineering (MIP0023) para 3.5; The Royal Society (MIP0021) para 18; Imperial Innovations Group plc (MIP0020) para 2.3; The Institute of Cancer Research, London (MIP0018) para 11; Cranfield University (MIP0015) para 4.1; University College London (MIP0013) para 7

139 Cambridge Enterprise (MIP0029) para 2.5

140 Swansea University (MIP0022)

141 Q287

142 Innovate UK (MIP0006)

143 The Royal Society (MIP0021) para 21

144 ibid

145 Q195

146 Royal Academy of Engineering (MIP0023) paras 1.2 & 4.8

147 Q77

148 Q230 [Dr Nelki]

151 Q244

152 Science and Technology Committee, First Report of Session 2015–16, The science budget, HC 340, paras 76–78

153 Royal Academy of Engineering (MIP0023) para 7.8

154 Q140 [Felicity Burch]

155 Q140 [Richard North]

156 Q140 [Dr West]

157 Q113 [Felicity Burch]; see also Q156

158 HM Treasury, Autumn Statement 2016, Cm 9362, para 3.29. It is a new cross-disciplinary fund to support collaborations between business and the UK’s science base.

159 HM Government, Building Our Industrial Strategy, Green Paper, January 2017, p35

10 March 2017