Can EIS Help Turn More British University Research Into Businesses?

Across the UK, researchers are working on new technologies in areas ranging from quantum computing and artificial intelligence to life sciences, clean energy and advanced materials.

The challenge is turning those discoveries into businesses capable of taking them into the wider world.

That opportunity was highlighted again this week with the launch of Parkwalk's seventh Oxford Venture Fund, an EIS fund dedicated to investing in early-stage companies emerging from the University of Oxford ecosystem. The fund will target spinouts across areas including AI, quantum computing, life sciences, digital health and hardware.

It raises an interesting question.

Could EIS play an increasingly important role in turning Britain's academic strength into its next generation of businesses?

What Exactly Is a University Spinout?

The terminology can make university investing sound more complicated than it needs to be.

Put simply, a university spinout is a company created to commercialise research or intellectual property developed within a university.

A researcher might develop a new medical technology, manufacturing process, material or piece of software with applications far beyond academia.

Creating a company provides a route for that technology to leave the laboratory and become a commercial product or service.

But that's also when a very different journey begins.

Scientific potential has to become a commercial proposition.

A management team needs to be built. Intellectual property has to be protected. Customers and markets need to be identified. Products may require further development, testing or regulatory approval.

And all of that requires capital.

From Research to Investable Business

This is what makes university spinouts particularly interesting from an investment perspective.

At the earliest stages, investors aren't necessarily looking at a conventional business with years of revenues and established customers.

They may be looking at exceptional intellectual property and a technology capable of solving a significant problem, but with much of the commercial journey still ahead.

That creates both opportunity and considerable risk.

Some technologies will never achieve commercial adoption. Development can take longer than expected. Further funding may be required, and even outstanding science doesn't guarantee a successful company.

But when commercialisation works, university research can become the foundation for businesses operating in significant global markets.

Oxford provides a useful example of how an ecosystem can develop around that process. Parkwalk describes the university as producing a consistent pipeline of spinouts, supported by technology transfer, venture creation expertise and specialist investors.

The new fund is designed to provide another source of early-stage capital within that ecosystem.

Where EIS Fits

EIS is particularly relevant because many university spinouts share characteristics the scheme was designed to support.

They are often young.

They can require significant investment before reaching profitability.

And investors are being asked to accept considerable uncertainty in return for the possibility of future growth.

EIS doesn't remove those risks, and qualifying for the scheme certainly doesn't make a spinout a good investment.

What it can do is encourage private investors to allocate capital to younger, higher-risk companies by providing tax reliefs where the relevant company and investor conditions are satisfied.

That creates an interesting relationship between private capital and British research.

Instead of university innovation being funded solely through government, universities or large institutional investors, individuals can also participate in financing companies during their early commercial development.

Parkwalk says it has now invested in more than 200 university spinouts, spanning technologies including AI, quantum computing, life sciences, cleantech and advanced materials.

Not Every Investor Can Evaluate the Science

There is, however, an obvious challenge.

How does an individual investor assess a quantum computing company or a novel biotechnology platform?

Understanding the underlying science can require specialist knowledge. 

Assessing the commercial opportunity requires another skill set entirely.

That helps explain the role specialist EIS funds can play within this part of the market.

Rather than an individual attempting to identify and assess a single university spinout, a specialist manager can conduct technical and commercial due diligence and invest across a portfolio of businesses.

Parkwalk's new Oxford fund, for example, is expected to hold at least five companies and invest from seed through later early-stage rounds.

Diversification doesn't remove the risks associated with early-stage investing, but the structure illustrates how private investors can gain exposure to highly specialised companies without having to become experts in every underlying technology themselves.

Britain's Research Base Is Already an Asset

One of the encouraging things about this story is that Britain isn't starting from scratch.

The universities already exist.

The scientists already exist.

The research is already taking place.

And ecosystems have developed around universities such as Oxford and Cambridge, as well as research institutions across the country.

The opportunity is to ensure that promising discoveries have a route from academic research to commercial application.

That requires more than investment alone.

Universities need effective technology-transfer capabilities. Scientists need access to experienced entrepreneurs. Companies need commercial leadership, customers and networks. And successful businesses will often require several rounds of capital as they develop.

But early-stage funding is an important part of that chain.

From the Laboratory to the Economy

We recently wrote about the challenge of encouraging more scientists to become founders.

University spinouts show what can happen when that transition works.

Research becomes intellectual property.

Intellectual property becomes a company.

The company attracts investment.

And, if successful, a technology that began inside a British university can eventually reach customers around the world.

There will inevitably be failures along the way. That is the nature of investing at this stage.

But the potential prize is significant.

Britain already produces world-class research. The opportunity now is to make sure more of that research has the capital, commercial expertise and ambition required to become a world-class business.

Because the next important British technology company may not need to be invented. It may already be waiting to be commercialised.