The truth behind the myth of Silicon Valley

Is the UK really not as good as the US at turning university research into new businesses? Or is something else going on here?

We are often told that the Americans are better than us at turning university research into new and successful businesses. Silicon Valley is cited as the prime example of where the Americans have got it right and we are lagging.

But is this just a myth? Are we really not as good as the Americans? Or is there something else going on here?

My role as Research England’s director of knowledge exchange includes looking at how universities stimulate and feed into entrepreneurship in their surrounding regions and how we can measure university performance by such things as production of spinout companies.

My research shows that the picture is not as simple as it is sometimes painted, and it gives us the tools to assess how UK Research and Innovation (UKRI) can make its investments in university research and knowledge exchange as effective as possible.

Silicon Valley faces same challenges as UK

Silicon Valley is the origin of probably the most compelling myth about economic development driven by university research. The achievements of Stanford University and Silicon Valley are real, but how far does its example, and that of Kendall Square around Massachusetts Institute of Technology (MIT), provide models that can be replicated elsewhere?

I have long-standing relationships with Stanford and MIT and know their place developments. These relationships have led most recently to Research England’s support for an alliance between US and UK technology transfer offices, and an agreement to work with US agencies on these issues.

I have learnt that the US system has many similar challenges to our own, including challenges of measurement, how to explain technical matters in commercialisation to government and recognising diversity in both the higher education sector and in places.

London is better than the US

We conducted a comparative analysis of the development of spinouts in London and the US.

The first and most important thing I learnt is the colossal scale of everything in the US. This includes levels of research funding, size of universities such as by turnover and endowments, entrepreneurial outcomes and sizes of cities and of economic activity.

I learnt particularly that this is about scale and not performance. The London university system is more efficient in turning research and development expenditure into spinout companies, producing a spinout for every £35.35 million invested in research and development compared with £60.42 million, £42.6 million and £54.5 million for Boston, Los Angeles and New York.

Measuring university spinout performance

University performance in producing spinout companies is a hotly debated topic in most countries, including the UK.

Research England shares data on commercialisation annually with the US university system. Where we can compare – efficiency of patent, spinouts and intellectual property income and industrial research and development contribution – the UK and US operate at similar levels of efficiency.

We have recently taken advice from experts across UKRI and from the Higher Education Statistics Agency (HESA), the Cambridge University Commercialisation and Innovation (UCI) policy evidence unit and other academic, government and university experts.

This exercise showed that further attention is needed on improving metrics to make better judgements on university spinout performance.

Everyone agrees that number of spinouts is a very poor indicator, though in international comparisons it may be the best we have.

HESA data focuses on 3-year survival of spinouts. Longer term indicators of success, such as investment, turnover, and employment, are collected by HESA and used in our knowledge exchange framework.

However, further attention is needed on the robustness of data, given it is collected indirectly by universities from spinout companies.

Comparing with the rest of Europe

We followed the US study with a UK-Europe comparison. Both studies showed that universities are regarded as important players in entrepreneurial systems’ development everywhere.

They provide talent and entrepreneurial development, physical infrastructure, capital access and networks and leadership.

The Department for Business, Energy and Industrial Strategy research paper Business incubators and accelerators: the national picture shows that 34% of UK incubators are supported by university funding, with universities providing a particularly high proportion of provision outside the greater south east and in innovative technology sectors.

Universities have also driven the creation of major investment funds to support spinout companies (PDF, 4MB), such as Oxford Science Enterprises (OSE), Cambridge Innovation Capital and Northern Gritstone. OSE, a partnership between the University of Oxford and private investors, is one of the largest university venture funds in the world, with over £1 billion in investment.

I also learnt that UK universities are admired in Europe for these innovative approaches to raising venture funds. UK universities also admire European approaches to entrepreneurship development. Both want to build bigger and better start-up and industrial networks.

Scale matters in economic development

So, what can we all learn from this?

When we judge university performance, we need to account for scale. Stanford has larger research effort, annual income and endowment than any UK university and this, rather than its tech transfer policies, affects its total level of spinout activity.

However, scale matters in economic development. Start-up ecosystems are places that attract risk-takers, who may fail but then move on to new opportunities. Larger hubs create better environments for risk-taking. Improving entrepreneurial activity in the UK means scaling up, including in research and innovation investment.

Finally, the contributions that autonomous universities make to their local research and innovation environments can make UKRI investments more successful. For example, university venture funds provide investment to commercialise UKRI-funded research.

University contributions may also reduce the need for UKRI support, such as for customised incubation space for technology start-ups. University spaces and enterprise support can help UKRI-funded researchers and innovators, as well as local start-ups and small and medium sized enterprises.

Top image:  Credit: UK Research and Innovation

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