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24 May 2017

University venturing is changing the face of Oxford

How the creation of Oxford Sciences Innovation, the world’s largest university venture fund focused on a single institution, is transforming innovation around one of the world’s oldest and most prestigious universities.

Author: Gregg Bayes-Brown, Oxford University Innovation

Still an emerging asset class, university venturing is still finding its place in the world. That said, this new concept is having a profound impact on one of the world’s oldest institutions: Oxford University.

Despite being the world’s number one ranked university in 2016 (Times Higher Education rankings), the birthplace of commercialisation firm IP Group, and generating more unicorn startup founders than any other university outside of the US, it’s fair to say that Oxford has struggled with innovation over the years.

There are, of course, highlights. Oxford’s the birthplace of spinouts such as NaturalMotion, a gaming animation spinout based on zoology research which sold to mobile gaming company Zynga for $527m (returning $50m to the University), and Oxford Nanopore, which has developed a handheld DNA sequencer and is currently valued at £1.25bn. The founders of LinkedIn and Funding Circle are Oxford graduates. There’s the work of my colleagues at Oxford University Innovation, one of the largest and most impactful research commercialisation companies in the world, which has played a pivotal role in developing the ecosystem here. And then there’s our first and arguably most successful spinout, University of Cambridge, which seems to be doing rather well.

So well, in fact, that Cambridge has eclipsed Oxford when it comes to innovation. Yes, we can point to unicorn startups which aren’t based here, or Nanopore, or the spinouts-of-spinouts Adaptimmune and Immunocore as incredibly valuable examples of Oxford know-how in action. But Cambridge has two companies, Autonomy and AIM, which have been valued at over $10bn, and at least a further 10 at unicorn status. The university is right in the centre the largest tech cluster in Europe. It has spent the past two decades developing a culture of innovation which is the envy of the world. That is, of course, unless you happen to live around Cambridge’s first and most successful spinout, Harvard University, which isn’t doing too bad considering all it got at the seed round was £779 and a pile of books.

On paper, little of this makes sense. Oxford is an instantly recognisable mega-brand on the scale of any corporation you care to mention. It has attracted its fair share of brilliant minds, both in the student and academic body. It takes in more in research funding than any other UK institution. It has a prototype fusion reactor down the road at Culham, and the central base for the UK’s space efforts at Harwell. It is easily accessible from one of the world’s two most important cities. The Oxfordshire region is drowning in wealth and is home to more billionaires than any other part of the country.

And yet, it has no Googles, no Facebooks, no Microsofts. There’s not an endless list of companies looking to rebase themselves here. The cityscape isn’t dotted with cranes struggling to keep up with the demand for housing. There’s a thriving innovation ecosystem here, but until recently, it remained entirely concealed behind the dreaming spires.

A large part of this comes down to the narrative. When I’ve asked people what first springs to mind about Cambridge, people talk of the great scientific discoveries taking place there, the fantastic Floodlights group which has spawned several generations of the UK’s finest entertainers, and the innovation buzzing around the city. Ask those same people what they think of Oxford, and I hear Conservatives, Harry Potter, and casual elitism.

This, in turn, has drawn the more innovative minds in the UK – and those willing to invest in them - to Cambridge, and a similar story can be said for a number of other institutions here, including Edinburgh, Manchester, University College London, and Imperial College.

But fundamentally, it comes down to how the University is structured. Considering that Oxford’s given birth to 27 Prime Ministers, many find it surprising to hear that the University itself is, essentially, state-funded anarchy.

This is a fundamental ingredient to the magic of the place. If you have an idea, you go do it. While this has given rise to an enormous body of world-leading research, it comes at the cost of wide scale fragmentation. And Oxford academics love that fragmentation – anyone who dares to present the idea of any sort of centralisation is often bundled into a small wooden box, and floated down the Themes towards the Houses of Parliament.

While this is great for science, it’s terrible for innovation. As various models reported in Global University Venturing have repeatedly shown, collaboration and critical mass are core components of innovation. Oxford may have got by for the past 800 years just fine riding on the latter, but to truly unlock its potential, it needs the former.

What Oxford needed was something big to bring the pieces together – a rallying point for innovation. And in 2015, it got precisely that.

At launch, Oxford Sciences Innovation (OSI) instantly established itself as the largest investment vehicle focused on a single institution with £300m. Touchstone Innovations, the former Imperial Innovations, was arguably bigger, but spreads its bets around the Golden Triangle. Fortunately, OSI put this one to bed when it increased its haul to £580m in 2016.

