A report from Parkwalk, the UK's most active investor in university spinouts, asserts that spinouts will increasingly define much of the UK’s economic standing in the world, our levels of productivity, advancements in public services and the innovation that can help curb climate change.
Some of the key findings detailed:
Resilient investment landscape
The investment landscape for UK spinouts in 2023 has demonstrated both resilience and adaptability amidst a more challenging economic climate. Equity investment in spinouts fell to £2.34 billion, down from the pandemic-related peaks in 2021 and 2022.
Despite this decline, the number of deals has remained consistent between 2020 and 2023, with between 420 and 426 deals occurring each year.
This stability is encouraging, particularly when compared to the broader equity-backed sector, where deal numbers fell by over 10 per cent in 2023.
The first half of 2024 suggests a positive trajectory, with total investment already nearing £1.00 billion, on track to surpass the 2023 figure. However, the 15.3 per cent decline in first-time equity deals highlights a potential bottleneck in early-stage funding—a critical component for nurturing the next wave of high-growth spinouts.
Attacting international investment
A decade ago, research-intensive companies were almost exclusively funded by domestic investors. Fast forward to 2023, and 23 per cent of equity deals represented a UK-foreign co-investment. The US remains a dominant player, with American funds frequently participating in key deals, alongside significant contributions from investors in the Netherlands, and France.
Life science dominates
The UK excels in Life Sciences, inclusive of seven related industries such as pharmaceuticals and biotechnology, which accounted for 210 deals from H2 2023 to H1 2024. Over the same period, spinouts in AI secured 53 deals.
Capital remains accessible for companies with robust intellectual property at their core
With £1.00 billion, the H1 2024 figures are promising, putting the annual total on track to surpass that of 2023. The number of deals is likely to remain consistent with recent years. Despite heightened investor caution over the past 18 months, capital remains accessible for companies with robust intellectual property at their core.
Equity investment in UK spinouts (2014-H1 2024) While no spinout deals exceeded £100 million in 2023, compared to two in 2022, companies in the life sciences, quantum, and AI industries raised significant amounts to support R&D and commercialisation.
Notably,
- Oxford Quantum Circuits secured the largest single round, raising £78.7 million in November 2023 from investors.
- The second largest deal was secured by Synthesia, which has developed software to create videos featuring custom AI avatars. In June 2023, the University College London spinout secured £71.4 million from investors.
Only three exits out of top 15 from outside life sciences since 2014
Since 2014, UK academic spinouts have seen 204 exits, including 32 IPOs and 172 acquisitions. Among the top 15 exits, only three are outside the life sciences sector.
One of these is Darktrace, which listed on the NASDAQ in April 2021 with a market capitalisation of £1.72 billion. The University of Cambridge spinout specialises in cybersecurity software that uses AI to detect behavioural anomalies and respond to cyber threats in real time. Between its founding in 2013 and its IPO in 2021, Darktrace raised £173 million across seven rounds of equity funding.
Another non-life sciences exit is Intelligent Energy, which went public in July 2014 on the London Stock Exchange with a market capitalisation of £639 million. The University of Loughborough spinout develops low-carbon fuel cell systems for the automotive, consumer electronics, and stationary power sectors. Between its incorporation in 2004 and its listing in 2014, Intelligent Energy raised £137m via seven rounds of equity investment.
The third company is NaturalMotion, a University of Oxford spinout that develops and publishes online social games and provides animation technology used by game developers and visual effects companies. Between its founding in 2001 and its acquisition by Zynga in 2014, NaturalMotion raised £7.14 million.
Parkwalk is UK's leading spinout investor
In 2023, Parkwalk remained the UK’s leading investor in spinouts, participating in 29 deals across life sciences, AI, CleanTech and more – these deals had a combined value of £304 million. It also launched its third Enterprise Fund with Imperial College London, and successfully closed its 6th University of Oxford Innovation Fund and 9th University of Cambridge Enterprise Fund.
Parkwalk also launched its third Knowledge Intensive EIS Fund, supporting science- based businesses and deploying capital through attractive tax relief.
Lead image: Freepik.
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