UK innovation: building the ecosystem to help R&D flourish

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Ian Taylor, Chair of the UK Innovation and Science Seed Fund (UKI2S) and former UK Science Minister, explains what is needed if Britain is to achieve innovation-led growth and how the seed fund is helping.

Research and development (R&D) in Europe is strong and accounts for 20% of the world’s investment in R&D. The foundations of this are based on the world class science we deliver – something we are especially proud of in the UK. For a country with only 1% of the world’s population and 3% of the global spend on research funding, we punch considerably above our weight, achieving 12% of all citations and 16& of the most highly cited articles. Such statistics are impressive, but they do not always translate to the UK innovation output.

When we compare the world class research undertaken in the UK to what we achieve in innovation, there is a clear mismatch. Through the Global Innovation Index 2018, our Innovation Efficiency Ratio (IER) is a lowly 21st out of 127.1 Whichever way we look at it, we are not as good at translating our research into economic benefit as we should be, and have not been for some time (over the last five years, the highest IER position we have held is 14th). We need to make this more efficient.

To address this, the government in the United Kingdom has published an Industrial Strategy to make the UK the ‘most innovative nation by 2030’, with further investment of £1.6bn (~€1.84bn) recently announced through the Autumn Budget. As part of this Strategy, four ‘Grand Challenges’ are being targeted, encompassing:
n The need to harness our artificial intelligence (AI) and data capabilities
n Support the potential for cleaner growth
n Take the steps to support our ageing population
n Enable people to move around more freely

Alongside this is a government target to boost spending on R&D from 1.7% of GDP to 2.4% by 2027, with a longer-term target of 3%. This may be a realistic target, that many other nations have achieved, but getting there is unlikely to be through a material increase in public investment (which at present represents less than half the current total). Currently, around 50% of investment in R&D in the UK comes from business, which is considerably lower than Korea and Israel, where business contributes 80% of all R&D investment.2

Brexit and UK innovation in science

The UK is one of the largest recipients of research funding in the EU3, so international and domestic business will be watching the impact of Brexit on UK science closely. For example, ensuring scientists based in the UK can continue to be part of the shared European research endeavour and have the best possible access to international funds and the collaborations they support will be important.

If success is dependent on business, what can we do to encourage industry to invest more? The UK is already an attractive location for many international businesses. European research5 shows the country has the highest proportion of international subsidiaries (11.7% of the total) of R&D intensive foreign multinationals. However, these figures predate any uncertainty around Brexit, so what needs to happen to retain this overseas investment and ensure it translates into economic benefit?

The keys to success

Access to skills, collaboration across frontiers and information are critical. Whether through specialist R&D knowledge and results or through high availability of researchers, companies want to be able to find the right talent as and when required. Universities are important here, but so too is accessing the vitality of our base of public sector research establishments (PSRE). UK innovation and science campuses are key components in the commercialisation of science. Supported by major investment from government, they provide environments where organisations of all sizes can be part of dynamic, supportive innovation communities, enjoying ready access to the expertise and equipment they need in order to succeed.

Utilising such national assets to drive R&D is something that other nations currently do more effectively. In Germany, for example, large research institutions sitting outside of the university base form part of four major, internationally renowned research organisations – the Max Planck Society, Fraunhofer-Gesellschaft, Helmholtz Association and Leibniz Association. These, alongside smaller research institutions such as archives and specialist information centres, contribute about €12.5bn annually to R&D.

We need to join the dots between publicly funded research facilities and private sector R&D to establish a national research and innovation infrastructure. Ideally, this will close the gap between the two sectors, enabling public spending to leverage private investment and accelerate the innovation process. Key to this is access to the financial support and specialist mentoring needed by fledgling companies to grow and scale successfully.

Barriers to commercialisation

However, investing in innovation is often a high-risk venture. The research or technology involved can be looking to disrupt traditional markets, so there will not be similar companies or investments to compare the potential outcomes or returns. On top of this, more needs to be done to prepare such products and services for market. The researchers behind new ideas may not be commercially minded or even supported with an experienced commercial team; stopping all but the less risk-averse investors from supporting them.
Rising to this challenge is critical as once a company starts to scale, the UK can benefit from increased R&D investment, the retention of scientific expertise, the creation of high-value jobs across the country and the wider contribution of the company itself to the economy. Particularly as this research can go onto fulfil an unmet commercial need.

UKI2S

The UK Innovation and Science Seed Fund (UKI2S) is a bridge between public sector research and private capital. It is a £27m seed fund investing in the earliest, highest risk stages of innovative companies emerging from the UK’s publicly-funded science base. Our funds have been provided by core public sector research partners across the UK research councils and PSREs and to date we have invested approximately £14.4m at a steady rate in over 50 start-up companies, validating the science, providing strategic advice and mentoring support in addition to patient equity capital. Our capacity and focus naturally aligns with government ambitions to ensure UK innovation thrives, including the Industrial Strategy, and the companies in which we invest can help to meet the Four Grand Challenges that government has set.

Following our support and investment, these portfolio companies are ripe for scaling up. Tokamak Energy, for example, is looking to fast-track the commercial development of a compact spherical tokamak as a route to achieving fusion power here in the UK. To date, our support has helped grow this business to 50 employees and leverage more than £30m of private finance.

Similar economic impact is evidenced across our portfolio. Independent analysis shows that for every £1 UKI2S has invested, an additional £6.6 GVA (Gross Added Value) has been delivered, with £326m of private sector investment leveraged, more than 300 high value tech jobs created and exports worth more than £150m delivered. The Fund has leveraged 30 times its investment from the private sector.

This success is based in part on a willingness to take risks that the commercial sector is not and, I believe, forms a critical, early stage component in the UK’s innovation ecosystem. Another reason for our success is the privileged access we have to the amazing work being done across our PSREs. In our opinion, too much emphasis is placed on the impact of research emerging from universities and not enough on other research campuses.
Until the commercial potential of the great work being conducted in the Public Sector Research and Innovation Campuses receives more attention, we will not have an infrastructure fully designed to meet the challenges of UK innovation-led growth.

References
1 Global innovation Index 2018, https://www.globalinnovationindex.org/Home
2 ‘What is the best way to achieve the Government’s target of spending 2.4% of GDP on R&D by 2027?’ Presentation by Dr Patrick Vallance FRS FMedSci FRCP, http://www.foundation.org.uk/Events/AudioPdf.aspx?s=1551&f=20181017_Vallance.pdf%E2%80%8B
3 ‘How much research funding does the UK get from the EU and how does this compare with other countries’, Royal Society, https://royalsociety.org/topics-policy/projects/uk-research-and-european-union/role-of-EU-in-funding-UK-research/how-much-funding-does-uk-get-in-comparison-with-other-countries/
4 ‘Statement on the principles that should shape the UK’s future relationship with the EU in the area of research and innovation’, Royal Society, https://royalsociety.org/~/
media/policy/Publications/2018/brexit-statement-5-june-2018.pdf
5 ‘Regulation, red tape and location choices of top R&D investors’, Daria Ciriaci, Nicola Grassano, Antonio Vezzani, 2016, https://ec.europa.eu/jrc/sites/jrcsh/files/JRC10
0807.pdf

Ian Taylor
Former UK Science Minister
Chair, UK Innovation and Science Seed Fund (UKI2S)
Tweet @UKI2S
ukinnovationscienceseedfund.co.uk/

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