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Chinese venture capitalists and angel investors are flocking to UK universities to invest in early-stage technologies. However, some spin-outs are worried about protecting their intellectual property
While the possible cyber-threat to the UK posed by Chinese multinational Huawei’s penetration of the telecoms market may be occupying David Cameron’s mind this Christmas, on our university campuses another Chinese “invasion” is taking place. And this time we are not talking about undergraduates.
The Chinese are certainly coming — but as investors in early-stage technologies being spun off by the world-class but cash-strapped universities of the UK. These investors, though, are not the government-backed corporations that get MI5 so hot under the collar, but rather a new generation of wealthy individuals, families and professional venture capitalists who have spotted the earning potential of these technologies at a time when the Chinese property bubble may be about to burst, the stock market is mistrusted, and opportunities in China for early-stage technology investments are more limited and fought over.
According to Birmingham-based and Chinese-backed investment vehicle RTC Innovation, there are more than 5,000 venture capital or private equity funds in China, together worth more than $700bn — and at least 47 percent of these funds are owned by families rather than individuals, who are looking for higher rates of return than those available in China.
Nowhere is this “growing trend of spin-outs with Chinese investment” clearer than at Oxford University where, according to Simon Gray, head of marketing at ISIS Innovations, the university’s spin-out professionals, Chinese investors have provided investment for about 15 percent of Oxford’s spin-outs since 2008.
And this figure is only going to grow, he believes.
In 2009, 90 percent of the £1m first-stage funding for cell-culture products and services spin-out Zyoxel came from Chinese investors, while last year 100 percent of the £250,000 funding needed by Oxford Multi Spectral — a flatbed scanner manufacturer –was supplied by the Chinese.
Now in 2012 the relationship with Chinese investors has gone one step further, with spin-out Oxford Vacmedix forming a Hong Kong-based joint venture with Chinese investors to exploit its unique vaccine technology that could produce inexpensive yet highly effective vaccines for cancer and viral infections. The innovative technology, in another first for Oxford, will be tested by, in effect, a third company, in the newly established Changzhou Bioincubation Centre on the mainland, partly funded by the Chinese government and eligible for two million RMB (around £200,000) in funding from the local government.
While Tom Hockaday, managing director of Isis Innovations, accepts that there is a “risk” to such investments in terms of the loss of control of the technology, he believes that since the economic crisis of 2008 UK universities like Oxford have to go where the money is to fund the commercialisation of their technologies.
“It is a straightforward positive to attract cash to Oxford-based businesses to create jobs. And if investors can’t be found in the UK, it is perfectly legitimate to bring them to the UK. Now there are quite a few Chinese people coming to find us.”
“Where it gets interesting,” he accepts, is the longer-term future of these businesses. “It is too early to tell which ones will thrive here and which ones will move elsewhere. You need to come back in ten years’ time.” Of course, this is no different “with investment from Germany, the USA or Japan”.
Jian Cao is director of RTC Innovation, one of a number of UK-based companies that attempt to bridge the funding and cultural gap between early-stage spin-outs like Oxford Vacmedix and wealthy but nervous Chinese clients who are similarly afraid of losing control of what is often their first international investment. The investor behind Oxford Vacmedix, for example, is a former property developer who made 20bn RMB when his company went public
Cao founded his company after coming to the UK in 2000 from China to complete his postgraduate studies in engineering and realised “that not much happens to lots of good technologies after the research paper has been published because of a gap in funding…and that I could play a role in bridging this gap”.
RTC has provided funding for two of Oxford’s latest spin-outs as well as investments in spin-outs from the universities of Birmingham and Sheffield. Cao is hoping to set up a second branch of RTV in Sheffield shortly.
“This is something these kinds of Chinese investors have never done before as they have in the past looked for localisation of both manufacturing and management. So international investment without the kind of relationships that localisation enables was considered high risk,” says Cao. This is where companies like RTC come in: to provide these relationships.
What’s more, he believes, “it’s not a case of the Chinese trying to take over, rather of thinking globally, with the UK their first stop as they build up confidence to go overseas”.
For Chinese-born, Oxford-based Dr Shisong Jiang, the benefits of this Chinese investment is clear: money.
“We want this technology to be successful so we need their money. They want a good return. If the joint venture is successful, the value of the Oxford company will increase, more IP will be created and more posts in my department will be funded. It’s a win-win.”
Jiang has led the team from the University of Oxford’s Department of Oncology and the Weatherall Institute of Molecular Medicine that has developed technology that enables bacteria to grow the overlapping peptides necessary for vaccines, rather than acquire and then manufacture them through chemical synthesis. His project has also been funded by the Anglo-Chinese Aids charity, theBarry and Martin’s Trust. Jiang is one of an increasing number of Chinese academics who have moved to the university to work.
“These are very expensive to make by machine and so we needed a cheaper way to make the peptides, and now after a year of trying we can use bacteria to make them without the variations that machines can introduce.”
He admits that he needs to take care to protect the project’s intellectual property, saying, “our project is quite interesting to the Chinese, who want to learn this new technology, and so we have to be careful. We have to tell ISIS Innovations what we would like to say to some Chinese academics and they tell us what we can say.”
Similarly, he says, the way the spin-out has been structured is designed to enable Oxford to keep control of its IP. “It took a year to figure out.”
Yet Jiang feels that fears of what would happen if the technology was stolen have been overblown, as “without the people behind it, it would just wither and die”, and that as along as universities like Oxford “maintain their academic infrastructure” then they — and the UK — will have value as collaborators. “Two thousand years of Confucianism is very difficult to change into a culture of free thinking. It wouldn’t be possible for China to build their own Oxford even in a hundred years.”
Like Jiang, Hockaday admits “we are aware of” the possibility that the Chinese may want to grab UK technology, but he nevertheless believes that “what matters is that one of the things we are still best at is universities and if we continue to invest in the UK research base we will keep smart people doing smart stuff.”
And the relationship between Oxford and China is about to get deeper, adds Simon Gray.
Isis is seeking itself to nurture investment from China into Europe with the Isis Sino-Europe Technology Exploitation Platform (SETEP) programme that markets investment opportunities from Europe to interested investors in China. “We are at the due diligence phase on the first investment under this new scheme.”