Spinning Gold from Good Ideas

When Teri Willey was asked a year ago to head up a University of Cambridge offshoot that licenses the school’s research and nurtures new tech-based startups, she turned down the job. After five years working for a Chicago investment firm focusing on university spinouts, she was poised to raise a new venture fund. Plus, she had two teenagers to consider.

But when the headhunter came back six months later, Willey realized it was the chance of a lifetime to join the burgeoning technology transfer business in Britain. Now, six months into the role as head of Cambridge Enterprises, she sees herself as a talent agent for “rock stars”—albeit unlikely ones—advising faculty and the university on the best ways to manage and commercialize their scientific discoveries.

Willey’s timing was excellent. As part of its Lisbon Agenda to encourage the development of a “knowledge-based economy,” the European Union has set a target to raise research and development spending across the 25-nation bloc to 3% of GDP by 2010. Just as important as boosting overall investment, which currently stands at just 2% of GDP, the EU and its member countries are striving to push the innovations cooked up in academic and government research labs out to the private sector.

GENERATING EXCITEMENT. So far, Britain is leading other European countries in monetizing its scientific research. Universities there filed 363 patents last year, more than a quarter of the EU total, according to market researcher Thomson Scientific. And they’re managing to bring in loads of venture capital for research partnerships. In 2005 alone, they pulled in $1.9 billion in private equity investments, nearly half the European total raised by academic institutions.

Cambridge Enterprises alone filed 41 new patent applications and granted more than 40 licenses or options to license in 2005, generating income exceeding £2.7 million ($5.1 million). When it comes to technology transfer, “there are certainly more exciting financial experiments going on here than almost anywhere in the world,” says Willey.

There’s no question Europe has a rich history of technological research—indeed, without bodies like Germany’s publicly funded Frauenhofer Institute, which gave birth to the technology behind the MP3 audio format, there might be no Apple’s iPod. But until recently, academic researchers in most countries on the Continent owned the intellectual property (IP) rights to their discoveries and had surprisingly little interest in commercializing their work. Indeed, there seemed to be a cultural aversion to making money from scientific discoveries.

NEW HUNTING GROUNDS. In Britain, by contrast, most of the country’s universities retain ownership and licensing rights to the IP developed on their premises, while the inventors are given a slice of royalty revenues. This has led to quicker development of technology transfer offices at universities across the country devoted to bringing inventions to market.

It has also turned universities into fertile hunting grounds for private equity groups looking for the next big thing. Oxford University, for instance, snagged a £12 million ($22.5 million) deal this summer with Technikos, a private equity arm of Sloane Robinson investment group, to help fund its Institute of Biomedical Engineering. Sloane Robinson will provide commercial and financial advice in return for shares in future spinouts from the institute.

Thanks to these factors, Britain is experiencing a boom in companies specifically meant to bridge the gap between academic innovation and commercialization. One prominent example is U.S.-based Utek (UTK), which has opened an office near London and scours university labs for technology to meet its clients’ needs.

BATTLEFIELD TO BOARDROOM. Then there’s London-based IP Group, which has formed 42 portfolio companies from university partnerships—seven of which have listed on the Alternative Investment Market. One promising example: Proximagen, a startup developing drugs to combat Parkinson’s disease.

The British government also has gotten into the act. In 2001, it set up a private company called Qinetiq whose job is to bring defense-related technologies—some of them formerly classified—from the Ministry of Defense to the marketplace. The MoD’s legendary research labs helped invent such breakthroughs as liquid-crystal displays, thermal imaging, and carbon fiber. Publicly listed Qinetiq pulled in $150 million in pretax profits last year, on revenues of $1.97 billion, and the company is jointly funding Britain’s first “tech transfer professorship” in the physical sciences.

The rest of Europe is finally starting to catch on. Ten years ago, the very thought of partnering with industry would have been anathema in countries such as France. But now, laws to facilitate the commercialization of technology transfer have begun to change—and just as important, so have attitudes, says Antoine Papiernik, managing partner at Paris-based venture capital fund Sofinnova Partners. Likewise, in countries such as Italy and Spain, networks of technology transfer offices are working together to promote commercialization.

BRITISH ADVANTAGE. Countries that continue dragging their heels may be forced to change. With budgets under pressure, many European governments are trimming funding for academic research, forcing universities to look elsewhere for financial support. “If policies don’t adapt…research will fall by the wayside, which is why universities need to become more commercially minded,” said Mark Schneider, network manager of Proton Europe, an organization that promotes technology transfer and helps tech transfer offices work more effectively.

For academic and government technologies to reach their ultimate potential, inventors and early-stage private investors also need ready access to public markets. That’s another advantage Britain currently enjoys. Industry watchers say the Alternative Investment Market, which allows smaller companies to gain access to capital markets without strict shareholder’s equity requirements, has given the country’s universities a head start in cashing in on scientific research.

UP AND COMING. Investors in academic research looking for a quick buck may have to learn the fine art of patience, however. Private-equity groups typically expect to see investment returns in four to five years, whereas at universities it can take twice as long to bring an idea to market. “Companies are easy to set up, easy to fund and grow, but not to succeed,” said Neil Rimer, general partner and co-founder of Geneva-based Index Ventures, which seeded Innovative Silicon, a semiconductor venture that came out of Lausanne, Switzerland’s Ecole Polytechnique.

Tech transfer is catching on in Europe. Britain has got a head start—but the rest of the Continent is starting to sing from the same songbook.



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