Why Oxford University creates spinouts
Why do universities like Oxford establish spinouts, and how do organisations like OUI facilitate their creation?
Written by Jamie Ferguson, Deputy Head of Licensing and Ventures, Oxford University Innovation, with additional editing by Gregg Bayes-Brown
If I could plant one question in your mind, it’s “why do universities spin out companies?”
I’ve been with Oxford University Innovation (OUI) for 11 years now. I originally thought I’d do three or four years, but I’m still here, so I figure I must enjoy it. Spinout creation is one of our core activities at OUI and is one of the best ways we can leverage ideas into having impact.
We create them because turning research into impact on the wider world is much easier in a separate entity than inside a university. Universities are great at teaching and research, but nowhere near nimble and dynamic enough to match startup life. The consensus building approach to decision making in a university alone would hamper any real attempts at commercialisation, turning a 10 year development cycle into a 100 year one.
It’s also a model that works. Our last study of how that impact looks economically was based on 2015 data and found that Oxford University contributes around £5.8 billion to the UK economy, and supports more than 33,700 jobs in the UK. Globally, the impact is £7.1 billion. Of that global figure, £1.2bn is from our commercialisation work.
In 2015, our spinouts supported nearly 2,000 jobs in the area. Out of the 160 we’ve created, over 50 were created in the past three years, and 107 overall are still active in the Oxfordshire region. Oxford Sciences Innovation (OSI), which manages the £600m spinout investment fund down the road from OUI, reckons the post-OSI cohort of spinouts created over the past three years has added a further 400 jobs since 2015, and estimates this will hit 1,000 more by 2020, growing at a rate of 500 or so year on year after that.
That all said, it’s not economic statistics that get people at OUI out of bed in the morning. It’s the real-world impact Oxford ideas can have on people’s lives and society at large. Our spinout portfolio has companies helping the blind to see, developing universal flu vaccines, and putting autonomous vehicles on the road. Figuring out how to get these ideas from an idea in a professor’s head into a technology with practical utility or company is where we come in — and its rarely easy.
One example is YASA Motors, which is leading development of a revolutionary new electric motor technology that offers high torque in a light construction; ideal in the world of electric vehicles.
YASA has been an appealing proposition for investors — a solid idea that’s already being manufactured in Oxford with customers around the world — and has consequently raised over £25m. However, it was a different story when the project first came to OUI. One of the students working on the project had decided that he was already an entrepreneur at the age of 21 and wanted to teach one of my colleagues how to build a business proposition. He justified his credibility by pointing to a few tourist tours around Oxford he’d done over the holidays — he even got paid for some of them!
His grand vision was to sell a few of these electric motors to a golf cart manufacturer, with no capability to make them. He wrote the licence agreement for the motors himself, possibly on the back of a napkin. This “licence” only came to light on signing Heads of Terms with an investor. Fortunately, all ended well, and the company now makes 100,000 motors each year.
There’s no cookie-cutter format for the ideas that reach OUI. Some can be led by a young, eager academic who needs a little coaching. Others come to us from experienced professors well versed on commercialisation. Often, somewhere in the middle. In all cases, OUI exists to refine the ideas that come to us, to help build the team, and to build a company that’s investment ready and that can stand the test of time.
Helping academics learn the ropes of entrepreneurship and business isn’t our only reason for being. OUI likes to see itself as having one foot in the University, and one foot in the business world. Often, this means being the bridge between both sides. But sometimes, this also means being the drawbridge to safeguard the best interests of our academics and the University.
In 2007, we were approached by a group of US business angels who wanted to commercialise one of our technologies in the biotech market. We had already been thinking of a UK based spinout. All was looking great in that they had a well-evidenced business plan backed by $4m investment. So, the usual negotiations around Heads of Terms commenced.
The CEO — let’s call him Donald — was an amiable Californian guy who had made his money in biotech and was looking for a fresh challenge. The COO — let’s call her Hillary — had a plethora of early stage experience and was married to a guy in a large biotech firm, so lots of inside track knowledge. It seemed like dream team, but as negotiations progressed, we sensed that they weren’t getting along. Then our due diligence checks threw up a skeleton in Hillary’s closet (note for the lawyers: not emails), that would have concerned the University from a reputational angle. We flagged this straightaway and various mitigating statements followed.
