John Collingridge: Spin-out financer underlines academics’ role in growth

Yorkshire has some of the most research-intensive universities and Fusion’s results showed spin-outs from the University of Sheffield are making huge strides in technology as diverse as magnetic gearboxes, low power lighting and computer drug simulation.

Sheffield-based Fusion, along with its bigger peer IP Group, helps to turn fledgling concepts into real businesses.

Fusion’s latest success was the $32m (£20m) sale of drug simulation firm Simcyp to Certara LP.

The deal netted Fusion £4m – a 200-fold return on its investment – with staff taking the rest.

Another Yorkshire spin-out, Tissue Regenix, recently raised £25m to commercialise its body part regeneration technology. An IP Group company spun out of the University of Leeds, Tissue is threatening to revolutionise orthopaedics.

Of course, turning academic research into business is nothing new in this part of the world. Mobile phone technology firm Filtronic became the UK’s most successful university spin-out after being formed in the 1970s by Leeds University’s Professor David Rhodes.

Fusion chief executive David Baynes believes universities are among the few remaining generators of technological innovation in the UK.

“There’s only one place much is coming out and it’s our universities,” he says. “People like us and IP Group are doing a great job in helping create these companies.”

Baynes is adamant they form a vital bridge to turn concept into reality. Fusion adopts a selective approach, only spinning out two or three companies each year from the hundreds of concepts which land on its desk.

“Are we just taking the best stuff?” asks Baynes. “I hope so.

“Before research commercialisers came along, people tended to confuse volume with quality.”

In a downturn, the temptation is to squeeze the funding pipeline for all but the most vital research programmes. Under pressure from falling admissions and lower Government support, universities face a huge funding challenge.

But this process of innovation, incubation, trial, error and ultimately success is envied internationally. It’s what attracts students from across the globe, and is one area where Britain remains a genuine world leader.

How many management teams would allow £325,000 to be spent without demanding to know the precise return on the investment? Not many.

Add six zeros and you get close to the sum the Bank of England has injected into the economy through its bond-buying scheme, or quantitative easing (QE).

Back in 2009, once the base rate had been slashed to its record 0.5 per cent, the Bank concluded its only remaining weapon was to pump new money into the economy.

Its initial £200bn programme mainly bought high-quality Government debt from pension funds, insurance companies and the like. It has since been increased to £325bn, although last week the Bank held fire on increasing it further. The idea was that these firms would have more money to spend on goods and services, banks would be more willing to lend, and the price of financial assets would increase.

Gilt yields would fall, encouraging pension funds to spend on other assets such as company shares and bonds. More money sloshing around the economy was supposed to mean an increase in total wealth, cheaper borrowing for households and businesses, and ultimately economic growth.

But three years later and that growth is still incredibly elusive. Many small companies still find it tough to access credit from banks, and the latest increases in mortgage rates from a number of the UK’s lenders suggest a growing disconnect between the Bank’s base rate and borrowing rates for households and businesses.

The Bank estimates QE could have raised Gross Domestic Product by 1.5 to two per cent, and inflation by 0.75 to 1.5 percentage points, but economists are sceptical.

“These estimates are clearly highly uncertain,” says the Bank. “But they do suggest that the effects of QE were economically significant.”

What seems likely is that whether through increased confidence, lower yields or better liquidity QE is helping the UK to stutter through the deepest downturn for decades. We’ll never know how bad it could otherwise have been.

But the Bank has no clear analysis of where the money has actually ended up. While tracking precisely the £325bn would be too difficult, it cannot explain whether the cash is sitting unspent on company balance sheets, has been used to shore up risk-averse banks’ balance sheets, or has even been spent abroad.

The effects of QE have been, and will always be, very tricky to measure. But all those extra zeros warrant a clearer explanation.