Pharmaceuticals, biotechnology among top university spin-out winners

BY ANTHONY KING

Investment in UK university spin-out companies is showing signs of recovery in 2024, according to a new report. Investment was £2.73bn in 2021 and £2.38bn in 2022, but it had slipped to £1.75bn in 2023.

However, spinouts attracted £1bn in the first six months of this year alone, and if that continues, investment will overtake 2023 levels, according to Equity investment into spinouts 2024 from Beauhurst and Parkwalk.

The top areas for equity deals in spinouts from 2023 to the start of 2024 were application software, pharmaceuticals, biotechnology and medical devices and instruments. The life science sector accounted for 210 deals.

The golden triangle of London, Cambridge and Oxford continued to dominate the spinout landscape. The top institutions securing investments by number were the University of Oxford (62), the University of Cambridge (45), Imperial College London (29) and the University of Bristol (26).

‘Spinouts have had a heightened focus in the last ten years,’ says Martin Glen, an investment director at Parkwalk, which focuses on commercialising discoveries from UK research universities. In 2023, Parkwalk was the UK’s leading investor in spinouts, participating in 29 deals with a combined value of £304m.

Spinouts displayed greater resilience than the broader equity-backed sector, where the number of deals fell by more than 10%, the report noted. Despite heightened investor caution over the past 18 months, capital remains accessible for companies with robust intellectual property at their core, it added.

There have been challenges. There was a fall in first-time deals secured by spinouts in 2023, the report noted, with a 15% decline. Almost half the number of deals were completed last year on 2021 levels (120) – spotlighting a potential bottleneck in early-stage funding.

‘Obviously one thing that changed was the economic instability and uncertainty, and there was a fall in valuations for companies,’ says Glen.

UK startups also have had a perennial difficulty with later stage funding, meaning raising amounts between £30m and £100m. ‘That scale of fund raise has been quite difficult,’ says Glen, while for later stages, there are pension funds and insurance funds that will step in.

The report sees promising signs too. ‘A lot of big companies obviously spend less on R&D, so they are more reliant on cutting-edge developments and technologies coming out of universities now,’ says Glen. ‘The UK is exceptionally good in life sciences, both in healthcare and agriculture, and we have amongst the leading research communities for quantum computing.’

In November 2023, the Independent Review of University Spin-out Companies, released by the UK government, looked at the most successful spinout ecosystems in the world and within the UK to identify best practices. Amongst its recommendations were more data and transparency on spinouts through a national register and more publishing by universities.

Another was to create shared technology transfer offices to help build scale and critical mass in the spinout space for smaller research universities.

‘We don’t have the same supply of risk capital in the UK, compared with the US, but we have more in the UK than I think anywhere else in Europe,’ says Chas Bountra, Pro-Vice Chancellor of innovation at Oxford, who presented to the House of Lords science and technology committee in March 2024.

‘We are not in the same place as Stanford or Boston, but they have had the advantage of doing this for the past four or five decades. We are catching up,’ he adds.

He emphasised to the committee that a step change happened at Oxford when it created a venture capital fund of £614m in 2015 to invest only in Oxford companies. Before that, ‘we were doing four or five companies each year. As soon as we did that, it went to more than 20,’ he told the committee.

By equity volume secured in 2023, the top institutions were Oxford (£406m) and Cambridge (£248m) as expected, but University College London (£243m) surged to claim third place from Imperial (£139m). A notable success at UCL was Quantum Motion, which secured £42m. ‘There’s been a massive culture change around university spinouts in Oxford since 2015,’ says Bountra. ‘We have serial entrepreneurs now, with two or three companies, and many researchers are looking at them and saying if they can do it, I can do it.’