As his researchers move into a dream lab at Oxford, Graham Richards tells Emma Davies about the link between life as a millionaire chemist and the need for substantial student top-up fees.

Chemistry researchers at the University of Oxford move into a new £60m laboratory this month. The lab's unashamedly robust aim is to nurture spin-out companies focused, at least initially, in three areas: chemical and molecular biology; synthesis and molecular design; and surface and interface science. And there's the rub.

Oxford has attracted attention and envy in equal measure for the unusual way in which it paid for its new Chemistry Research Laboratory, sited in the centre of the university complex. A controversial one third of the funding comes from a City bank. In return, the bank has secured an equal share in the university's stake in any spin-out, which is typically 25 per cent of the equity, for 15 years.

The arrangement does not dent researchers' rewards, insists Richards, who chairs the university's chemistry department. In fact, he says, researchers benefit because they will still receive a 25 per cent stake in any company they set up and the bank's presence has made them 'much more sensible about patenting things than they used to be'.

The Oxford story stands out amid news of chemistry departments closing down. 'It's very worrying', says Richards, 'and for that reason I keep telling people about the new Chemistry Research Laboratory, which we set up at no cost to the university'.

Nevertheless, the chemistry department is running a deficit 'because it is very expensive to maintain', says Richards. 'This university, like most, now has space charging and . it is very hard to balance the books on a profit and loss account'.

Richards's solution is the introduction of substantial top-up fees for undergraduate students. 'The universities desperately need more funds - the amount we get per student has halved over the past 20 years. We can't go on with the present level of funding and remain, as this university would hope to be, a rival to Harvard and Stanford in the US', he warns.

But the UK government's current ceiling of £3000 pa is not enough to make a difference, he says. And if it backs down in response to popular opposition, Richards predicts that the extra £900 per student that a UK chemistry department might get would be 'barely worth having'. Instead, Richards is 'not averse to us going completely independent of government and charging fees as American universities do, but having needs-blind admissions'. He would happily see the university charge undergraduates £20 000 pa, which would attract more overseas students, and provide bursaries for those who could not afford the fees.

Chemistry is not the only subject to suffer from declining student numbers, notes Richards. 'All of the sciences are having difficulty, even biology, which one would have thought is at a very exciting phase. And this is in part I think because doing science A-levels is harder work. That puts people off'. He admits that chemistry may have 'marginal extra problems because of people having a poor image of the old chemical industry, considering it to be "dangerous, dirty, smelly and polluting"'.

Money is a key motivator for setting up spin-outs, says Richards, who made a 'couple of million' himself out of Oxford Molecular alone. And there is no resentment towards Oxford's spin-out millionaires, suggests Richards. 'It's a spur to the young people to see that you can be a chemist and live like Beckham', he says.

Putting the joys of entrepreneurship to one side, Richards remains concerned about the short-term perspective of venture capitalists. 'The City would rather make money by selling the companies than by growing them into big companies,' he says. Oxford Molecular was once worth £450m and, Richards suspects, with 'a bit more support from the City, it could have been a billion pound company'. Instead, it was sold for £70m. 'The trick that we've still got to learn is to convert the successful spin-outs into major international companies.'

Richards has advice to offer any budding entrepreneurs:

'Work out how much money you need and how long it'll take and double both and you're probably nearer the truth. Don't try to start a spin-out with too little money or you'll be eaten by the venture capitalists.

'One of the things you learn is that the venture capitalists are not necessarily your friends. You need to understand what their (perfectly legitimate) position is, he says. 'It's a great trick to give you not quite enough money, so that you work yourself to death and you need a bit more money. They give you a bit more money but take more and more of the company off you.

'If you start off not knowing that's the way the game is played, you could come unstuck.'