The deal behind OSI echoes the one IP Group struck with Oxford in 2001, which saw IP Group provide £20m towards a new chemistry building in return for  an automatic stake in Oxford’s chemistry spinouts and was the foundation for all of IP Group’s activities since. This shouldn’t come as a surprise as the man behind the IP Group deal, David Norwood, is also the co-founder of OSI.

In a stereotypical spinout deal, Oxford looks for an equal split on equity between the academics and the institution. While slightly higher than the average – 45.57% in the UK, 45.58% in the US – the 50/50 equity position is the bedrock of the OSI deal, with the University giving up half of its position to OSI in any physical or life sciences spinout. The result is that, before negotiations and additional investment, a spinout’s equity share will be 25% for the University, 25% to sign up an investor that has the firepower and desire to back a company from seed to exit, and 50% for the founders.

Having this access to spinouts from Oxford has been key to OSI’s success in attracting investors, which include two regular names in university venturing, Lansdowne Partners and Invesco, as well as Neil Woodford, IP Group, GV (the former Google Ventures), Oxford University’s endowment fund, and a number ofothers – with the University retaining a golden stake in OSI.

OSI is very much in the business of unicorn hunting. Consequently, the creation of OSI has been the spark to the fires of innovation at Oxford. In 2015, the University launched 10 spinout companies, which secured atotal of £9.5m in seed funding, around half of which came from OSI. In 2016, Oxford University Innovation (OUI), the technology transfer office of Oxford, more than doubled this output, hitting 21 spinouts. At present, we’re well on course to break that record in 2017, with more than 60 potential spinouts in our pipeline.

The University already had a broad portfolio of spinouts prior to the launch of OSI, such as Nanopore or autonomous vehicle spinout Oxbotica. But since its launch, our spread has only got bigger. We’ve got spinouts developing smart glasses for the blind, a universal flu vaccine, an AI that can find errors in code and rewrite it, biological superglue which is a breakthrough in vaccine development, regenerative medicine targeting all parts of the body, treatments for disrupted circadian rhythms, media aggregation services, wireless energy transfer, and much more.

Meanwhile, the amount of seed funding that our 2016 cohort received increased fivefold to £52.6m. When you discount OSI’s contribution of around £30m, that is still a quadrupling of investment from external sources.

It is not just the figures that has dramatically changed, but also the culture of the University towards innovation. Up until recently, Oxford had done little to embrace innovation, with only a few lone voices within the institution and Oxford University Innovation and the Said Business School on the outskirts banging the drum.

Now, top figures at the University are actively supporting the innovation agenda. On a communications front, there is an ongoing effort to articulate Oxford’s innovative potential while also looking to join up our sporadic comms network to make it more effective. All over Oxford, we’re building infrastructure focused on innovation, such as the Business School’s forthcoming co-working space, the Foundry, and the Medical Sciences’ Oxford Bioescalator. Even the Colleges, acutely aware of the student body’s desire for entrepreneurship, are getting involved. A recent example of this is Keble College, the alma mater of David Norwood, which received a £1.9m gift in the form of OSI shares from the IP Group founder to go towards a new home for OSI and Oxford University spinouts in the heart of the University.

Of course, attributing all this change to OSI or saying that all a university needs to capitalise on its innovative output is an OSI of its own would be a fallacy. At Oxford, there already existed a depth of talent willing to enact this change prior to OSI, and OSI has acted as a catalyst, not a driver, for that change. In addition, while OSI was the right solution for Oxford, not every institution will be able to construct a £580m fund focused purely on its spinouts, which is why there are a plethora of different models and approaches springing up all around the world – many of which are included in this report - to harness university innovation.

We’re still to see the long term effects of this combined effort. Yet, looking forward, Oxford has much to get excited about. As the University continues to build an appetite for innovation, the world-class ideas and inventions of our students and academics will increasingly have the opportunity to positively impact on human progress. We will continue to be able to build our thriving ecosystem, and with a train link to Cambridge through Milton Keynes on the way, the opportunity to combine both universities with Milton Keynes – already home to Oxbotica trials – as a fertile hotbed for the innovative output of the UK’s top institutions is a fantastic prospect. And, thanks to OSI, we both have a ready investor on hand to support that ecosystem, and a beacon to the wider investment community saying that Oxford is open for business.

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