Investment in UK university spinouts falls after decade of growth

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Investment in businesses spun out from UK universities fell during 2022 and the first half of 2023 after a decade of consistent growth, data has shown.

However, the study by analytics company Beauhurst commissioned by Parkwalk, the UK’s largest spinout investor, showed the number of funding deals rising to a record 414 last year.

Total deal value declined to £2.3bn in 2022, down from £2.7bn the year before, and fell to just £743mn in the first half of 2023, the first consecutive period of decline after more than 10 years of strong growth.

Moray Wright, chief executive of Parkwalk, called for action to channel more UK investment into high-potential spinouts.

“Growing political support for unlocking the full commercial potential of the UK’s science base gives cause for optimism but the job is not yet done,” said Wright. “More must be done to encourage UK investors to back spinouts, such as through the Enterprise Investment Scheme, to ensure more founders can access the funds needed to grow in the UK.”

The government in March commissioned a review of UK spinouts by Irene Tracey, vice-chancellor of the University of Oxford, and Andrew Williamson, of the British Private Equity & Venture Capital Association, to look at how best to support the commercialisation of research at British universities. They are expected to report shortly.

“We want the government to stop tinkering with things, such as changing the rules on R&D tax credits, and provide stability for funds to plan ahead for multiyear investments,” said Wright.

The report shows that life sciences continue to thrive, making up the highest proportion of spinouts and securing four of the six highest-value deals in all sectors in the 18 months to the end of June. TauRx, an Alzheimer’s disease treatment company from Aberdeen university, secured £101mn in equity investment, while Oxford university biotech spinouts MiroBio and OMass raised £80mn and £75mn respectively.

Artificial intelligence spinouts have surged over the period, with a record 52 deals. But the report said that a “lack of funding into other equally important sectors, such as climate change, materials and electronics, is somewhat worrying”.

Oxford and Cambridge universities maintained their longstanding lead over other academic institutions in the number of equity deals secured, with 64 and 50 spinouts respectively in 2022. Third was Imperial College London with 26.

Levels of foreign investment in UK spinouts have increased steadily over the past decade and reached a new peak during the first half of 2023 when 11 per cent of spinouts were funded solely by investors from outside the country and a further 26 per cent by a combination of UK and foreign investors. US-based funds are by far the most active non-UK investors.

Parkwalk, a subsidiary of IP Group, emerged in the report as the top spinout investor with 39 equity deals in 2022, followed by Scottish Enterprise, Scotland’s national economic development agency, with 35.

“Overall, the UK scene is quite healthy,” said Wright. “With valuations going down, this could be a good time for investing in spinouts.”