End of Year Reflections 2017
December 2017
Here are some thoughts on four areas of UK based university technology transfer: experiments; licensing; shareholdings; and what’s next.
1. Experimental models
There are two big experiments in hard-core, commercial technology transfer at the moment; one coming to an end at Imperial College, the other recently started in Oxford.
Imperial College London
The Imperial College experiment is coming to an end. This is the one where they gradually sold off their Technology Transfer Office, and watched as it became an investment business with a TTO. The business is now owned by another investment company, IP Group. So what were the results of the experiment? Too early for a final reckoning of course, but so far, it looks like this for the various groups of people involved:
Imperial College has a shareholding in IP Group, valued at, let’s say £80M. It owns no equity in any of its spin-outs since 2005, and receives a comparatively small share of any royalties generated from licensing its IP, and it no longer has a TTO. With less than two years left of the 15 year pipeline deal between the College and now IPGroup, my feeling is that Imperial College will be satisfied, and maybe content; but we’ll never really know about that. [By comparison Oxford University owns a portfolio of its spin-out shares valued well over £100M (but mostly illiquid and some pre-2005), and its licensing streams, and its TTO.]
Imperial College Academics – I imagine some are very happy with the professional approach of the investment focus; others frustrated by the inevitable increase in selectivity and unwillingness to take many projects forward.
Shareholders – some may well have made a good return, which is great. For those holding sizeable amounts now, I imagine a range of opinions; some more on this below. As they say, it all rather depends when you buy and sell the shares.
Managers – a small number of people have benefitted enormously from the overall strategy and its implementation. They saw an opportunity, worked incredibly hard to realise the opportunity, and made themselves lots of money, far more than previously expected in this line of work. One can be confident this is the group most likely to describe the whole adventure as a major success.
So would Imperial College do it again? Will other universities try something similar? On purely financial terms, maybe, but it looks more like a satisfactory outcome than overwhelming. And of course, the environment has changed, with so many more sources of investment money and expertise looking to invest in the spin-outs, the attraction of a long term tie-up has decreased.
Oxford University
The latest TT experiment in Oxford is in its early stages. The University signed a deal with start-up investment business Oxford Sciences Innovation in early 2015. With this deal, OSI becomes a shareholder in all Oxford spin-outs and can invest in any it wants at the start, subject to the founders support, and in any event can use its pre-emption rights to make follow-on investments. OSI raised over £500Million very quickly and is now working hard to invest it. The phenomenal increase in the number of spin-outs being formed from Oxford through its re-named TTO, Oxford University Innovation, shows the powerful pull of available investment finance. With £500M to deploy in spin-outs from Oxford (and also Harwell and Culham, but no others) one can expect OSI making a whole load more small, medium and large investments in the coming year. It’s a wonder the starting prices aren’t going up with so much cash looking for deals.
Where’s it all headed?
It is usually a good idea with most adventures to explain that it is going to take a very long time before the results can be fully realised; be patient. Seventeen years is quite a long time, although not long enough for some of course. The business that became IP Group started in 2000. This was the start of what has become a selection of businesses in the UK focussed on creating value from university science, including: IP Group; Imperial Innovations / Touchstone (now part of IP Group); Parkwalk (now part of IP Group); Mercia; Allied Minds; Cambridge Innovation Capital; Oxford Sciences Innovation.
IP Group is without question still the vanguard. Growing bigger and bigger, raising expectations all the time. How much longer before ‘time, please’?. The weight on Nanopore’s shoulders is very, very heavy. The letter from the Touchstone Chairman to his shareholders during IP Group’s hostile takeover made some powerful points about IP Group. A recent analysts report made some devastating remarks; these may be dismissed with trumpian bravado (“its going to be huge folks, huge”), but there are some substantial points to address. Maybe even the biggest universities sitting back and saying ‘it’s not about the money’ is the smart position to adopt; because it hasn’t been about the money yet.
