18 October 2023

Equity Investment into Spinouts 2023: A Summary

Equity Investment into Spinouts 2023: A Summary Lily Ruaah, 19 october 2023 For the fourth consecutive year, we partnered with Parkwalk to analyse equity investments

Words Lily Ruaah

For the fourth consecutive year, we partnered with Parkwalk to analyse equity investments in UK spinouts. Together, we investigated the sources of funding and the recipient companies, shedding light on this vital aspect of the business landscape—and brought you our new report, Equity Investment into Spinouts 2023.

What is Parkwalk?

Parkwalk oversees a portfolio of investments in top-tier university spin-outs, specialising in ‘hard science’ companies that commercialise scientific breakthroughs from the UK’s globally-ranked research universities.

As the UK’s most active investor in the university spin-out sector, Parkwalk manages over £450m in assets. The company has invested in more than 160 companies through its managed funds, including collaborations with renowned institutions such as the universities of Oxford, Cambridge, Imperial, and Bristol.

What is a spinout?

An academic spinout, also known as a university spin-off or university spin-out, refers to a company founded based on intellectual property or research developed within an academic institution such as a university, research institute, or laboratory.

These spinouts are typically established by researchers, faculty members, or students who wish to commercialise innovative ideas, technologies, or products from academic research.

Find out more: Spotlight on Spinouts 2023.

Methodology

Beauhurst tracks all spinouts that have emerged on or after 1 January 2011. One of our eight tracking signals that indicate high-growth potential is spinning out from an academic institution.

Companies that spun out of academic institutions before 1 January 2011 might also be featured in this report if they met one of the other seven triggers after that date and were later confirmed to be spinouts.

Equity investment

To be included the report, any investment must be:

Secured by an academic spinout
Some form of equity investment
Secured by a non-listed UK company
Issued between 1 January 2013 and 30 June 2023

For the purpose of our methodology, we define an academic spinout as a company that meets this condition:

The company was set up to exploit intellectual property developed by a recognised UK university or research institution (this is broadly in line with the Higher Education Statistics Agency’s (HESA) definition of a spin-off)

And at least one of the following conditions:

The institution owns IP that it has licensed to the company
The institution owns shares in the company
The institution has the right (via an options or warrants contract) to purchase shares in the company at a later date

Key findings

There were 3613 equity deals secured by spinouts (2013-2022)
Spinouts secured a total of £13.3b in equity investment (2013-2022)
In the first half of 2023, spinouts have secured £743m in equity investment from 192 deals, indicating a fall back to pre-pandemic funding levels
Between 2020 and 2022, spinout deals stayed steady, but their total worth almost doubled from 2020 to 2021. This surge was driven by a notable rise in megadeals (exceeding £50m), increasing from five in 2020 to 14 in 2021.

Spinout investment

Investment into spinouts is essential to fuel innovation, drive economic growth, and transform groundbreaking research into tangible solutions. By providing financial support, these investments enable spinout companies to develop cutting-edge technologies and ideas from academic research.

This infusion of capital helps accelerate research and development, hire skilled talent, scale operations, and bring innovative products and services to market.

In the last ten years, there has been a remarkable surge in the quantity and worth of equity investments obtained by UK spinouts. From 2013 to 2022, the yearly deals nearly doubled, rising from 212 to 414. Simultaneously, the collective value of these transactions skyrocketed, increasing sixfold from £387m in 2013 to an impressive £2.34b in 2022.

During the initial half of 2023, spinouts obtained £743m in equity investment through 192 deals, marking a return to pre-pandemic funding levels despite the broader economic challenges.

To see the top investors, download the full report.

Top equity deals by university

The University of Oxford (64) and the University of Cambridge (50) maintain their top positions in securing equity deals, increasing their previous year’s counts by seven and eight, respectively. This aligns with their status as leading universities in terms of spinout populations.

The continuous growth in equity deals signifies the universities’ commitment to nurturing entrepreneurial talent and their pivotal roles in driving economic development and technological advancements.

To see our full list of top academic institutions by number of equity deals secured by their spinouts, see the full report.

Summary

Over the past decade, 1130 academic spinout companies have seen significant growth in both the number and value of equity deals. However, in 2022, there was a decrease in equity funding from £2.73b to £2.34b. This trend continued into H1 2023, indicating a shift from the high valuations observed in 2021 and 2022.

Despite this, deals are still being closed, reflecting the resilience of venture capital investments, which remain robust regardless of economic cycles. Innovation persists, and the exit opportunities for these spinout companies are expected to unfold in the coming years, guiding investor strategies accordingly.

The UK government aims to make the country a global innovation hub by 2035. Strategic initiatives, including a planned increase in annual public investment in R&D to £22b, are set to fuel growth in UK spinouts.

To find out: