Driving Economic Growth from University Innovation: the Case for Proof-of-Concept Funding

Research What is Proof of Concept Funding?

Proof of Concept (POC) is the critical stage in which academic inventors test and demonstrate the viability of a research idea as a marketable technology. A successful POC stage provides the insights necessary for technical and commercial stakeholders to decide on forming a company and investing further resources. However, POC funding in the UK is scarce, which strains early-stage technology development and hampers the UK's ambitions for social and economic growth.

This funding gap, known as the 'valley of death,' occurs when research funding is exhausted, but the technology is too early-stage to attract venture capital. Considered a market failure, this valley of death needs to be bridged through public funding so that the UK can reap the economic rewards of new technologies spun out from universities.

TenU, a group of leading international research universities, recommends the addition of 4.3% of all public core research funding to every research funding award to create sustainable, self-managed POC funds at individual universities and university consortia. This would allow rapid deployment of funds to the most promising technologies.

Rationale and Why Existing Funding is Inadequate

POC is a vital stage that needs funding to transition from research to market, yielding social and economic benefits. However, POC funding is scarce. This is because the POC stage lies beyond the core remit of research, yet the research idea is too early-stage to attract venture capital funding.

1.     Current Public Funding Limitations:

• Requires company formation before POC funding application, leading to inefficient use of resources (e.g., Innovate UK’s UK Smart Scheme).

• Generalist innovation funding is needed elsewhere to run core activities (e.g., UKRI’s Impact Acceleration Accounts, Research England’s Higher Education Innovation Fund).

• Scotland's High-Growth Spinout Programme awards quick grants for POC activities but awards are considered too small and the programme is limited to Scotland.

2.     Successful Models:

• Research-intensive universities like Cambridge, Imperial, Oxford, and UCL have POC funds from endowments or IP income, but these are not sustainable or universally accessible.

Given the UK's research strengths, all universities should access POC funds to maximise commercial potential nationwide. The government’s commitment of £20 million for nation-wide POC funding over the next three years is a positive start, but it needs expansion to match the scale of POC funds in institutions like Stanford and KU Leuven, with command that amount every year.

Policy Recommendations

1.     Increased POC Funding:

• POC funding awards ideally average £125,000.

• TenU universities currently support 24% of invention disclosures with POC funding. In 2022-23, with 3,600 invention disclosures nationally, a similar support rate would cover 864 disclosures, requiring £108 million annually (864 disclosures at £125,000 each).

• £108 million is 4.3% of total core research funding, which stands currently at £2.5 billion.

2.     Efficient Allocation:

• The 4.3% uplift should be allocated to successful applicants representing POC funds managed with support from university technology transfer offices (TTOs).

• TTOs are uniquely capable from a funding approach, operational positioning, and motivation standpoint to manage these funds. This is in line with US practice, where 86% of POC funds are managed by universities.

• Funding committees with expert members from TTOs, venture capital and industry can ensure the timely and relevant allocation of funds to high-potential research ideas.

3.     Benefits:

• This approach supports academic inventors in quickly determining their invention's feasibility without premature company formation, whilst encouraging further training and other forms of innovation activity in the preparation of proposals.

• The approach also ensures that inventions are properly evaluated and de-risked, supporting the commercialisation pathway and university-corporate-investor partnership-building.

• A pipeline of promising, de-risked technologies attracts increased angel and venture capital investment, creating jobs and setting spinouts up for success. US estimates suggest that every dollar invested in gap funding attracts an average of $29 of venture capital investment.

• The public benefits from the swift market transition of innovative research, driving social and economic growth.