The "Oxford knee" is well known to orthopaedic surgeons and to anyone whose knees have worn out from overuse or long life.

The "knee" recently featured in an epic Land's End to John O' Groats charity cycle ride by Oxford Brookes vice-chancellor Prof Graham Upton, who was advised to take up cycling after his original knee was replaced by a metal-and-plastic artificial one.

He is one of hundreds of people walking around today with artificial joints who have engineers to thank for their health, as well as the doctors. Engineers are also behind many advances in surgery, as well as sophisticated electronic diagnostics.

The artificial knee joint was patented in 1974 by Oxford University engineers John Goodfellow and John O'Connor, and is one of the commercial success stories of the university's biomedical research. As well as biomechanics like knees and heart valves, engineers also develop medical scans and drug-delivery systems, as well as biosignal processing, tissue engineering and stem-cell culture.

Now Oxford University is hoping to speed up the rate of such innovation with its new biomedical engineering institute, due to open next year at the Churchill Hospital thanks to £12m deal with City hedge fund Sloane Robinson.

Tom Hockaday, of Oxford University's technology transfer company, Isis Innovation, said: "This deal reflects the value placed on Oxford technology and our capabilities in commercialising that technology."

Sloane Robinson has created a new division called Technikos to run the venture, hoping to develop Oxford biomedical inventions such as a device to extend the time a kidney can remain viable outside the body.

As well as patenting the Oxford knee, Oxford biomedical research has already spun out three companies Powderject, Oxford Biosignals and Mirada Solutions.

Professor Richard Darton said Powderject inventor Prof Brian Bellhouse had donated £1.3m towards the institute, which will cost £50m.

Prof Darton said: "The new building and the new research programmes will bring together engineers and clinicians in a world-class facility to tackle important illnesses like cancer and heart disease. There is a huge potential for new and better healthcare, when medics and engineers work together."

It will also receive half the University's share of royalties for 17 years.

The director of the new institute, Dr Fred Cornhill, said: "This agreement is central to accelerating IBME's mission to conduct patient-focused research and development.

"In particular, our outstanding team of academics and doctoral students concentrates on the creation of innovative medical technology aimed at improving patient diagnostics, therapeutics and generally improving quality of life."

He added: "We are in an increasingly commercial age and to ensure the IBME is at the forefront of the business of biomedical engineering, as well as at the forefront of research and development, we need deals like this."

The private equity deal follows a similar venture involving the university's chemistry department and the IP Group, which provided £20m towards the new £60m chemistry research laboratory in 2000. Since then, the IP Group has provided commercial and financial advice to ten chemistry spin-off companies in return for shares in the businesses.

The tenth spin-out created under the IP group deal, called ChemOxica, was among the dozens of high-tech start-up companies at this week's Venturefest, Oxford's festival for inventors and early-stage high-tech businesses.

Dr Mark Moloney and Dr Jon-Paul Griffiths, of the chemistry department, were flying the flag for ChemOxica, which has just raised £500,000 from investors to develop sticky plastic, or 'adhesive polymer', as chemists call it. The process could provide better laptop screens or smaller Sim cards for mobile phones or an anti-bacterial surface for hospital worktops.

Oxford's other university, Oxford Brookes, has recently joined the spin-out bonanza. Its latest company, WildKey, which provides hand-held computers for schoolchildren to identify wildlife, was at Venturefest seeking £100,000 from investors.

Dr Neil Bailey, a Brookes Enterprise Fellow, and ecologist Dr Stewart Thompson have developed software that ties in with the National Curriculum.

Dr Bailey said: "If they see a Red Admiral the computer asks them questions like 'What colour are the wings?' and they see a photo so that they can record it."

The investment would allow WildKey to build up its workforce, develop new software to teach biodiversity, and branch out into offering visitor information for wildlife attractions.

Another Brookes researcher, Dr Rajat Gupta, of the department of architecture, was looking for consultants to take up Decorum, his system for recording and reducing carbon dioxide emissions from buildings.

Outside the universities, software company Grid Tools, based at the Oxford Centre for Innovation in Mill Street, Osney, was seeking £400,000 to expand sales of its database system. Founders Huw Price and Paul Blundell are fresh from selling another technology company, BITbyBIT, to US competitor Outerbay.

Anyone wondering if the Oxford area might run short of ideas for new high-tech start-ups would have been reassured by a visit to Venturefest, held at the Said Business School. There was no shortage of business ideas, including wireless laptop connectivity, new antibiotics, brain-surgery robots, gearshift technology with no power loss, and a tumour-inhibiting drug.

And how about investors are they willing to put money into Oxford's brainpower?

Venturefest chairman Joe Barclay said there was definitely money available for "the right proposition". "During the high-tech boom five or six years ago, there was silly money around. I think now investors are more discriminating, but there is a greater feeling of confidence than there was two or three years ago."