Unlocking Hardtech

  • 24 January 2023
  • Dr Amy Nommeots Nomm, Early Stage Deeptech Investor, Octopus Ventures

Last year, the UK government made a number of announcements aimed at unlocking the country’s potential to be a true, global, ‘science and tech superpower’. Revised spending targets are set to increase the proportion of GDP spent on research and development (R&D) to 2.4% by 2027. Public funding for UK Research and Innovation (UKRI) has increased; the National Science and Technology Council (NSTC) has been established as a cabinet committee, and a new body, the Office for Science and Technology Strategy (OSTS) has been created, with a view to putting science and technology at the very heart of government.

But some might argue that the ambition has already been realised. In a global ranking of countries ordered by research outputs, by the prestigious journal, Nature, the UK ranks fourth. Nature focusses on the most ground-breaking developments in chemistry, life sciences, physics and environmental science: for a country of our size, the UK is a serious heavy hitter in game changing science.

The fact is the knowledge base is already there. The real question is, what’s the use of being a science superpower if the incredible new technologies our world-leading R&D produces aren’t being commercialised, to bring tangible benefits to our global society?

The role of hardtech

One of the areas in which the UK excels in is hardtech. Hardtech, deeptech, toughtech, are interchangeable words which act as an umbrella term used to define technology that creates a paradigm shift, disrupts the status quo, or creates an entirely new market. The technology that forms the basis of these businesses is typically underpinned by years of university research. It’s the product of thousands of hours of bright minds innovating together, creating a strong and defensible technology moat when it finally comes to market.

The real challenge lies in that precise transition: translating this ground-breaking R&D out of higher education institutions and into the commercial marketplace.

Putting together the jigsaw

The transition of technology out of the university ecosystem is a jigsaw puzzle. Putting it together, and realising the UK’s world-leading potential, requires collaboration across multiple stakeholders. It starts in the research institutions themselves, with academics and postgrad researchers gaining funding in the form of grants, through government related agencies like Innovate UK. This is where the magic begins. Once an academic has an idea, or has validated a new concept, they typically seek advice from the university technology transfer system, which guides them on patentability, commercial viability and next steps. Some of these technologies are then directly licensed to industry, while a standout few become fully fledged spin outs, and seek private or corporate venture capital funding to continue along their own commercialisation journey.

At each stage, an informal go/no go gate creates pain points for individuals navigating the journey; technology with revolutionary potential can fail to make it through. And it all boils down to funding.

The majority of UK research is funded by UKRI, who gain their funding from BEIS. In an aim to shake up the current status quo, the Advanced Research and Invention Agency (ARIA) is amongst the UK government’s recent initiatives to drive innovation and help us realise the UK’s science superpower potential. Beyond traditional grant allocation, ARIA is poised to experiment with new and innovative funding mechanisms that could represent a paradigm shift in the way funding in science and innovation is done. Inspired by the US Ansari X Prize (which awarded $10m to the winner in a race to build and launch a spacecraft and leveraged significant investment levels in the process) the agency is reported to be exploring the potential of inducement prizes as a way of galvanising the research community and exploring avenues into private sector co-financing partnerships.

University technology transfer teams are the lynch pin of the research commercialisation process. Here, sufficient funding is needed to ensure that the relevant technology from academics can be understood, supported and patented. Universities need enough funding to attract and retain talent who have the understanding and skills to navigate the intersection between academics, the university ecosystem, and market readiness.

And when it comes to the final step, the venture capital community needs to make sure there’s sufficient capital and skills to make bets on hardtech innovation. Puns aside, hardtech is hard to invest in; investors aren’t just tying in technology and scaling risk, they’re also accounting for market timing and adoption risk. The fact is, many years can pass before these companies move into profitability, and they seldom generate revenue in their early stages. Investors needs to be able to be patient. Again, here, funding matters, and initiatives such as the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs), as well as R&D tax credits, make a massive difference to the hardtech start up economy.

Unlocking the future

The hardtech ecosystem is currently a complex menagerie of competing voices, expectations and perceived metrics of success and value. There is, however, consensus on a shared understanding that the UK punches far above its weight in the sciences – and has the potential to punch harder still. The UK’s higher education institutions harbour research and novel technologies that genuinely have the power to change the world and tackle the challenges we face head-on with incredible home-grown innovation.

If the complex menagerie can come together, if proper incentives and supporting infrastructure can be engineered by policy makers, funders, industry and the financial sector, we will see, in real time, UK academic innovation change the world around us.

Dr Amy Nommeots-Nomm is an Early Stage Deeptech Investor at Octopus Ventures. She was also a member of the 2022 cohort of Foundation Future Leaders.

Images courtesy of Phlux Technology. Phlux are a spin out of the University of Sheffield, who have developed a new mid range infared sensor. They have recently raised a £4M seed round, led by Octopus Ventures, to further develop their technology and bring it to market.