End of EU research funding will choke off UK deeptech, top professor warns

An end to European research funding for UK universities could choke off a stream of so-called deeptech startups from attracting investment and making it to market, a professor has warned City A.M.

The warnings come after it was reported last week that UK university researchers would be shut out of the EU’s $95bn Horizon research funding programme – against what was enshrined in the Brexit divorce bill – because of the unresolved dispute over the border in Northern Ireland.

Thomas Hellmann, Professor of Entrepreneurship and Innovation at the University of Oxford’s Saïd Business School, has now warned City A.M. that a wave of potential ‘deeptech’ startups – those working in spaces like AI, open source data  – will be jeopardised if the EU turns off the taps.

“If we’re losing money in the research pipeline to generate deeptech ventures, through the suspension of Horizon funding, that will reduce the pipeline that venture capitalists can work with,” he told City A.M.

VC money has been flowing into universities in recent years to spur the development of later-stage projects that are on the cusp of commerciality, but Hellmann warned that a shut-off in research money and a downturn in the VC space amid soaring inflation could lead to a slowdown in innovation.

UK universities have been a breeding ground for UK tech innovation in recent years, with one of the UK’s biggest biotech firms Oxford Nanopore, valued at £3.4bn in a IPO last year, first taking root on campus.

Around £2.5bn was pumped into UK university spinouts last year, a 66.7 per cent jump from 2020 levels, according to research by fund manager Parkwalk and data provider Beauhurst.

Founder of specialist university spin-out investor Craft, Jamie MacFarlane, told City A.M. this week that investment in the space had swelled in recent years as investors have become accustomed to backing entrepreneurs with an academic pedigree.

“Historically the thinking among university focused VCs has been “these academics have come up with a piece of IP that can be licensed or sold’”, he told City A.M.

“Now increasingly investors are realising “these professors or PhDs are great founders who we should back to build a big business.” 

British university investors are starting to see the potential of the individual behind the invention, he said.