Ian Pearson - British Venture Capital Association Technology Spin Out Conference

I am delighted to have the opportunity to speak at this Technology Spin-Out Conference organised by the British Venture Capital Association.

Spin-Out companies can make an important contribution to the UK economy. Science and innovation drive wealth and prosperity in developed countries and the ability to exploit successfully the world-leading technological knowledge in our Universities will become increasingly essential if we are to continue to grow our economy.

To succeed in the global economy Britain needs to compete through its universities as well as through its businesses. At the same time we need to co-operate, to develop strong international links between our Universities and those in the US, China and India; strengthen business to business interaction internationally; and build closer ties between our Universities and British companies of all sizes.

The Government is committed to ensuring Britain maintains its position as a world-class hub for scientific excellence. And we must be a world leader in transforming scientific and technological advances into successful new products and services.

Universities have a key role in maintaining the competitive position of the UK. Universities and the intellectual capital within them are an important asset on the UK's balance sheet.

The UK economy needs a vibrant science base and an innovative investment community.

Private equity is a key part of the life-blood of the UK's innovation ecosystem. It has been unfairly maligned, often by those with vested interests. While there are issues the industry needs to address, private equity is an aggressively creative force in our economy. It is a source of our competitive advantage as a nation and we lead in Europe with the breadth and depth of the venture capital resources we offer. The Labour Government has always supported the venture capital industry and we must continue to stand up for it as a positive change agent in our economy and as an important source of finance for new businesses, the tech-stars and biotech-stars of the future.

By doubling the scientific research budget, and providing incentives for universities to increase the economic impact of the research base we are driving a change to a more entrepreneurial culture. There has been a transformation in many of our Universities over the last decade.

The science budget will increase to £4 billion by 2010-11, triple what it was when we came to power in 1997.

This allocation will further strengthen the research base, providing support for both for blue skies research and addressing specific challenges.

We shall continue to support excellent research across all disciplines and encourage multi disciplinary projects that bring together researchers from a wide range of backgrounds to tackle important research problems.

And we will increase the economic impact of the research base to support the prosperity and quality of life in this country. This allocation will do that through specific measures to bring Research Councils, Universities and public sector laboratories closer to business. The Technology Strategy Board will work closely not only with business but with the Regional Development Agencies and the Research Councils. Over the next three years it will coordinate £1 billion worth of Government investment in collaborative projects.

We must also ensure that business, research and academic bodies all understand how best to use IPR to leverage commercial success from their creativity.

The UK consistently comes out as one of the best places in the world to do science. The latest figures available show the UK produces nine per cent of the world's scientific papers and has a citation share of 12 per cent, second only to the US.

Behind these statistics there is a wealth of examples of where UK science's excellence has been leading the world. Our major research universities continue to produce world beating research.

For example the Cambridge Laboratory of Molecular Biology has won 7 Nobel prizes. Recently we learned that Sir Martin Evans from Cardiff University has shared the 2007 Nobel prize for medicine for his work on stem cell research which is now being applied in all areas of biomedicine - from basic research to the development of new therapies.

But, as David Sainsbury makes clear in his Review and undoubtedly told you this morning, universities have a key role in working with business to deliver innovation in the UK's economy.

For every world changing discovery, our universities produce hundreds of innovative ideas that help to improve the efficiency and productivity of individual companies around the UK.

We have created a long-term stream of funding under the Higher Education Innovation Fund which will rise to £150 million a year by 2010/11 to make sure research results are accessible and widely exploited.

The exploitation of research results is now recognised widely as a valuable part of academic life. This means that research is being done to meet the demands of local and international businesses. Strong working relationships are being enhanced to ensure that Universities understands their partner's business and needs.

Across the UK the results are now impressive. During 2006-07 universities generated £595 m of income from collaborative research and £236 m from consultancy. 187 new spin outs were generated - with UK universities now having a 'portfolio' of nearly 700 spins outs over 3 years old. And last year alone, nearly 2,700 license options were granted.

Although we have achieved so much over the last 10 years, much more remains to be done. Supporting business will increasingly become an essential part of research. The nature of modern research means that application of research needs to improve the effectiveness and efficiency of UK businesses, large and small. To keep at the forefront businesses also need to be able to access the best support elsewhere in the world.

Building on this, I know BVCA members total investment of private equity and venture capital reached £21.9 billion last year, an increase from £11 billion one year earlier, with investments made in over 1600 companies. The dramatic increase in investment, four-fifths of which is in the UK heps us to compete in the global knowledge economy.

Private equity is a driver of competitiveness, innovation and productivity. 61% of spin-out companies formed in 2005 were funded through external investment finance. In the last two years, seven UK university spin-out companies have been acquired for £2 billion.

Let me give you just a few examples. Ilika, a three-year-old University of Southampton spin-out raised £7 million in August and is currently valued at £39.5 million. Ilika shortens the development time of new materials for a long list of clients including Shell and major automotive industry.

A spin-out company from the University of Bristol, Revolymer is using its new non-stick polymer for a chewing gum that doesn't cement itself to the pavement, potentially saving local governments £150 million a year in pavement clean-up. Revolymer has raised £2.4 million since it was formed two years ago.

And MTEM, the electromagnetic spin-out from the University of Edinburgh servicing the oil and gas industry, started three years ago with a £200,000 proof-of-concept fund and was acquired by Norwegian group Petroleum Geo-Services for $275 million in June of this year.

These spin-out companies are a small sample of the economic fruits of British research and there is a variety of strategies and approaches to successful commercialisation. What is very clear to me is that transforming the findings in university laboratories and research facilities to profitable businesses with great social and economic impact is an urgent national priority.

BVCA members provide capital and vital expertise to spin-out companies which can propel them into the next stage of growth, benefiting the firm, the economy and society.

You are a key part of our economy and I wish you every success as you continue to grow the UK private equity market. And I look forward to your increasing collaboration with businesses and the research base in every sector of our global economy.