Can spin-outs supercharge the UK’s innovation capabilities to leapfrog the economy?

In understanding the collaborative landscape, there needs to be recognition of how the UK’s most innovative companies are undertaking their innovation developments.

Engineering-based manufacturing companies have the most engagement, with 34.4% in this category claiming universities as part of their innovation collaborative partnership base. However, only 16.5% of companies in retail and distribution cite universities as ingredients within their innovation mix. In the best case, 68% of engineering-based manufacturing firms are not seeing universities as part of their innovation collaborations, and in the worst, 83.5% of retail and distribution companies aren’t visualising university engagement in their innovation playbook.

The focus for all industry sectors in securing innovation seems to be on looking within their business groups, suppliers and customers, all of which are important. But this trend also shows a potential lack of new thinking, as talking to the same players curtails creativity and opportunities to drive the art of the possible.

The degree to which industry has confidence that universities will deliver innovations is shown starkly in the fact that less than 5% of R&D expenditure in higher education is funded by industry. Compare this figure with 13.9% of German companies funding R&D in their universities, or the Chinese industry streaking ahead, funding 30% R&D in their universities, and the facts are apparent. Industry overall, despite the number of government initiatives, is still showing hesitation in their R&D activities with universities.

Perhaps, one of the reasons for this hesitancy is the low perception of universities’ ability to provide sources of innovation information. With engineering-based manufacturing companies in the UK stating only 6.3% of their innovation information is sourced from universities, and retail and distribution companies citing only 1%, the facts again are evident. The majority of sectors still regard their business groups or their customers as the best sources of innovation information to drive their innovation capabilities.

This position is holding back the UK’s ability to raise to its innovation potential. With only 30.9% of UK innovating companies collaborating with universities, compared to Germany’s base of 64.6% of the same, how can UK universities build this base and power up innovation?

In recent years, much has been made of the university-business formation known as spin-outs. These business entities enable bright individuals from universities to develop their entrepreneurial skills and support local economic development. In our research piece on entrepreneurism, it was discovered that within a period of five years 90% of start-ups fail. The first two years of a start-up are crucial, with 40% having failed by the end of year two.

Marrying technical expertise coming out of the universities with sound entrepreneurship skills will enable spin-outs to flourish. This marriage is vital and must be supported through active networks that focus on key growth sectors for the UK’s economy. Such support is important, as these spin-outs could be the way in which the UK, post-Brexit, will supercharge innovation capabilities and initiate an economic leap ahead.

Spin-outs predominately are created by graduates. In 2016/17 HESA found that 4161 spin-outs were founded by graduates. Out of the rest of the spin-outs, 131 had some higher education partnership (HEP) and less than 10 were regarded as spin-outs not HEP owned.

Despite the strong number of spin-outs developed by graduates, it is not apparent from the existing research data how much of a connection there is between the research conducted by the graduate and their subsequent decision to start a new business venture. This correlation is crucial to ensure that universities are supporting new technical innovation talent and also raising their engagement game with industry.

The government has supported this rise of spin-outs through its Incubator and Accelerator programmes and has secured successes through these interventions. However, the issue that still stands is that 30% of all Accelerators are non-sector specific and a further 23% are focused broadly IoT/digital. The Incubators follow a similar pattern with 45% of all Incubators non-sectoral and a further 29% focused on broad IoT/digital areas.

The sector coming in third in percentage size is life sciences with 26% of all Incubators focused on this area. This position however, isn’t surprising given the UK’s maintained focus on biomed, biotech and genomics. This stringent focus on life sciences is reflected back into the investments in spin-outs by companies that showed 43% of all investments from industry went into biomed/tech.

While it is acknowledged that some Accelerators and Incubators do have a sectoral focus, the activities are not concentrated enough. The concentration of sector focus in biomed/tech has demonstrated results.

Thus, to enable spin-outs and give them the best chance to succeed, a greater emphasis needs to be placed on support mechanisms that are not only more sector-focused but inculcate within the support mechanisms and business practices, key tech disrupters of IoT, autonomy, AI and digital analytics.

Spin-outs are a key instrument to building the UK’s innovation baseline. With almost a billion pounds of investment made in them in 2017, industry is also wising up to this reality. From 2016 to 2017, the deal investment size has shot up by 140%, however the number of actual projects has dropped by 34%, suggesting something is happening in the innovation talent pool.

Notwithstanding the fact that biotech and genomics developments move to market through spin-outs, this deal size activity and growth pattern is significant. Ways should be found to harness this activity further to support new sector focused and driven spin-outs that could be the way to supercharge the UK’s collaborative innovation capabilities.