What does the future hold for University Spinouts?

Universities in the UK are some of the very best in the world when it comes to research. Oxford, Cambridge, Imperial College London, to name but a few. Importantly, however, they are all capitalising on their research programmes by creating businesses which, in turn, are helping to boost the British economy.

Whilst these start-up businesses or spinout programmes are proving to be both successful and lucrative and do attract venture capitalists (who clearly see that there is a lower risk in investing in a university backed start-up), spinouts in the UK are still less likely to have access to those venture capital funds than those in the US. This means that they continue to be very much reliant on the support of the Universities who, in turn, will look for a greater share of equity. However, as this is a two-way street, the benefit going back the other way is that the spinout will ultimately benefit from the resource and talent from within the university, including post-doctorate students and research funds.

Is the bubble bursting?

Over the last two years, however, funding for spinouts has been on the decrease and has declined versus the rise in innovation that should be driving funding. Investors who are usually the backers of spinouts are retreating and pulling their haunches – some part driven by the COVID pandemic, and there are also more concerns that BREXIT could have a negative effect, in particular, relating to changes to immigration laws leaving spinouts particularly vulnerable.

In 2019, there were only 334 investment deals made to spinouts, a drop of 24 from the previous year.

However, investors are keen to point out that whilst this may be the case, it doesn’t mean that our academics have stopped working on new technologies. In actual fact, technological innovation has been on the increase, and the COVID pandemic has, in part, helped with this increase in innovation.

There are unicorns in the Valley of Death

Earlier this year, I read an article in the Telegraph (which is where the graph above originated), it suggested that Britain’s Spinout businesses are heading for the “valley of death” as funding and investment declined. However, I don’t believe that this is the case, it seems to be such a defeatist attitude as we all know that there are spinouts who are achieving “unicorn” status and swiftly becoming some of the brightest businesses in the UK.  

Oxford Nanopore is just one of those businesses. Developed from within the Oxford University Innovation Group (OUI), this spinout has now raised over £160 million in funding in this year alone as it ramps up its COVID19 testing allowing it to support the “rapid acceleration” of its manufacturing operations.

Oxford and Cambridge certainly lead the way (and yes, I can be slightly biased as Oxford it is my adopted home town) when it comes to creating spinouts, but there are also very successful spinouts coming from several other British Universities, who have start-ups at the cutting edge of innovation and technology in a variety of sectors.

But why Oxford? What is the secret of its success? Certainly, the diversity of the student population has to be a key ingredient, driven by its international appeal is a draw for talented and innovative people who have the passion and creativity to think outside the box to solve problems. This allows for more divergent thinking and makes Oxford a hotspot for innovation.

What does the future have in store?

We can’t predict the future, COVID19 has shown us this when it turned the world as we know it on its head this year, BREXIT may have a similar impact in January, but what we do know is that if the UK wants to continue to be seen as a leader in tech and scientific innovation, which in turn helps to drive a positive economic outlook, we need to remain open to investment routes and ensure that we maintain this global momentum.

I also want to mention that at the time of writing this, I was delighted to see that Oxford University had launched its 200th spinout as it continues to jointly dominate the UK spinout sector along with Cambridge – both of whom top the rankings in terms of investments and deals secured in a recent survey from Parkwalk Advisors themselves significant investors in technology-focused spinouts.