Universities and research institutions are playing an even more important role in fostering local economic development as technological disruption permeates almost every industry.
This is indicated by the capital flowing into companies being spun out from university research. Funding for university spin-outs in 2021 reached a record $39.3bn, up by 72% on the previous year, according to figures from Global University Venturing (GUV), a market intelligence and publishing company.
Thierry Heles, the editor of GUV, says that the spike in funding for university spin-outs in recent years is in part due to a heightened focus on “deeptech”. These breakthrough technologies are high risk, requiring significant investment and time to progress from an initial concept to commercialisation.
A case in point is Commonwealth Fusion Systems (CFS), a spin-out from research at the Massachusetts Institute of Technology (MIT), which is trying to build the world’s first commercial fusion energy plant. In December 2021, CFS raised a whopping $1.8bn in its Series B, in what was the largest spin-out funding round of the year, according to GUV.
Upon the round’s announcement, Carmichael Roberts of Breakthrough Energy Ventures, which is among a long list of investors that has backed CFS, explained the disruptive potential of the start-up’s plans.
“Economical fusion power would deliver massive benefits to the world, enabling us to avoid dangerous climate change while allowing everyone to have a high standard of living,” he said.
In 2021, CFS successfully tested the world’s strongest magnet at MIT’s Plasma Science and Fusion Center and expects to complete its first fusion power plant, called Arc, in the early 2030s.
Universities themselves are supporting this kind of long-term fundamental research too. Another investor in CFS is The Engine, a venture capital (VC) fund in which MIT is a limited partner. Its mission is to support breakthrough inventions with the potential to transform the planet.
“We have recognised that there are technologies that require patient capital,” says Lauren Foster, an associate director at MIT’s Technology Licensing Office, which bridges the gaps between MIT’s research community and industry and start-ups. She notes that part of MIT's mission is to move innovations from discoveries in the lab to the marketplace for the benefit of society.
The university is certainly not alone in cultivating links between its research community and industry. Many universities around the world are now playing a more active role in supporting disruptive start-ups, facilitating investment and promoting economic and social impact.
The contribution of universities to innovation-led regional development is not a new phenomenon. The triple-helix model, a framework first theorised by Henry Etzkowitz and Loet Leydesdorff in the 1990s, has long been used to describe the advantageous interactions between universities, industry and government.
Mr Etzowitz, who is also the president and co-founder of the International Triple Helix Institute, tells fDi that universities like MIT and Stanford were historically anomalies for promoting knowledge-based economic development.
“Today this is commonplace,” he says. “Virtually every university is attempting to do this and has been encouraged to by industry, governments and their sponsors.”
The triple-helix concept has also evolved in academic circles to include university collaborations with other actors, such as national security and defence agencies, local communities and the natural environment.
Israel is a prominent example of this. The country has created a thriving innovation ecosystem, in large part through collaboration between its universities, industry, government and defence sector, as well as active buy-in from citizens.
Yuzhuo Cai, an adjunct professor at Tampere University, Finland, says that many academics now view the triple-helix model as a metaphor to describe the role collaboration with universities plays in economic development.
“In the 1990s, the triple-helix model was mainly based on observations of regional innovation,” he says. “But now innovation is based on global networks, which has changed the nature of innovation collaboration.”
Today, more and more university–industry relations occur across borders, with multinationals having global networks of research and development centres in different university ecosystems. The role of universities has evolved in line with globalisation.
Mr Etzowitz says another fundamental change in university–industry collaboration has been “universalisation” of the phenomenon. This approach to ecosystem development is championed in both developed and developing countries, and has extended from solely high-tech to all knowledge fields, including arts and humanities.
“It has a much broader potential for knowledge-based economic development than simply out of advanced scientific research,” says Mr Etzkowitz.
One prominent example can be seen at Southern Oregon University, which has created a humanities-oriented region around it. The Oregon Shakespeare Festival (OSF) — a regional repertory theatre that offers performances of a wide range of classic and contemporary plays, which emerged from the university in the 1930s — continues to be an engine for local economic opportunity.
Mr Etzowitz explains that the town of Ashland, where the OSF is held, has come to “conceptualise itself as a humanities town” on the basis of this theatre festival connected to the university.
“It has attracted ancillary art services and talent from Hollywood and elsewhere to the town, with actors retiring there. The festival became the basis for expanded tourism and other economic development activities,” he says.
OSF figures show that, in 2019, the festival had more than 360,000 attendees and created an economic impact of $120m for the state of Oregon.
Aside from the economic impact of relations with other sectors, universities provide a pipeline of new ideas, innovations and talent through graduates. These often act as the cornerstone for their surrounding region’s investment appeal.
While some universities have in the past been accused of being ‘ivory towers’, secluded from the real world, experts say many institutions have become much better at commercialisation and creating a value proposition for their research.
“It’s no longer that universities just research, while companies develop and innovate. There are now very fuzzy boundaries,” says Tomas Ulrichsen, the director of the University Commercialisation and Innovation Policy Evidence Unit at the University of Cambridge, UK.
The role of universities within innovation has been brought to the fore, due to the need for solutions to mounting global risks, including climate change, cyber security and infectious diseases.
