Data shows that investment in UK-based businesses spun off from UK universities dropped during 2022, and the first half 2023 following a decade of growth.
The study commissioned by Parkwalk (the UK’s biggest spin-off investor) by Beauhurst, an analytics company, revealed that the number of funding agreements reached a record high 414 in 2013.
The total deal value dropped to £2.3bn from £2.7bn in 2022 and to only £743mn during the first half 2023. This is the first decline in more than 10 consecutive years.
Moray Wright (chief executive officer of Parkwalk) called on the UK to invest more in high-potential spinouts.
Wright said that while there is reason for optimism, the work was not done. Wright said that more must be done to encourage UK-based investors to support spinouts through Enterprise Investment Scheme to ensure more founders have access to the funding needed to grow their businesses in the UK.
In March, the government commissioned a review of UK-based spinouts, conducted by Irene Tracey of the University of Oxford and Andrew Williamson of the British Private Equity & Venture Capital Association. The aim was to determine the best way to support commercialisation of British university research. The report is expected soon.
Wright said, “We would like the government to stop fiddling with things such as changing rules for R&D tax credit and to provide stability to funds so they can plan ahead to make multi-year investments.”
Life sciences are still thriving, with the largest number of spinouts. They also secured four of the top six deals across all sectors for the 18-month period ending in June. TauRx is an Alzheimer’s treatment company based at Aberdeen University. It secured £101mn equity investment. Oxford university spin-outs MiroBio & OMass also raised £80mn & £75mn. 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 lead in equity deals over other academic institutions, with 64 and fifty spinouts respectively. Imperial College London came in third with 26.
The level of foreign investment into UK spinouts has steadily increased over the last decade. It reached a new high during the first half 2023, when 11 percent of spinouts was funded by investors outside of the country. Another 26 percent of spinouts was funded by a mixture of UK and international investors. US-based funds have been the most active non UK investors.
Parkwalk, the subsidiary of IP Group in Scotland, was named the top spinout investors in the report with 39 equity deals by 2022. Scottish Enterprise, the national economic development agency in Scotland, came in second with 35.
Wright said that the UK market is healthy in general. With valuations dropping, now could be the time to invest in spinouts.