European universities have deep research talent that’s been nearly untapped by venture capitalists but that’s rapidly changing. While few unicorns have emerged from European universities – compared to their U.S. counterparts – there has been a steady, decade-long improvement, both in terms of entrepreneurial attributes at universities and university attitudes toward entrepreneurs. More than ever academics also want to spin out their research into companies.
“Generally there’s a lot more engagement at the higher level and an understanding that there’s a lot of benefits for the university, other than equity,” said Matt Clifford, Entrepreneur First Investment Manager. Generally, universities are a more entrepreneur friendly environment than ten years ago.”
But there’s still a lot of room for improvement. The EU accounts for a quarter of the top twenty research universities, but has a much smaller share of founders compared to the U.S. To increase their share, universities must be better at getting the economic incentive right. They need to think about the long-term incentives being created. Traditionally, European universities have been reluctant to commercialize innovations and some have been “called out” for holding back entrepreneurs.
“Historically universities in the UK took a draconian view on spinouts and owned a big chunk of equity,” added Clifford. “That’s a huge disincentive to innovation.” Even today, some universities take a large amount and an overly hands-on approach to spinouts, stifling innovation and potential when the opposite is needed.
To normalize commercialization, European universities are developing distinctive centers of excellence and creating a feedback loop to attract talent and capital to make good outcomes more likely for their spinouts.
For example, Oxford Science, out of Oxford University has a portfolio of over 100 companies, including Vaccitech, co-inventor of the Oxford Vaccine and Base Genomics, creator of early-stage cancer detection technology. Last year, Base Genomics was acquired by molecular diagnostics company Exact Sciences – a leader in cancer detection – for $410 million. Vatic Health, an innovative, Covid-19 testing start-up that we recently funded, was also spun out of research at Oxford University and the Oxford Foundry.
However, while research universities are being much more commercially minded with spinouts, VC funding still lags for several reasons. More founders are seeking VC money and many investors won’t invest in deep tech because they don’t understand it. It was almost unheard of five years ago for a founder from a university spinout to pitch a VC for investment, but today that scenario is common. This is exacerbated by a lack of deep-tech expertise by investors in Europe, overall, and the tendency to shy away from investments that may take years to fully commercialize. This may lead a founder to make a bad deal, supplanting the years of progress made by research universities in changing their approach.
The past few years though have seen a vast increase in the number of venture backed deals from world-class investors into European deep tech companies. Top funds like Lux Capital, Founders Fund, Khosla Ventures and Obvious.vc have all taken a much more active role in writing bigger checks into these future European winners and it seems evident this pace will dramatically increase as more and more unicorns emerge from Oxford, Cambridge, Imperial, KTH, ETH and other top European schools.