Government responds to the spin-out review

The message from the review was that spin-outs would benefit from universities acting more consistently and transparently and from funders giving the type of support suited to the unique nature of university spin-out companies.

The government – in a response ostensibly authored by both Michelle Donelan and Jeremy Hunt – has promised to do a series of sensible things that will help get spin-outs funded in more consistent and transparent ways.

There will be some best practice sharing on terms, there will be some better research data, a competition to share capacity between technology transfer office (TTOs), a competition to fund new proof of concept ideas on cross-disciplinary working, training for PhD students on entrepreneurship, and other assorted bits of mapping and data returns that fit in the basket of obviously low hanging fruit of things that should be addressed. The government would very much like all “research intensive universities” (whoever they may be) to adopt these measures by the end of 2024

There are two areas here that could be particularly interesting.

The authors of the independent review noted that TTOs (the office in universities that supports the creation of spin-outs) were often being funded by the revenue of spin-outs themselves. This is clearly unsustainable given the variability in spin-out income

The independent review recommended that Higher Education Innovation Funding (HEIF), the £260m of Research England knowledge exchange funding allocated based on university business activity, should be retooled to better support the funding of TTOs. The government has gone further and promised Research England will “review the Higher Education Innovation Fund (HEIF) to ensure commercialisation functions in universities are appropriately funded and incentivised.”

The government notes that HEIF funding has increased by £120m since 2016-17 and that the underfunding of TTOs acts as a disincentive for universities to take less generous equity stakes in spin-outs. The response to the Nurse review, which is primarily concerned with the funding of the whole research ecosystem, does not take a view on the future of HEIF – though it makes a lot of positive noises about spin-outs generally.

The simplest way to ensure TTOs are properly funded by HEIF would be to reprofile its purpose as more of an infrastructure spend while hoping more generous QR allocations would encourage universities to invest in business and civic activity. The unintended consequence of this could be less of the business engagement activity that HEIF also funds.

Other possibilities could be to amalgamate HEIF and KEF into a single set of measures and funds. It would also be possible to fund TTOs directly based on a basket of spin-out related metrics including some sort of measurement of latent potential. Or the government could amalgamate HEIF with QR funding entirely and hope an additional focus on impact would redistribute the funding in a sensible way.

The government has also initiated a series of pension reforms to promote investment into university spin-outs. The autumn statement set out that, in simple terms, there will be the opportunity for a reallocation of defined benefit pension funds into investment vehicles which university spin-outs could access.

A spin-out ecosystem which can access more capital is likely to be able to grow quicker. For universities and researchers this is good on its own terms. It is also a key unblocker in taking some of the pressure away on restrictive terms on spin-outs if there is more money available for all parties to access.