British start-ups that evolved out of university research projects brought in £2.5 billion in equity investment in 2021 to set a new record for funds raised over a calendar year. The level of investment attracted by spin-outs represented 69% growth on the £1.5 billion secured in 2020 and represents a 500% increase on 2012 levels. The data was recently published in a report from the investor Parkwalk Advisors.
Another record set last year was the number of new British university spin-outs to receive equity investment with a total of 102 start-ups banking funds for the first time. However, despite the impressive results and progress made by the academic spin-outs sector, the report warns that such companies are still “hugely underfunded”. More would be expected to successfully commercialise their research if they benefitted from more generous investment.
British universities are renowned for their world-beating research but have been criticised for failing to develop it into major technology companies. There has, however, been recent success in the biotechnology field, with university spin-outs in the category including the gene-sequencing tech company Oxford Nanopore, which listed on the LSE last year, and Graphcore, the AI-focused semiconductor designer.
Last year’s investment total in spin-outs was boosted by the £195 million raised by Oxford Nanopore and £162 million by Graphene through their respective IPOs. In total, there were six spin-outs to attract over £100 million in equity investment in 2021.
Growth in overseas investment was also a major factor with non-British investors involved in 40% of last year’s capital raises compared to just 12% in 2015. American backers were the most active of the overseas category.
Parkwalk chief executive Moray Wright commented:
“This year’s report shows an increased appetite for first-time equity deals and a record level of overall funding for spinouts.”
“Whilst this is a positive step in the right direction for the sector, we still believe that despite the world leading research produced here in the UK, deeptech is still hugely underfunded at the scaleup stage, especially from UK investors.”
British university spin-outs have often successfully raised initial investment but then struggled to attract the new funding necessary to maintain growth once they reach a certain size. UK investors are traditionally much more reluctant to put their money into higher risk technology that may either fail to make a commercial breakthrough or require ten years or more to deliver returns.
Mr Wright believes one solution to the mid-point funding bottleneck would be a relaxation of rules around the kinds of investments UK pension funds are allowed to make. The Parkwalk report highlights this is still an issue with seed funding hitting record levels but venture and growth investment levels stagnating in recent years.