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University spinouts raise over £1 billion in record-breaking 2017

Posted: 04/12/2017

A new report on the funding of university spinouts reveals that 2017 has been a record year for investment, with more than £1 billion raised so far.

The report, from law firm Penningtons Manches, analyses equity investment and public grants awarded to academic spinouts between 1 January 2011 – 1 November 2017, with a focus on the investment trends of 2016. It finds that companies spinning out of universities located in the ‘Golden Triangle’ of Oxford, Cambridge and London are the most successful in raising capital: spinouts from Oxford University received the most equity investment in 2016, followed by Cambridge University and Imperial College London. Cambridge however is catching up, with the data indicating it will overtake Oxford by the end of this year.

A further key finding shows that the majority of capital is being raised at the seed and venture stages of a spinout’s lifespan, and that seed-stage spinouts are worth 47% more than the average non-spinout. Growth capital however is harder to achieve: only 42% of spinouts received investment at this stage compared to 55% of non-spinouts. While this is a positive sign for the many innovative spinouts in the UK that are just starting out, it raises questions about the availability of funding as those companies develop.

Only 10% of 2016 investment went to spinouts with at least one female founder, and the data shows that 2017 will almost certainly represent a year-on-year decline on this figure. When taking into account the fact that overall investment into spinouts has climbed to new heights in the last 12 months, it is clear that 2017 has certainly not been a good year for the funding of spinouts with women founders.

Life sciences companies achieved the most deals in 2016, with the sub sectors of research tools/reagents, pharmaceuticals and clinical diagnostics all appearing in the top five when ranked by number of deals completed. Other sectors that performed well include software and software-as-a-service.

Foreign investment contributed to 37% of investment by value in 2016 but only 15% of deals. US-headquartered funds were the most significant source of capital outside the UK, being involved in deals worth 33% of the total invested in spinouts in 2016.

James Went, corporate partner at Penningtons Manches, said: “Following the release of a number of reports and reviews in recent months, not least the Patient Capital Review, the Life Sciences Industrial Strategy and the government Industrial Strategy it is clear that the technologies emerging from our academic institutions are key to the future economic health of the UK. We have worked with many spinouts from a number of institutions on funding, licensing and other matters and felt it was both timely and important to investigate the trends affecting the sector.”

The report was produced by Beauhurst, a data provider that specialises in providing insight on the UK’s startups and high-growth companies. Its customers include some of the UK’s leading organisations in professional services, investment, higher education and government.

Henry Whorwood, head of consultancy at Beauhurst, commented: “The funding market for spinouts is extremely buoyant at the moment. With more funds with a focus on knowledge intensive business coming online, further EIS incentives in the Budget, as well as support in the Industrial Strategy, we expect investment levels to continue to rise.”

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Penningtons Manches Cooper LLP

Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority under number 419867.

Penningtons Manches Cooper LLP