As the Royal Academy of Engineering¡¯s recent report shows, academic-launched companies are increasingly crucial to the UK economy. Universities have a huge stake in these staff companies, literally and metaphorically, but are we succeeding in creating the conditions for them to thrive?

Universities are about impact, and spin-outs are a direct route to that, bringing investment, reputational gain and jobs. In the best cases, they create societal change on a global scale, from advances in renewable energy to curing disease. UK spin-outs brought in ?2.6 billion of investment in 2024, and .

University of Oxford and Johannes Gutenberg University Mainz spin-outs Vaccitech and BioNTech became the AstraZeneca and Pfizer Covid vaccines respectively. And spin-outs from our university, Edinburgh, are tackling brain cancer (Trogenix), end-stage liver disease (Resolution Tx) and acute pancreatitis (Kynos).

The UK government recognises spin-outs¡¯ importance to a certain extent. The autumn Budget allocated ?40 million of crucial proof-of-concept funding, which helps early-stage companies traverse the Valley of Death ¨C the funding gap that founders face as they work to bring their discoveries out of the lab.

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To put this amount in context, however, it is approximately the cost of bringing just two drug discovery programmes from inception to first in-human clinical trials. It is clearly inadequate. UK Research and Innovation was recently overwhelmed with 2,750 expressions of interest for a share of its first ?9 million tranche.

By comparison, the Flemish government provides the same per year for just five universities, the UK research commercialisation collaboration organisation points out.

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The chancellor, Rachel Reeves, recently announced funding for the long-mooted Oxford-Cambridge corridor. This shows appreciation of the importance of infrastructure and co-location in creating innovation, but it does little for those outside the Golden Triangle (universities in Oxford, Cambridge and London).

The role of government is important but universities also need to back their founders. This means funding, training and culture change.

In 2006, when then-PhD graduate Damian Mole looked down his microscope at the biological activity that would eventually lead to drug discovery and the formation of Kynos, the commercialisation of research was sometimes frowned upon, even seen as a little grubby. This is changing, thankfully. Edinburgh has recently established a career pathway that elevates innovation alongside research, and the university aims to double the number of innovation-active academics by 2030; colleagues are showing an increasing interest in getting involved.

One positive statistic from the new report is that universities, on average, have lowered their equity stake in spin-outs from 21.5 to 16.1 per cent in the past year. There is further to go, however. In 2023, the UK government¡¯s spin-out review, , recommended the terms of the , co-produced by TenU universities and investors: that universities take an equity stake of only 10 per cent. Universities must recognise the ¡°sweat equity¡± of founders and keep moving away from the somewhat feudal relationship of old.

In-house venture investment funds have an important role in seed-funding projects. Business plans, specialist consultancy and IP protection all cost money that is otherwise difficult to find. It¡¯s no accident that Oxford and Cambridge, with their large innovation funds, consistently lead in number and value of spin-outs.

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Bigger returns for universities would be yielded by expanding in-house funds¡¯ potential for larger transactions and follow-on investments to support companies¡¯ growth. Kynos¡¯ exit in October 2024, when , brought income to Edinburgh, some of which can be used to support new companies.

Part of culture change is appetite for risk. Universities should back their scientists, and that includes being patient ¨C drug discovery, for instance, can take a decade or more ¨C being prepared to join and follow big investors, as well as, crucially, being willing to fail. ?

The same is true of investors. American investors generally risk more and return more than their UK equivalents, and their relationship with universities and government leads to innovation powerhouses such as Boston and San Francisco.

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Currently, the UK rivals China for the amount of innovation, second only to the US. Yet a big chunk of that comes from the US: in 2020, ?6 billion of ?9 billion invested in UK spin-outs came from American investors. So our own investors could be more confident. And the government could provide incentives or release pension funds for investment in spin-outs, as it has begun to do in pursuit of economic growth.

We¡¯ve seen good results when investors get involved early in the process, bringing their wealth of experience and knowledge of what is investable, as Epidarex did with Kynos. Commercialisation offices could consider expanding their role to build relationships, not only with investors but also with expert mentors, accelerator networks and government stakeholders.

Early industry involvement can also be crucial. Kynos¡¯ development of its lead molecule ¨C an inflammation inhibitor ¨C would not have been possible without this. But to work effectively with industry and investors, academics need training and support to understand the heightened rigour and reproducibility that research and data need to reach in order to pass commercial muster.

The RAEng report placed Edinburgh second only to Oxford for concentration of spin-out headquarters, so we know we¡¯re doing something right. But if, as a nation, the UK wants to create world-changing companies and maintain our global reputation as a technology leader, we must be clearsighted and courageous enough to build many more entrepreneurial campuses that truly unlock innovation.

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Damian Mole and Scott Webster are founders of the University of Edinburgh spin-out Kynos Therapeutics. Andrea Taylor is CEO of Edinburgh Innovations, the university¡¯s commercialisation service.