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Patient Capital’s Role for the UK’s Science Ventures

25 Apr 2018

Ian Taylor, Chair of the UK Innovation & Science Seed Fund, on the need to commercialise key technological advances and maintain the UK economy’s competitiveness.

With the formation of UK Research and Innovation (UKRI), which brings together the seven Research Councils, InnovateUK and a new body, Research England, it is critical that this group hits the ground running. Apart from many challenges in ensuring that the Research Councils’ investment of around £3.4 billion each year is effectively spent on first class research, there is an increasing importance to be attached to discovering and capturing new knowledge so that it can have an ‘impact’ on economic growth, shared prosperity and wellbeing.

This should not imply any weakening of the need to safeguard a culture of inquiry and a culture of research that doesn’t always have an obvious end-product that can be commercialised. Yet, great ideas which can enhance our lives emerge and need to be captured from the publicly-financed research base.

Nurturing and growing start-up technology ventures which have the potential to become leaders in their field generates skills, high-quality jobs and exports and contributes to the longer-term productivity improvement we need to stay competitive as a nation.

Fortunately, there is a ready-made public-sector mechanism for achieving this. The UK Innovation & Science Seed Fund (UKI2S) is an established patient capital investor in ideas emerging from the UK publicly-funded science base.

The Fund endeavours to boost the UK’s competitiveness and productivity by commercialising key technological advances. This approach is a vital part of the UK’s Industrial Strategy. UKRI has been tasked to develop a new Knowledge Exchange Framework (KEF) to benchmark how well universities are doing at fostering knowledge sharing and research commercialisation. The same analysis is required for the Research Councils’ performance.

Expert, patient capital plays a key role in creating sustainable science-based companies, where there is much work to be done before reaching the market. UKI2S builds world-leading companies from world-leading science with a general fund for a wide range of scientific disciplines plus a specialist fund for synthetic biology. It brings together 9 research funders and £27m of public capital, managed privately but with a public-good mandate (i.e. not normally a commercial seed fund return requirement).

The Fund identifies early-stage opportunities by working closely with its partners (led by STFC, BBSRC, NERC and Dstl), with the National Research and Innovation Campuses they support, with BEIS and with many other public-sector science research institutes. We will work closely with UKRI but have public sector partners that are not within its remit.

UKI2S now also collaborates with the Catapult Network. Catapults help catalyse and de-risk innovation by road-testing new technology applications that are at pre-return-on-investment. This potential to bridge the gap between R&D and industry seeks to ensure that there is a ‘translational infrastructure’ that allows the most innovative ideas to be commercialised. Catapults are becoming an important contributor to the wealth of opportunity for economic impact arising from UK technology innovators.

UKI2S catchment zones have diversity not only of research disciplines but also of geographical coverage. We are usually the first investor and have played a pivotal role in establishing more than 40 companies based on UK publicly-funded research which would not have emerged from the laboratory – or thrived – without us.

We do not displace private capital; we collaborate and leverage in later stage investors.

As the companies grow, we mentor and assist with raising later-stage private sector funding. To date, UKI2S has helped to lever in over £30 of private investment for every £1 we have invested — that’s over £320m. All the proceeds of investments are recycled into the fund to build the next generation of start-ups.

Last year saw the successful sale of one of the Fund’s portfolio companies – Cobalt Light Systems- to Agilent (after our support for 12 years), with the further announcement that Harwell Campus is to become Agilent’s global centre for Raman spectrometry.

UKI2S is now working with InnovateUK in the Investment Accelerator Pilot programme. The key to this partnership is InnovateUK grant funding to materially change the risk profile of the proposition combined with UKI2S equity investment plus expertise to identify the commercial opportunities and management teams with the highest potential for growth.

Aligned with Catapults, InnovateUK and UKRI, UKI2S creates an eco-system positioned to ensure that the UK maintains our world-leading science standing and maximises the contribution of each organisation to creating the best environment for research and innovation to flourish.

As a past member of the CaSE Advisory Council, I appreciate its important role as the UK’s leading independent advocate for science and engineering. UKI2S is delighted to become a member – helping to stimulate the debate about the importance of patient equity capital in science spin-outs as well as underlining the role public sector finance (including risk-capital) plays in leveraging in private investment.

This concept of public value and public purpose – animated particularly by Professor Mariana Mazzucato at one of our recent seminars – is an important part of the debate about how government can spur greater private sector involvement in innovation. The commitment by the UK Government to work with industry to boost spending on R&D to 2.4% of GDP by 2027 has been welcomed by UKRI – with the emphasis that reaching this target depends on the private sector contributing at least 60% of the total. There is much work to be done!

The UK Innovation & Science Seed Fund has joined CaSE as a new organisational member and its first venture capital fund.

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