Investment in UK university spinouts has declined in recent years, marking a significant departure from a decade of consistent growth, according to data from analytics company Beauhurst. The study, commissioned by Parkwalk, the UK’s largest spinout investor, revealed a record number of funding deals in 2022, reaching 414. However, total deal value dropped to £2.3 billion in 2022, down from £2.7 billion the previous year, and fell further to just £743 million in the first half of 2023. This decline marks the first consecutive period of decline in over a decade.
The report highlighted the need for increased UK investment in high-potential spinouts and called for action to support these ventures. Moray Wright, CEO of Parkwalk, stated that while there is growing political support for unlocking the commercial potential of the UK’s science base, more must be done to encourage UK investors to back spinouts. This can be accomplished through initiatives like the Enterprise Investment Scheme, allowing more founders to access the necessary funds to grow within the country.
To address the decline in university spinouts, the UK government commissioned a review led by Irene Tracey, vice-chancellor of the University of Oxford, and Andrew Williamson of the British Private Equity & Venture Capital Association. The review aims to identify strategies to support the commercialization of research at British universities and is expected to report its findings soon. Wright emphasized the need for stability and long-term planning for funds to make multiyear investments, urging the government to provide stability rather than changing rules on research and development tax credits.
The report also highlighted the strong performance of life sciences spinouts, which accounted for the largest proportion of spinouts and secured four out of the six highest-value deals across all sectors in the 18 months leading up to June. Notably, TauRx, an Alzheimer’s disease treatment company from Aberdeen University, raised £101 million in equity investment. Oxford University biotech spinouts MiroBio and OMass also secured £80 million and £75 million respectively.
Artificial intelligence spinouts experienced a surge during the period, with a record 52 deals. However, the report expressed concern over the lack of funding for other important sectors such as climate change, materials, and electronics.
Oxford and Cambridge Universities maintained their lead over other academic institutions in the number of equity deals secured, with Oxford securing 64 spinouts in 2022, followed by Cambridge with 50. Imperial College London came in third with 26 spinouts.
Foreign investment in UK spinouts has steadily increased over the past decade, reaching a new peak in the first half of 2023. During this period, 11% of spinouts were solely funded by investors from outside the country, and an additional 26% received funding from a combination of UK and foreign investors. US-based funds were the most active non-UK investors.
The report identified Parkwalk, a subsidiary of IP Group, as the top spinout investor in 2022, with 39 equity deals. Scottish Enterprise, Scotland’s national economic development agency, came in second with 35 investment deals. Despite the decline in investment in spinouts, Wright remains optimistic and suggests that lower valuations could present attractive opportunities for investing in these ventures.
Overall, the report paints a picture of a UK spinout scene facing challenges but with potential for growth. The decline in investment highlights the need for increased support and funding for spinouts, particularly in sectors beyond life sciences. With the government review underway and ongoing efforts to attract investors, there is hope that the UK can regain its momentum in supporting and commercializing research from its universities.