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  • Ian Ritchie : Business AM

Academic greed hinders creation of strong industry

Universities should encourage spinouts rather than demand a large slice of the pie

ONE OF THE paradoxes of modem Scotland is both the strength, and the weakness, of our scientific research base. We have one of the strongest research communities in the world in our universities, as measured by the rest of the scientific community.

By these standards, Scotland comfortably outguns the rest of Europe or the US - we even outperform California . In fact, only Israel regularly tops Scotland in the output of world-class scientific research per head of population. Much of this research, in fields such as informatics, optoelectronics or biotechnology is in the forefront of potential economic growth.

However, although our academic research is world class, our industrial sector is decidedly not.

The investment in R&D of Scottish companies trails all competitive economies. Our GDP growth is typically about half of the rest of the UK.

For decades, even this was masked by an inward investment policy where new jobs were imported in microelectronics and electronics assembly plants. But underlying the high-profile growth of Silicon Glen, there was relatively little indigenous growth of innovative Scottish technology businesses. Most of the growth in the Scottish economy in the past few years has been in financial services.

The lack of a market pull on Scottish scientific research is one of the reasons that Jack McConnell announced the setting up of three new Intermediate Technology Institutes (ITIs) on Tuesday.

Scottish Enterprise has designed these ITIs as a focus for commercially relevant developments in three key fields: energy, life sciences and information industries. Already there are good signs that there will be strong industrial support from many global corporations for these centres - after all, the Scottish research that they will be able to access is demonstrably world class.

And hopefully, we will also see indigenous Scottish companies using the ITIs to help them develop new products and services, or even get wholly new companies created.

But why exactly is our indigenous technology industry so weak? I once acted as host at a conference session to Roger Needham, formerly head of the computing laboratory at Cambridge University and now heading the Microsoft Research Centre. Roger had been invited to Edinburgh to tell us about the 'Cambridge affect' - the phenomenon that has created a huge local economy of high-growth, high-value technology companies.

“I don’t actually know how we created the Cambridge affect,” said Needham. “All we really did was to turn a blind eye when new companies were being created in our labs? He then went on to list a string of companies, including Arm plc.

If you study the growth of Silicon Valley , you find that something similar occurred there. Many of the world leading technology companies there were created in, and then 'escaped' from, the laboratories of Stanford University.

So, in the light of this, what are our leading universities doing to ensure that lots of exciting growth companies spin out from their research work? Unfortunately, our two leading research universities, Edinburgh and Glasgow, seem to be rather more preoccupied with what money they might make out of spinouts. One Glasgow spinout I know was astonished when the university recently demanded a 35% stake in the new business.

Meanwhile, in Edinburgh, the commercialisation office has come up with a new 'one size fits all' policy where they demand a 10% non-dilutable equity stake in all new spin-outs. The 10% may not be particularly daft, but the non-dilutable is: no subsequent investor will ever agree to such a condition.

In one case that I know, the researcher has spent eight years creating his innovative software, only the last 14 months of which he has been based at Edinburgh University , where he was given a part-time post. In return for this, Edinburgh is staking a claim on 'its' non-dilutable 10%.

The policy makers at Edinburgh University, Scotland ’s largest single generator of intellectual property, will help set the standards for others, so it is important that their policies make sense. As they stand in their offices at Old College and stare out of the window, they look on Nicolsons Restaurant, where the unemployed single mother J K Rowling created Harry Potter, which has since become a billion-dollar business.

“What a pity” they must be thinking, “that we hadn’t given her a part-time job?

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