Companies formed by commercialising research from universities and institutions — known as spinouts — will play a key part in the UK’s aim of becoming a "science and technology superpower".
Investors are keen to invest: UK spinouts received 9.11% of equity finance raised by UK companies in 2022, despite making up just 2.52% of the nation’s high-growth company ecosystem, based on a new report by the Royal Academy of Engineering Enterprise Hub and data platform Beauhurst.
The report also digs into average equity stakes taken by universities, the state of grant funding and gender diversity. Here are the key takeaways.
It’s not all about the Golden Triangle
Even though universities from the so-called Golden Triangle of Oxford, Cambridge and London account for around 46% of all spinouts in the UK, signs are that new clusters are emerging across the rest of the country.
Since last year, Manchester and Bristol have grown the most in terms of their spinout populations — the number of spinouts hosted in that particular local authority, which could include a spinout from an institution based outside of that area. Manchester grew from 52 to 58 spinouts, and Bristol from 42 to 47.
Edinburgh, which now has 78 spinouts headquartered in the city, is also an attractive destination, not just from local universities but also from schools around the country including Strathclyde and St Andrews.
Is grant funding drying up?
Though it hasn’t dropped significantly over the last 12 months, Innovate UK grant funding — which is of crucial importance to spinouts and helps with R&D and collaboration with other institutions — has declined about a third from its peak in 2019-20.
While spinouts received almost £100m in 2020, this fell to only £62.m in 2022. The total number of grants that spinouts received halved from 461 in 2020 to 222 in 2022.
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Universities are taking less and less equity from founders, on average
There’s an ongoing debate around the equity percentage universities take from spinout founders at the beginning of their journey — and the detrimental effect a high share can have on long-term growth. The UK government has commissioned a review into spinout best practice, which includes equity stakes and IP policy.
But there are signs that things are moving in the right direction, albeit slowly. In the last 10 years the average stake universities take in spinouts has fallen, from 24.8% to 17.8%. According to the report, there are multiple reasons for this change. Some of them are mathematical — the increased number of total spinouts reduces the impact of large equity stakes on the average, for example. The other reason, the report says, is the increase in public scrutiny of the equity distribution between founders and universities.
Founding team diversity is poor
In 2016, there were no all-female spinout founding teams, with 17.5% mixed-gender founding teams and 82.5% all-male founding teams.
As of January 2023, 7.6% of UK spinouts had all-female founding teams, 17% mixed gender founding teams and 75.4% all-male founding teams. So although things are moving in the right direction, there is still a big imbalance when it comes to gender diversity across the UK’s spinout ecosystem.
That chimes with European tech as a whole. Men-only founding teams receive 87% of all VC funding in Europe, while the proportion of funding that goes to women-only teams has dropped from 3% to 1% since 2018.