Healing the divide

It was a potentially tense situation for the brave venture capitalists who appeared before a panel of entrepreneurs at this week’s Technology Spin-Outs Conference hosted by the British Venture Capital Association at Imperial College of London. The workshop, intended as an exercise in which VCs give a pitch to the panellists in order to persuade them to take their money, quickly evolved into a forum for the entrepreneurs to voice their gripes with VCs.

Panel moderator Doug Richard, founder and chairman of Library House, was persistent in his questioning of the group of VC presenters, which made up of Quester’s Simon Acland, Scottish Equity Partners’ Brian Kerr and MTI’s Ernie Richardson. Members of the audience got in on the action too, asking probing questions such as why venture capitalists so often change term sheets at the last minute.

One audience member rose to express his offence at Acland’s use of the word ‘game’ to describe the process by which terms are added or subtracted to a deal depending on the number of VCs interested in a spin-out. It’s not a game, the entrepreneur insisted – it’s someone’s life work.

MP David Willetts is urging universities and VCs to work together

This can often be the natural conflict between venture capitalists and academics. The latter are suspicious of the motivations of venture capitalists, and VCs can grow frustrated with what they see as counter-productive inclinations on the part of academics.

Peter Linthwaite, chief executive of the BVCA, says one of the main the purposes of this week’s conference was to foster a dialogue between these two groups.

“There is a difference between those that have an outright commercial need for a return, angels and VCs, and the universities where there is the combination of the need for research and development of ideas, alongside this need to try to commercialise the IP, and we still have to get those relationships into sync,” he says. “This was the first time that someone had got together virtually all the leading universities, VCs, angels and government, and I think what came out, clearly, was that there’s a lot of agreement on what are the key areas going forward.”

Since 1998, universities in the UK have dramatically ramped up their technology transfer activities, most notably the four headliners Oxford, Cambridge, University College of London and Imperial College. In the past three years, 25 university spin-out companies have raised £1.5 billion by floating on the stock exchange. Many spin-outs have depended on external support from venture capitalists.

David Willetts, Shadow Secretary of State for Education and Skills, opened the conference on an optimistic note, arguing that the UK now had the potential to be better than the US at generating spin-outs. However, he also stressed the need for UK VCs and universities to work more closely with one another to encourage the level of spin-out activity seen in the United States.

“We have both an incredibly strong VC industry, and we have a very powerful distinguished set of universities,” he said. “I think the earlier venture capitalists can get involved [with spin-outs], the better. And I think there are a lot of people in the higher education sector who would greatly appreciate any capital at all earlier in the process of developing their ideas.”

Willetts also insisted that the government must improve the incentives for universities to work with business, arguing that academics should not be penalised for helping business to benefit from the knowledge they have developed. By way of an example, he said the Research Assessment Exercise needs to be adjusted to reward academic time spent on developing research into licenses or spin-outs.

At imperial, we don’t force anyone to become entrepreneurs, but we encourage it. Sir Richard Sykes

It’s no accident that a conference designed to encourage VC contact with universities was held at Imperial. Under the leadership of rector Sir Richard Sykes, former chairman of GlaxoSmithKline, the university has aggressively built up its technology transfer office, which was floated on the AIM in July, raising £26 million ($49 million).

Sykes told the conference attendees that fostering greater communication between the groups would require changing the attitudes of both VCs and academics.

“At imperial, we don’t force anyone to become entrepreneurs, but we encourage it,” he told the attendees. “Most academics do feel like they want to see their work utilised in an effective way.”

This may or may not be true. An article in the Financial Times in August interviewed professors at Oxford who spoke of their frustration with that university’s push for tech transfer, insisting that they came to Oxford to do research, not set up companies. The article demonstrated that there is still a great deal of scepticism on the part of academics, but as Linthwaite points out, conferences such as this one are attempting to change that perception.

“It’s the first stage in a process,” he says. “We did the research and identified a number of issues that we then distilled at the conference. The next stage is to look at turning some of those ideas into more practical applications.”