28 July 2023

Cambridge shows how universities can help make Britain a start-up superpower

By Diarmuid O’Brien

Cambridge is a renowned global centre of innovation and recent Government announcements underscore how vital the city is to UK PLC.

Just this week, levelling up secretary Michael Gove lauded the success of businesses here and outlined proposals to further incubate enterprise. This would support the ambition of his boss, Rishi Sunak, for the country to be a science and tech superpower by the end of the decade. 

It is a worthy ambition – and making the most of Britain’s strengths is a smart move – but the Government needs a clear route map to achieve this. Having bold aims without a plan for implementation does not drive change – it only drives frustration. 

The Chancellor’s recent Mansion House speech presents one such path to success. His pension reforms are an unmatched opportunity for the start-up community in the UK. 

Jeremy Hunt has convinced nine UK pension providers to assign 5% of their funds to ‘unlisted equities’ by 2030, potentially unlocking £50bn from defined contribution pensions and £25bn from local government pensions to be invested in high-growth companies. Similar reforms in the United States have unlocked billions of dollars for enterprises. 

One critical challenge is that start-ups need capital. Without it, new intellectual property-enabled, deep tech businesses fail to be launched, scale, and crucially to attract the world class talent required to exploit opportunities.

Funding is often sourced from the venture capital community. While this works for some new businesses, it is not always a feasible first step. Prospects for funding are not evenly dispersed across the country and many VC firms do not invest at the pre-seed stage when spin-outs need cash the most.

This is where universities can step in, and utilise the governments innovation framework such as the Enterprise Investment Scheme (EIS). By leveraging their partnerships, their alumni and their status, universities can access investment capital which can be out of reach to fledgling entrepreneurs.

A great example of this is the University of Cambridge Enterprise Fund (UCEF), managed by investors Parkwalk Advisors. Started in 2012, this fund remains the leading early-stage university EIS investment scheme. Through this fund and its own University supported seed fund, Cambridge Enterprise, the commercialisation arm of the University of Cambridge, has been leading this charge for the past decade.

Before this initiative, pre-seed and seed stage investors were scarce despite the University of Cambridge’s reputation for research excellence and its genuinely trailblazing intellectual property (IP). Entrepreneurial faculty and IP with the potential to disrupt multiple markets was not always enough to ease the journey to getting pre-seed investment. Many institutions in the UK continue to face this challenge today – a disconnect between research excellence and investment capital.

The UCEF fund was launched to unlock new funding from our alumni, our ecosystem and our supporters. The first of its kind, UCEF is dedicated to investing in ‘deep science’ companies that capitalise on inventions exclusively stemming from the University of Cambridge. 

Enabled by government policies like the EIS, the fund allows individual investors – not just large venture capital funds – to act as a collective to advance high-risk, potentially high-return, university-backed spin-outs and ventures.

To put it another way, this mechanism unlocks the potential for anyone who wants to invest in new technologies to drive the UK’s science superpower agenda. 

Through nine successive funds, the programme has raised in excess of £26m and has invested in 59 spin out companies. UCEF provides matched investment to the University of Cambridge’s own investment, helping Cambridge Enterprise to build businesses with national and international impact. 

The funds have been highly successful – with fund III yielding three-fold returns for investors to date. UCEF portfolio companies have collectively raised over £550m of syndicated capital and are valued at more than £1bn. 

Success stories include Vocal IQ which introduced the world’s first self-learning dialogue API – creating real, natural conversation between people and their devices which was acquired by Apple; Riverlane one of the UK’s leading quantum computing companies; Quethera a gene therapy company focused on developing novel treatments for ocular disorders such as glaucoma which was acquired by Astellas, and Xampla a company developing biodegradable materials to replace the world’s most polluting plastics. 

While Cambridge has many things which make it well-placed to set up such a fund, I am convinced this is a model which could be adopted by research intensive universities across the country. Similar funds are already operating at Oxford, Imperial and Bristol.

Emerging technologies, spun out from our globally renowned universities, provide the solutions today for the problems of tomorrow. Becoming a science and tech superpower is within reach if we can couple the right policy framework to unlock the research and innovation capability of our leading universities.

In turn universities must grasp the moment to lead this agenda and maximise the opportunities afforded by the innovation-friendly environment emanating from Number 10. 

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Diarmuid O’Brien is the Chief Executive of Cambridge Enterprise.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.