Investment in university spinouts drops for second consecutive year

Investment in UK university spinouts looks set to fall dramatically this year, following a year-on-year drop to £2.3bn in 2022, down from £2.7bn the year before

Investment into UK university spinouts fell year-on-year in 2022, and looks set to fall again in 2023, after years of consistent growth.

Challenging economic conditions have driven up the costs of borrowing and impacted UK investors’ appetite for investing in risky cutting-edge university spinouts, according to new research from top university spinout investor Parkwalk and research house Beauhurst.

It is the first year-on-year period of decline in over a decade of strong growth, which has seen over £13 billion of investment secured by UK spinouts.

Dundee named top university for spinout successA report has found that 60% of the top ten spinout universities are based outside the golden triangle

Spinout investment declined to £2.3 billion in 2022, down from £2.7 billion the year before, and fell to just £743 million in the first half of 2023.

That nervousness about investing is not shared by foreign investors. Levels of foreign investment into UK spinouts during 2022/23 reached a new peak, with over 10 per cent of total funding into UK spinouts coming from foreign investors for the first time on record. US-based funds are by far the most active non-UK investors.

Record deal volume

Despite this, 2022 set a new record for the number of deals secured by UK spinouts, at 414, just up on 2021 levels, and strong performance in life science and AI give cause for optimism.

Life sciences, which continue to thrive, made up the highest proportion of deals and secured four of the six highest-value deals during 2022/23, while artificial intelligence – for which investor interest remained strong – closed 52 deals in 2022/23 alone.

Moray Wright, CEO of Parkwalk, has called for further action from Government and investors to channel more UK investment into high-potential spinouts.

Wright’s call comes ahead of the recommendations of a review into UK spinouts, which was commissioned by the Government in March to look at how best to support the commercialisation of world-leading research and development taking place in UK universities and research centres. The review is led by Irene Tracey, vice-chancellor of the University of Oxford, and Andrew Williamson of the British Private Equity & Venture Capital Association.

Do universities take too big a stake in spinouts?Treasury announces review into university spinouts as founders say average 24% stake universities take in spinouts impedes growth

Wright said: “While global economic headwinds have impacted the performance of UK spinouts, 2022’s record number of deals is a testament to world-leading innovation coming out of UK universities.

“Growing political support for unlocking for the full commercial potential of the UK’s science base, gives cause for optimism, but the job is not yet done.

“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.”

More on university spinouts

British investors ready to invest £1.4bn in university spinoutsCambridge Innovation Capital takes top spot as biggest investor in university spinouts with £500m under management, with new entrant Northern Powerhouse raising £300m to invest in northern university tech start-ups