“The challenges we face and need to solve as a society are very complex. Academics alone are not going to be able to take that all the way to market,” says Mr UIrichsen.
This was evident during the pandemic, when decades of academic research into messenger-RNA became crucial to the expeditious development of vaccines against Covid-19. University spin-outs in the health sector accounted for 46% of global deals in 2021, the largest of any sector, according to GUV data. It was followed by the IT (19.3% of deals), industrial (14.7%) and energy (6.2%) sectors.
While new therapeutics, diagnostics and vaccines often cost significant capital, due to long development timelines and clinical trials, the potential for positive social impact and returns means universities and investors are willing to back them.
“There’s a lot of interest in solving health problems that impact our population,” says Ms Foster, who also manages MIT’s life sciences technology licensing programme.
Patient capital is crucial to commercialising research and the realisation of its potential economic and social benefits. Andrew Williamson, the managing partner at Cambridge Innovation Capital, which is a preferred investor for the University of Cambridge, says dedicated deeptech VC funds also help to develop effective ecosystems around universities.
“Stakeholders from the university and commercial sector in Cambridge all agreed that something like Cambridge Innovation Capital needed to exist,” he recalls, referring to when CIC was founded back in 2013.
Mr Williamson notes that beyond supporting spin-outs, “the final piece of the puzzle” for a university ecosystem to reach “critical scale” is the involvement of corporates.
“You want to create a virtuous circle of coexistence between small start-ups and large corporates,” he says. In Cambridge, large corporates with a presence include UK chip designer Arm, South Korea’s Samsung and Chinese tech giant Tencent. Microsoft, Google and Apple also have a presence in Cambridge.
But while large renowned universities have dedicated funds and foster relations with corporates, there is an unequal distribution of VC investment. In the UK, much of the capital flows to spin-outs from the so-called ‘Golden Triangle’ of Oxford, Cambridge and London, the latter of which includes Imperial College London and University College London.
But recently, smaller universities are also pooling together to raise funds to redress this imbalance. For instance, Northern Gritstone, a spin-out fund focused on research from the Universities of Leeds, Manchester and Sheffield, has already raised £100m and is in discussions to raise another £300m.
“This will be transformative for those universities in the north of England,” says Mr Ulrichsen. Commercialisation efforts have ramped up at other reputable research universities outside of the UK’s south-east region, too.
“There’s a lot of really excellent research that goes on in Scotland, the north and Midlands of England, and other places that often gets overlooked by typical venture capital funds,” says George Baxter, the CEO of Edinburgh Innovations, the commercialisation company at the University of Edinburgh, Scotland. In 2021, GUV named Edinburgh Innovation as the tech transfer office of the year.
In 2020, Edinburgh invested £32m into new spin-outs – roughly six times the level recorded in 2015 – according to Edinburgh Innovations.
Beyond fostering local economic development, academic research institutions can often be a draw to foreign companies and create opportunities for investment promotion agencies.
“You often think that when companies come to a region, it’s typically in response to some targeted outreach. But very often the suggestions come from the research community itself,” says Tony LaMantia, the CEO of Waterloo EDC, the economic development agency for the Waterloo region of southern Ontario, Canada.
Mr LaMantia explains that research institutions in Waterloo, which include the Perimeter Institute of Theoretical Physics, have been a magnet for capital.
One example of this is Escrypt, a quantum cryptography focused subsidiary of Stuttgart-based engineering giant, Bosch. Mr LaMantia explains that when Escrypt hit a roadblock in a research project, an academic at the University of Bochum, Germany, suggested that they seek help in Waterloo’s ecosystem, where there is previous experience with quantum cryptography and commercialisation.
Mr LaMantia says that Escrypt was then able to develop a product from this research, and then in 2016 chose Waterloo as the location for their technical headquarters in North America.
Companies also often use research networks to enter markets with different cultural contexts. Mr Cai, who is originally from China, says that multinationals wanting to enter the Chinese market often approach academics working in the same field to form partnerships.
“All the engineering schools, faculties and broader universities have rich connections with industry. This makes it much easier [for companies] to develop their local business network in China,” he says, noting that this route often builds more trust between local and foreign businesses than through brokers.
In other cases, collaboration between university, government and industries has been used to form whole new industries. In the southern Brazilian city of São Leopoldo, a joint venture between South Korea’s chipmaker Hana Micron and a local company, called HT Micron, has spearheaded the development of the local semiconductor industry.
From its campus at the University of Sinos Valley, HT Micron has grown to become a leading player in Brazil, producing memory chips for computers, mobile phones and smart TVs.
Universities act as cornerstones of local development in a variety of different contexts around the world. And with the centrality of knowledge in economic activities and the need to solve pressing global issues, experts say this is unlikely to diminish anytime soon.
For Mr Etzkowitz, who has documented how universities worldwide have become universal in fuelling knowledge-based economic development, these interactions are still in their infancy.
“We’re still in the very early days of this phenomenon,” he says. “[Economic and social impact] is becoming a more legitimate and accepted role of the university.”
This article first appeared in the April/May 2022 print edition of fDi Intelligence. View a digital edition of the magazine here.