Investment recovery for UK spin-outs after challenging 2023

A new report from Parkwalk, the UK’s most active investor in university spinouts, and analytics firm, Beauhurst, reveals that UK spinout investment is showing signs of recovery following a challenging year in 2023.

In the first six months of 2024 spinouts secured more than £1 billion in funding. A continuation of the H1 2024 trajectory will see investment for the year surpass 2023 levels, signalling a resurgence for the UK’s most innovative companies. 

The top UK university for spin-outs was, again, The University of Oxford, which spun out 62 companies. The University of Cambridge and Imperial College London had 45 and 28 respectively, followed by The University of Bristol, with 26. Other universities from across the region appearing in the list include the University of Southampton, which spun out 14 companies and the University of Warwick which spun out 10. The University of Surrey spun out five.

Equity investment in university spinouts had fallen year-on-year from the record high of £2.73 billion in 2021. University spinouts attracted investment of £1.75 billion in 2023, a marked downturn on 2022 (£2.38 billion) but surpassing pre-pandemic levels of £1.53 billion in 2020. The number of deals for spinouts has remained stable between 2020 and 2023, with an average of 423 deals each year. 

Moray Wright, CEO of Parkwalk, said: “The case for uncovering, nurturing and backing spinouts could not be stronger - these are companies delivering novel solutions to the world’s most pressing challenges. A 2024 investment resurgence is vital for Britain’s long-term prosperity and the government has moved quickly to help cement momentum. We applaud the new 2035 extension to the Enterprise Investment Scheme which will see thousands more spinouts secure funding. To truly realise the potential of UK science and technology, it’s now essential the Mansion House reforms are effectively implemented, and we unlock vast pools of domestic pension capital.”

The sector is not without its challenges. Today’s report shows a 15 per cent decline in first-time equity deals for spinouts, falling to 67 in 2023 from 86 in 2022. First time funding has been trending down, with almost half the number of deals completed last year on 2021 levels (120) - highlighting a potential bottleneck in early-stage funding.

However, the report does suggest that a culture of commercialisation with successful Technology Transfer Offices (TTOs) has been established across the UK’s university base. Annual spinout investment has quadrupled in 10 years rising from £514 million (2014) to an estimated £2.3 billion in 2024. 

UK spinouts are thriving in several critical sectors such as artificial intelligence, life sciences, and cleantech - further solidifying the UK’s competitive advantage in these verticals. Life Sciences, inclusive of seven related industries such as Pharmaceuticals and Biotechnology, accounted for 210 deals from H2 2023 to H1 2024. Over the same period, spinouts in artificial intelligence secured 53 deals, and cleantech 51. 

The global appeal of UK spinouts continues to trend upwards with greater participation from foreign investors since 2021. In 2023, 22.6 per cent of equity deals involved UK-foreign co-investments with US based investors as the leading participates having contributed to 39 deals - five of which ranked among the top 10 largest deals by value that year. Over the past decade (2014 – H1 2024), the Netherlands ranked as the second most active participant, contributing to 62 spinout deals, whilst Germany ranked third with 55. 

The report also confirms that Parkwalk maintained its position as the leading investor in UK spinouts, participating in the most equity deals (29) in 2023, across life sciences, artificial intelligence, cleantech and more – these deals had a combined value of £304m. Parkwalk is part of IP Group, a FTSE 250-listed investor, that in 2023 also invested in 11 university spinouts. Together, the Group contributed to 40 spinout deals throughout the year. 

 In 2023, Parkwalk launched its third Enterprise Fund with Imperial College, and successfully closed its 6th University of Oxford Innovation Fund and 9th University of Cambridge Enterprise Fund. Spinouts from these three institutions topped the ranking for number of equity deals secured in 2023 - with the University of Oxford at 62, the University of Cambridge, 45, and Imperial College London, 28.

Supporting the next generation of early-stage spinouts, in 2023 Parkwalk partnered with Cambridge Enterprise, the University of Cambridge innovation arm, to provide investment for its Founders initiative. It is the first pre-seed accelerator for the University of Cambridge, providing up to 10 early-stage companies with intensive mentoring, connections and seed funding.