UK University Spinouts: The Current State of Equity Investment

A report from Parkwalk, the UK's most active investor in university spinouts, underscores the increasingly pivotal role that spinouts will play in shaping the nation's global economic standing. These innovative ventures, emerging from research-intensive institutions, are expected to significantly influence the UK's productivity levels, advancements in public services, and the development of technologies that could mitigate climate change. Parkwalk’s report illustrates a dynamic investment landscape for spinouts, revealing both resilience and adaptability amidst current economic challenges.

While equity investment in UK spinouts declined in 2023 to £2.34 billion, down from the peaks seen during the pandemic years of 2021 and 2022, the number of deals remained remarkably consistent. From 2020 to 2023, the volume of deals fluctuated only slightly, with between 420 and 426 deals each year. This stability is particularly encouraging when compared to the broader equity-backed sector, which saw deal numbers fall by more than 10% during the same period. The consistency of deal-making in spinouts suggests that despite economic headwinds, these ventures remain a vital part of the UK’s innovation ecosystem.

Looking ahead, the first half of 2024 offers promising indicators, with total investment already nearing £1.00 billion, putting the annual figure on track to exceed that of 2023. However, the report also highlights a critical challenge: a 15.3% decline in first-time equity deals during the same period. This decline points to potential difficulties in securing early-stage funding, a crucial component for nurturing new, high-growth spinouts. Without sufficient early investment, the pipeline for future innovations could be constrained, posing risks to the long-term health of the spinout ecosystem.

The report also highlights a notable shift in the investor landscape over the past decade. In 2013, most research-intensive companies relied primarily on domestic investors. By 2023, 23% of equity deals involving UK spinouts represented co-investment from international sources, with US funds playing a dominant role. Investors from countries such as the Netherlands and France have also become more prominent, reflecting the increasingly global nature of spinout investment. This international interest further underscores the strength and attractiveness of the UK's spinout ecosystem, particularly in sectors poised for significant growth.

The Life Sciences sector continues to be a cornerstone of UK spinouts, with 210 deals recorded between the second half of 2023 and the first half of 2024. Life Sciences encompasses a range of industries, including pharmaceuticals and biotechnology, which have seen steady investment despite broader economic challenges. In the same period, spinouts focused on artificial intelligence (AI) secured 53 deals, highlighting the growing importance of AI in the UK’s innovation landscape.

Despite increased caution among investors over the past 18 months, capital remains accessible for companies with robust intellectual property (IP) at their core. The H1 2024 figures, approaching £1.00 billion in investment, suggest that capital is still flowing to spinouts with strong IP, particularly those in cutting-edge fields such as Life Sciences, quantum technology, and AI. While no single deal in 2023 exceeded £100 million, which had been the case in previous years, companies in these sectors raised significant funds to support both research and development as well as commercialization efforts.

The Parkwalk report paints a picture of a spinout ecosystem that is both resilient and evolving. While challenges remain, particularly in early-stage funding, the continued flow of capital into high-IP ventures and the increasing involvement of international investors are positive signs. Spinouts are expected to remain a key driver of innovation in the UK, with their contributions poised to address some of the most pressing economic and environmental challenges of our time.