2. Licensing
In the old days there were two routes to market for university TTO’s to see university technologies reach users, customers, patients - license to an existing established business, or set up a new company. Licensing to established businesses has never gone away, but nor has it attracted much attention; it is the poor relation compared to all the spin-out buzz. Manchester University recently announced a new programme, aimed in part, at boosting licensing activity; this is a good thing.
US colleagues are astonished at how UK universities transfer so much potential value in a technology to start-ups with low levels of corporate experience and money; especially in healthcare. Unless the university retains a realistic licensing stream the risks of the shareholding ever delivering reasonable returns is huge.
Oxford’s Immunocore and Adaptimmune are of course examples of how it can be done from start-up, but that story is very rare, and tells of phenomenal belief and persistence from early stage managers and investors, who are now rightly and richly rewarded.
No UK university has ever seen the substantial royalty returns that quite a few US universities have seen over recent decades. UK universities have been trying for long enough now, but the big returns have not come. Access to markets is a significant factor; there is no substitute to starting out in the same country as the world’s largest market. Is it something about the research being done? Not the quality, maybe just the simple failure to deliver what industry thinks it needs. With universities now putting so many millions into protecting the IP, university TTO’s need to relaunch their marketing outreach and really develop their industry contacts: get out there, meet the people and sell. And industry, as always, get out there, and buy.
3. Shareholdings in spin-outs
An old chestnut … Every now and then over the last few years, someone says some UK universities are being greedy in how many founding shares they want in their own spin-outs. The someone is usually an investor, a researcher, or an entrepreneur; in other words the three other groups of shareholder.
If the university has less, who should get more? I think this point deserves some attention.
The researchers? Yes, to an extent. There is the argument that relatively few will be able to make follow-on investments and this is likely to be correct; so let them have some more at the start to protect against dilution. Although of course the business can always allocate more shares to them if this incentive is necessary as the company develops.
There is a counterbalance to researchers demanding more. What on earth is going on? Publicly funded, or charity funded, university teachers and researchers spending more and more time trying to make money from spin-outs rather than doing what they’re being paid for. As the ‘value for money’ arguments increase around tuition fees, and as the outrage at astonishingly high senior university administrator ‘packages’ increases, it may prove a brave university employee who pushes so blatantly for greater personal gain. Of course let’s encourage new enterprise, of course let’s encourage new technology jobs and solutions to the great challenges; but there’s a need to do the teaching and science as well.
The investors? Oh please, how much more help do these people need? The tax breaks just keep on getting better and better for these folk. They really need to start focussing on doing their job, to grow value in the early stage companies, to help them scale-up. What has happened to the old idea that investors bring more than just money? Let’s see the investors adding value beyond cash and helping create sustainable businesses. “We can’t because the university owned too many founder shares” is not a convincing point.
Maybe investor complainants are focussing on how much the university has after the investors have invested. This is about price, valuation; it’s a deal; investors are good at deals. But perhaps there is some truth about adverse effects from a reasonable university shareholding. There are certainly a large number of highly successful, university derived companies without the university having any significant founding shareholding. Maybe a reasonable university shareholding could be some sort of curse; but this doesn’t really make sense, and not a basis for policy development.
The entrepreneur? Yes, to an extent. TTO’s struggle to offer anything meaningful to the entrepreneur/CEO in waiting. Maybe they benefit from an entrepreneur-in-residence programme, maybe they benefit with a fee from a pre-spin-out proof-of-concept award. A university could attract a stronger pool of potential spin-out business leaders with an announcement that it will transfer some of its founder shares to attract and retain good managers. Problems may be found in the detail of implementation; but do something, and see; an experiment.
What about the university, why does it get founding shares? Universities need to be far more robust in explaining their position. The TTO is usually fighting the university’s corner without much sign of support from the university. How about the university leadership, openly, putting their support and their names to their own policies? ‘It’s the policy’ is never an adequate response; policies need to be explained and defended from first principles.
