Ideas + cash = magic formula

January 16, 1998

Britain's top research universities should set up their own venture capital funds to start the commercialisation of their scientists' research discoveries, a leading financier says.

Sir David Cooksey, a director of the Bank of England, governor of the Wellcome Trust and member of the Treasury's new advisory group on promoting innovative small companies and technologies, fears that many university discoveries are being filed away without exploitation because of a lack of start-up funding. Others, he says, fail to take off because of a lack of management expertise.

Now the man behind Advent Limited, one of Britain's first and biggest technology-based venture capital funds, is urging more universities to enter the risk arena, where they may be better placed than city firms to pick winners and losers.

Advent, which specialises in ploughing money into small innovation-based firms, was established 17 years ago. It uses individuals' and institutional money to invest, rarely less than Pounds 500,000, in between ten and 15 small companies each year, for which it receives a stake in the businesses.

For the most part Advent picks up companies later, once a scientist's initial idea has been developed into a marketable product with some track record. What is missing, says Sir David, are investors who are prepared to take the earliest and often biggest risks.

In the early 1980s several venture companies funded start-up ideas, but there were significantly more failures than successes, so firms, including his own, have largely backed away from start-ups. Instead it is often left to individual academics or departments to raise cash.

"Many of the City-based venture companies were too distant from the researchers," he suggests. "Risk at the start-up stage is really quite high unless you know a lot about the business concerned. That is why I am suggesting we establish venture funds on campus, close to what is going on."

Sir David says many universities back away from such funds, particularly when they learn about the financial regulations involved. But, he says, that if they employed experienced venture capital managers this would be a formality.

He suggests initially it would be viable for around 15 universities each to raise the Pounds 2 to Pounds 5 million needed for a venture capital fund through alumni investment or donations. "Most academics think that business is dead easy and they can do it part-time in the evenings. In reality the number of academics who have been a success in business is relatively small. You want to keep the researchers researching, not managing."

Sir David stresses any such investments would need to be long term. "It would be necessary for university funds to invest in a number of start-ups,and to expect some not to work. It is a question of making sure successes outweigh failures, and knowing when to pull the plug."

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