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To tackle climate change without sacrificing our standard of living, we need to “green” the global economy, using more environmentally friendly technologies or “clean tech”, to make transport, manufacturing and other energy-hungry processes more efficient.

Much of the initial research and innovation in the field takes place in academia.

In recent years, universities and the government have been looking at more effective ways of bringing ideas to market. This requires strong links between universities and private investors.

Many universities have established inhouse enterprise companies to assist in the commercialisation of intellectual property (IP).

Typically, academic ideas reach the market in one of two ways. Either a company is “spun out”, attracting investment or partnership with an existing business to become a company in its own right; or the technology is licensed from the university for use by an external company.

University enterprise companies typically take care of patent applications for inventors, and provide access to two main types of funding to help academics get ideas off the ground.

The first of these is proof-of-concept funding, which takes ideas to the stage of a working prototype. Then seed funds provide money to help start-ups establish themselves as businesses.

After these early stages, universities do not tend to provide follow-on funding and companies must attract private investment.

To help find follow-on funds, university enterprise companies provide access to directories of investors who are interested in start-ups, and of “business angels” – affluent individuals who provide capital to young companies.

However, after early-stage funding has run out, many university start-ups struggle to find follow-on investment.

They often end up in the “valley of death”, failing during the period when university funding has run out, but private investment has yet to arrive.

Academia and commerce make uneasy bedfellows because of their fundamentally differences.

Ian Page, Business Development Director at Seven Spires Investments, says: “Ideas count in academia, but not in commerce. The IP must connect to an actual market quickly.” He adds that investors need to know “what the idea will turn into, how much it will cost and who will buy it”.

These are factors that academics sometimes overlook. and many universities do not have enough access to industry professionals, who might be able to flag up potential problems at an early stage.

Academics do not always make good businesspeople, which can also turn off potential investors. Confidence in the company management team can be more important than the IP itself.

A big problem in attracting money is that university start-ups are often very early-stage companies.

Investors are understandably wary about sinking money into companies that consist of little more than an academic, an idea and a patent application. They tend to be more interested in larger companies with proven market interest and established revenue generation.

An additional sticking point is the tendency of universities to retain ownership of a spin-out company’s IP. Geraldine Rodgers, head of Seed Funds at Cambridge Enterprise, the University of Cambridge’s enterprise company, says this is necessary “in case the company fails”.

But Pat Burtis, an investment manager who specialises in green technology at Amadeus Capital Partners, says: “If not handled well, [IP issues] can be an absolute deal-killer.”

Mark Preston, a principal at Wheb Ventures, an investment firm which specialises in clean technology, says his company will not even consider investing unless spin-outs own the IP.

Venture capital firms also generally require relatively rapid returns on their investments. Mr Burtis says: “The typical fund-life for a venture capital firm is 10 years, which is not always possible with university start-ups.”

Finding investors who are willing to take a gamble on start-ups may also be harder than usual in the current economic climate.

Mr Page says: “Investors are looking for safer bets, lower risk and shorter-term returns.”

But Tom Hockaday, managing director of Isis Innovation – The University of Oxford’s enterprise company – is more optimistic: “There’s no shortage of money … It’s just a question of finding it.”

Investment in green technology start-ups could be encouraged by increasing seed funding and government grants within universities, allowing companies to develop further before they are spun out.

Mr Preston describes the incubation step as “really critical”. This would give companies a chance to prove there is a market for their products and to start generating revenue, setting potential investors’ minds at rest.

Copyright The Financial Times Limited 2018. All rights reserved.

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