The happy couple decided to split up. Strangely, both continued to negotiate with us — unbeknown to the other one. Hillary’s demands on warranties were something that the University really could not accept, and the term sheets with the two parties moved further and further apart. I would also add that the negotiations with these two parties in California were done on alternate afternoons, which was a crazy timetable to keep to and to recall what we’d discussed with each!
Finally, we closed the deal with Donald and communicated this to Hillary. Her team were somewhat aggrieved to lose the opportunity and made all in Oxford including my academic aware of this with a variety of litigious threats. We were prepared to go to bat for the University, but fortuitously, one of her lawyers and Donald’s lawyers had a common name, and Hillary copied the wrong one with full details of her strategy to play against us.
We then knew the threats were without substance. It was all over and we moved forward with Donald. Lessons are that business is all about people and to be careful about who is cc’d on emails. I also don’t think I would ever continue two simultaneous negotiations without each party being aware that they could lose the opportunity. It caused our team far too many sleepless nights.
Despite the legwork it can take to get these ideas out of the door, helping them achieve their potential makes it ultimately worthwhile. This, for me, is evidenced by my latest project.
I’m sure, like me, lots of chemists have spent parts of their careers working to make polymers more efficiently and with better properties. While this work has benefitted mankind in far too many ways to list here, it’s also been a double-edged sword that’s led to a global problem.
As the Guardian reports, of the 8.3bn tonnes of plastic produced between 1950 and 2015, around 80% still exists in landfill or our natural environment. A plastic island the size of twice the size of France is floating in the Pacific. How do we make these plastics go away?
In 2015 Plastics Europe reported that 300 million tonnes of plastic needed to be disposed of annually. Only 9% of plastic is recycled.
Plastic that cannot be recycled is either:
· incinerated (for low calorific value),
· sent to landfill (where it can take 400 years to decay),
· or, worse, sent to nefarious organisations who dump it at sea.
Katie Dangerfield, journalist at Global News, reported that “The world’s oceans will have more plastic than fish by 2050.”
That’s why we’ve spun out Oxford Sustainable Fuels (OSF) with some of my friends from Inorganic Chemistry: Tiancun Xiao, Peter Edwards and Zhaoxi Zhang. Tiancun is no stranger to spinouts, having together with Malcolm Green founded Oxford Catalysts, best known for further developing Fischer Tropsch technology. This new venture pyrolyzes waste (from plastics, municipal, tyres) and then uses catalysis and extraction to produce fuels and useful chemicals.
We’re at the start of the journey, have a great board of scientific advisors, and are thinking big about the future. I would note that the backer is not one of our local VCs, but a Chinese municipal waste company called GEM who have invested £4m. I know that GEM have a vision of coupling our technologies to what they term an “urban mining operation.” One of the facts about GEM, that gives a sense of scale of their ambition, is that last year they awarded each of their top 50 innovators with a new Mercedes. Perhaps we should petition OSI to try this in Oxford?
It’s also worth noting that this investment from China is not a one off, I believe half a dozen Oxford spinouts have received Chinese investment and indeed we have three Chinese VC firms as members of our networking group the Oxford Innovation Society (OIS).
The OIS, which we’ve run since 1987, is just one of many ways the University has embraced innovation over the years, with increased focus on doing so lately. OUI supports a number of events through the year as do many of our innovation-focused friends across the University, innovation has become a core focus of the University’s press office, the University continues to invest heavily in its innovation infrastructure (including OUI), it’s raising the profile of our innovators through the Vice Chancellor’s Innovation awards, and much more.
The support from the University demonstrates Oxford’s realisation of how important spinouts are to advancing university research. These companies take forward ideas that can’t go any further in the lab. Our companies have an 87% survival rate (compared to 50% nationwide for startups) and represent a solid investment for the government and venture capitalists alike. Our activity brings entrepreneurs and business leaders into driving forward university research while our academics continue to focus on pushing the boundaries of human knowledge.
More than anything though, we create companies like YASA and OSF because they are creating jobs, having economic impact, and most importantly, they are changing lives.