There’s a complication for universities. The Founding shares usually don’t make much money, because of dilution. Shares bought with fresh cash at later investment rounds are more likely to make money. So why are TTOs fighting to defend approaches for which they are being bashed in the press and outmanoeuvred in the lobbies? Universities: explain it or change it.
As a consequence of all this, on reflection, there are three things universities can do:
The only UK university to do something recently and attract credit in this area is Imperial College with its new Founders Choice programme, where researchers have a choice and can trade more help for less shares (another experiment). Meanwhile Oxford is getting bashed in the press, being attacked by a multi-millionaire Cambridge venture capitalist, as well as a local anonymous researcher.
4. What’s next
December has seen a new European training programme in ‘Knowledge Exchange in the Social Sciences Arts and Humanities’. The current focus on SSAH, sometimes SSH, is great to see. Born from the UK REF 2014 Impact exercise, there is more and more focus on these areas.
The common TTO experience from the old days was along the lines of, well, we try, but there’s not much really, other than consulting, and much of that is with people in the social sciences, arts, humanities.
Today much of the conversation with SSAH is about the non-commercial opportunities, great examples of impact generating knowledge transfer, exchange and co-creation (get up to speed with the jargon, please). Reading the REF 2014 Impact case studies from SSAH departments across the UK is truly uplifting in terms of finding out the brilliant ways UK university researchers are having an impact.
The next step, not to the exclusion of any others, will be to turn attention to developing the commercial opportunities arising from social sciences, humanities and arts research outputs. This will be a major focus in the coming years. Employing someone in the TTO who knows about social science is a good place to start.
And a festive forecast …
Oxford Sciences Innovation plc makes an offer to take over Oxford University Innovation Ltd. A little fanciful, but maybe another phase of the experiment one day. Leaving the University to do the publicly and charity funded research, pay for the patents, and focus on impact.
Happy holidays.
1. Experimental models
There are two big experiments in hard-core, commercial technology transfer at the moment; one coming to an end at Imperial College, the other recently started in Oxford.
Imperial College London
The Imperial College experiment is coming to an end. This is the one where they gradually sold off their Technology Transfer Office, and watched as it became an investment business with a TTO. The business is now owned by another investment company, IP Group. So what were the results of the experiment? Too early for a final reckoning of course, but so far, it looks like this for the various groups of people involved:
Imperial College has a shareholding in IP Group, valued at, let’s say £80M. It owns no equity in any of its spin-outs since 2005, and receives a comparatively small share of any royalties generated from licensing its IP, and it no longer has a TTO. With less than two years left of the 15 year pipeline deal between the College and now IPGroup, my feeling is that Imperial College will be satisfied, and maybe content; but we’ll never really know about that. [By comparison Oxford University owns a portfolio of its spin-out shares valued well over £100M (but mostly illiquid and some pre-2005), and its licensing streams, and its TTO.]
Imperial College Academics – I imagine some are very happy with the professional approach of the investment focus; others frustrated by the inevitable increase in selectivity and unwillingness to take many projects forward.
Shareholders – some may well have made a good return, which is great. For those holding sizeable amounts now, I imagine a range of opinions; some more on this below. As they say, it all rather depends when you buy and sell the shares.
Managers – a small number of people have benefitted enormously from the overall strategy and its implementation. They saw an opportunity, worked incredibly hard to realise the opportunity, and made themselves lots of money, far more than previously expected in this line of work. One can be confident this is the group most likely to describe the whole adventure as a major success.
So would Imperial College do it again? Will other universities try something similar? On purely financial terms, maybe, but it looks more like a satisfactory outcome than overwhelming. And of course, the environment has changed, with so many more sources of investment money and expertise looking to invest in the spin-outs, the attraction of a long term tie-up has decreased.
