Talk of venture capital opportunities nowadays and thoughts inevitably turn to the pioneers of Silicon Valley. But innovation doesn’t always stem from that particular hotbed of capitalism. In the UK, many start-ups begin life at some of the world’s oldest institutions: universities.
Over the past ten years, the combined value of equity investment deals into companies spun off from UK universities has risen by 527 percent, totalling £11bn of funding. Last year spin-outs took in more than £2.5bn in equity investment, equivalent to almost 10 per cent of total investment into UK private companies in 2021, according to figures from data platform Beauhurst and spin-out investment manager Parkwalk.
Early-stage investing is fraught with risks, but university-linked companies have more staying power than most. Data from Beauhurst and the Royal Academy of Engineering has found that academic spin-outs are more likely to survive than the average start-up. Established UK companies such as Sage (SGE) and Kainos (KNOS) are among those that began life as university spin-offs.
Recent market debuts have proven rocky: DNA sequencing specialist Oxford Nanopore (ONT), which listed last summer, has seen its share price fall 48 per cent since, not helped by rapidly souring attitudes towards early-stage growth stocks. And despite their relative resilience, most university spin-outs do not survive for long enough to become public companies: the average life for such businesses is just nine years.
Statistics like these are why venture capitalists spread their bets widely, in the hope of finding one winner among the many flashes in the pan. And the flow of capital into the sector is helping produce a wider array of potential opportunities – some of which can be accessed by private investors (see below).
Unsurprisingly, much of the capital flowing into spin-offs has been granted to projects developed from universities that make up the so-called UK ‘golden triangle’: Oxford University, the University of Cambridge, Imperial College London, and University College London. Enterprises from the golden triangle have accounted for 32 percent of all spin-offs since 2011.
On a sectoral basis, industries like pharmaceuticals, tech, and service-related enterprises accounted for almost half of all British university spin-outs in the last ten years, yet other sectors – those that rely on future engineering solutions such as AI and big data – are now on the rise.
Companies like bit.bio have merged tech and biopharma to create a synthetic biology solution to “code cells for health” raising £77m in funding in 2021. Carbon Re, meanwhile, uses AI technology to decarbonize cement and steel. The company’s aim is to reduce energy emissions from cement plants that are responsible for 8 per cent of global emissions.
As with the wider investment world, venture capitalists are increasingly interested in “impact and sustainability” focused businesses, according to Dr. Anne Lane, chief executive of UCL Business.