Doubts over Pounds 50m seed cash

A leading venture company has questioned the way the new University Challenge Fund - announced in the budget to provide Pounds 50 million of seed capital for universities - is to be distributed.

Chancellor Gordon Brown announced the Pounds 50 million injection to help early commercialisation of university research, with suggestions that it could be divided between 20 universities, each receiving about Pounds 2 million, with an additional Pounds 500,000 to be raised themselves. The money would help the universities develop research ideas, establish commercial viability and cover business start-up costs.

But now 3i, the venture capital company that has ploughed millions into several United Kingdom projects including the Medical Research Council's new venture capital fund, has questioned the appropriateness of spreading the money so thinly.

"Pounds 50 million is a very significant investment in this area which could be very useful," said 3i head of UK investment, Martin Gagen. "We think it is a very good initiative. But we would question how effective diluting the money can be."

He told the House of Commons Science and Technology Select Committee this week that developing research ideas into commercial ventures can be very expensive, with international as well as national markets needing investigation. Professional fund managers, or even academics with sufficient entrepreneurial experience, are costly to recruit.

"It is an interesting idea," he said. "The money could go a long way if directed correctly. Our worry is the challenge fund might try and be too equal. We think these vehicles should be used to attract the very best talent. They need to look worldwide for management to look after them."

He added that 3i restricted its investments in this area to just seven seed funds in the UK. It found that they needed to be worth Pounds 15 million to allow several investments, taking into account that many would not work and that they would have to generate sufficient income to recruit qualified managers.

"If they plan to split the money between 20 universities, it would get some money to a large number of operations but that may be its only benefit.

"Perhaps the money should instead be focused on those areas most likely to be commercial. Commercially we would say 'spend more time and money on a small number of ideas'."