Oxford University
The latest TT experiment in Oxford is in its early stages. The University signed a deal with start-up investment business Oxford Sciences Innovation in early 2015. With this deal, OSI becomes a shareholder in all Oxford spin-outs and can invest in any it wants at the start, subject to the founders support, and in any event can use its pre-emption rights to make follow-on investments. OSI raised over £500Million very quickly and is now working hard to invest it. The phenomenal increase in the number of spin-outs being formed from Oxford through its re-named TTO, Oxford University Innovation, shows the powerful pull of available investment finance. With £500M to deploy in spin-outs from Oxford (and also Harwell and Culham, but no others) one can expect OSI making a whole load more small, medium and large investments in the coming year. It’s a wonder the starting prices aren’t going up with so much cash looking for deals.
Where’s it all headed?
It is usually a good idea with most adventures to explain that it is going to take a very long time before the results can be fully realised; be patient. Seventeen years is quite a long time, although not long enough for some of course. The business that became IP Group started in 2000. This was the start of what has become a selection of businesses in the UK focussed on creating value from university science, including: IP Group; Imperial Innovations / Touchstone (now part of IP Group); Parkwalk (now part of IP Group); Mercia; Allied Minds; Cambridge Innovation Capital; Oxford Sciences Innovation.
IP Group is without question still the vanguard. Growing bigger and bigger, raising expectations all the time. How much longer before ‘time, please’?. The weight on Nanopore’s shoulders is very, very heavy. The letter from the Touchstone Chairman to his shareholders during IP Group’s hostile takeover made some powerful points about IP Group. A recent analysts report made some devastating remarks; these may be dismissed with trumpian bravado (“its going to be huge folks, huge”), but there are some substantial points to address. Maybe even the biggest universities sitting back and saying ‘it’s not about the money’ is the smart position to adopt; because it hasn’t been about the money yet.
2. Licensing
In the old days there were two routes to market for university TTO’s to see university technologies reach users, customers, patients - license to an existing established business, or set up a new company. Licensing to established businesses has never gone away, but nor has it attracted much attention; it is the poor relation compared to all the spin-out buzz. Manchester University recently announced a new programme, aimed in part, at boosting licensing activity; this is a good thing.
US colleagues are astonished at how UK universities transfer so much potential value in a technology to start-ups with low levels of corporate experience and money; especially in healthcare. Unless the university retains a realistic licensing stream the risks of the shareholding ever delivering reasonable returns is huge.
Oxford’s Immunocore and Adaptimmune are of course examples of how it can be done from start-up, but that story is very rare, and tells of phenomenal belief and persistence from early stage managers and investors, who are now rightly and richly rewarded.
No UK university has ever seen the substantial royalty returns that quite a few US universities have seen over recent decades. UK universities have been trying for long enough now, but the big returns have not come. Access to markets is a significant factor; there is no substitute to starting out in the same country as the world’s largest market. Is it something about the research being done? Not the quality, maybe just the simple failure to deliver what industry thinks it needs. With universities now putting so many millions into protecting the IP, university TTO’s need to relaunch their marketing outreach and really develop their industry contacts: get out there, meet the people and sell. And industry, as always, get out there, and buy.
3. Shareholdings in spin-outs
An old chestnut … Every now and then over the last few years, someone says some UK universities are being greedy in how many founding shares they want in their own spin-outs. The someone is usually an investor, a researcher, or an entrepreneur; in other words the three other groups of shareholder.
If the university has less, who should get more? I think this point deserves some attention.
The researchers? Yes, to an extent. There is the argument that relatively few will be able to make follow-on investments and this is likely to be correct; so let them have some more at the start to protect against dilution. Although of course the business can always allocate more shares to them if this incentive is necessary as the company develops.
There is a counterbalance to researchers demanding more. What on earth is going on? Publicly funded, or charity funded, university teachers and researchers spending more and more time trying to make money from spin-outs rather than doing what they’re being paid for. As the ‘value for money’ arguments increase around tuition fees, and as the outrage at astonishingly high senior university administrator ‘packages’ increases, it may prove a brave university employee who pushes so blatantly for greater personal gain. Of course let’s encourage new enterprise, of course let’s encourage new technology jobs and solutions to the great challenges; but there’s a need to do the teaching and science as well.
The investors? Oh please, how much more help do these people need? The tax breaks just keep on getting better and better for these folk. They really need to start focussing on doing their job, to grow value in the early stage companies, to help them scale-up. What has happened to the old idea that investors bring more than just money? Let’s see the investors adding value beyond cash and helping create sustainable businesses. “We can’t because the university owned too many founder shares” is not a convincing point.
Maybe investor complainants are focussing on how much the university has after the investors have invested. This is about price, valuation; it’s a deal; investors are good at deals. But perhaps there is some truth about adverse effects from a reasonable university shareholding. There are certainly a large number of highly successful, university derived companies without the university having any significant founding shareholding. Maybe a reasonable university shareholding could be some sort of curse; but this doesn’t really make sense, and not a basis for policy development.
The entrepreneur? Yes, to an extent. TTO’s struggle to offer anything meaningful to the entrepreneur/CEO in waiting. Maybe they benefit from an entrepreneur-in-residence programme, maybe they benefit with a fee from a pre-spin-out proof-of-concept award. A university could attract a stronger pool of potential spin-out business leaders with an announcement that it will transfer some of its founder shares to attract and retain good managers. Problems may be found in the detail of implementation; but do something, and see; an experiment.
What about the university, why does it get founding shares? Universities need to be far more robust in explaining their position. The TTO is usually fighting the university’s corner without much sign of support from the university. How about the university leadership, openly, putting their support and their names to their own policies? ‘It’s the policy’ is never an adequate response; policies need to be explained and defended from first principles.
There’s a complication for universities. The Founding shares usually don’t make much money, because of dilution. Shares bought with fresh cash at later investment rounds are more likely to make money. So why are TTOs fighting to defend approaches for which they are being bashed in the press and outmanoeuvred in the lobbies? Universities: explain it or change it.
As a consequence of all this, on reflection, there are three things universities can do:
- Expect a smaller percentage shareholding at the start (this being when the university shares plus the founding researchers’ shares = 100%);
- Concentrate on a programme of spin-out share portfolio management which fits their circumstances. Some universities have endowments, some of which can sensibly be allocated to follow-on investments in spin-outs, based on decisions taken by people who know what they are doing. Other universities of course cannot afford this.
- Develop a mechanism to use some of their founding shareholding position to incentivise better leadership, management and entrepreneurship in their spin-outs.
The only UK university to do something recently and attract credit in this area is Imperial College with its new Founders Choice programme, where researchers have a choice and can trade more help for less shares (another experiment). Meanwhile Oxford is getting bashed in the press, being attacked by a multi-millionaire Cambridge venture capitalist, as well as a local anonymous researcher.
4. What’s next
December has seen a new European training programme in ‘Knowledge Exchange in the Social Sciences Arts and Humanities’. The current focus on SSAH, sometimes SSH, is great to see. Born from the UK REF 2014 Impact exercise, there is more and more focus on these areas.
The common TTO experience from the old days was along the lines of, well, we try, but there’s not much really, other than consulting, and much of that is with people in the social sciences, arts, humanities.
Today much of the conversation with SSAH is about the non-commercial opportunities, great examples of impact generating knowledge transfer, exchange and co-creation (get up to speed with the jargon, please). Reading the REF 2014 Impact case studies from SSAH departments across the UK is truly uplifting in terms of finding out the brilliant ways UK university researchers are having an impact.
The next step, not to the exclusion of any others, will be to turn attention to developing the commercial opportunities arising from social sciences, humanities and arts research outputs. This will be a major focus in the coming years. Employing someone in the TTO who knows about social science is a good place to start.
And a festive forecast …
Oxford Sciences Innovation plc makes an offer to take over Oxford University Innovation Ltd. A little fanciful, but maybe another phase of the experiment one day. Leaving the University to do the publicly and charity funded research, pay for the patents, and focus on impact.
Happy holidays.