Publicly backed UK Innovation and Science Seed Fund (UKI2S) is expanding its patient capital fund by £37m to support spinouts in fields like synthetic biology, fusion energy and defence.
The evergreen fund — one with no set end date, which allows for riskier bets with less pressure for immediate growth — aims to help to turn British research into successful businesses that focus on the common good: sustainable growth, health and security of society and economic gains.
What is UKI2S?
UKI2S is an early-stage investment fund backed by several British public bodies such as the UK Research and Innovation, the Defence Science and Technology Laboratory, the Department of Business, Energy and Industrial Strategy and the UK Atomic Energy Authority. The fund is managed by Midven, a part of Future Planet Capital, a global VC firm that invests in potential companies emerging from world’s top research centres.
The fund targets initial stakes of 10%; its average transaction is £300k but it can invest up to £1.5m.
What startups are in UKI2S’s portfolio?
The fund’s portfolio currently comprises 52 companies that have attracted over £500m of later-stage investment between them. It has backed companies such as:
- Cobalt Light Systems, a spinout working on noninvasive chemical analysis, sold to Agilent for £40m.
- Tokamak Energy, a global commercial fusion energy spinout.
- Quethera, a startup exploiting synthetic biology for gene therapy, sold to Astellas for £85m.
What projects will UKI2S fund?
With the new money, the fund aims to invest in spinouts in synthetic biology, fusion energy and defence and security. It’ll also keep supporting companies from other sectors that emerge from its partner research networks. The fund plans to work with a future Government Office for Technology Transfer — due to be launched later this year — to provide investment capital to exploit the UK’s public knowledge assets including intellectual property, innovation and data.
What’s the market like?
European and UK researchers are still facing many challenges while they try to commercialise their study — they complain that the institutions they work with are greedy for equity and want to take too much control over the governance of their companies. As a result, out of 276 unicorns in Europe, only 13 are university spinouts, according to Dealroom.
But the market situation is slowly improving: a report by investor Parkwalk Advisors and Beauhurst found that UK university spinouts snapped up a record £2.5bn in funding in 2021 — a 5x increase on what it was a decade earlier. They have also been increasingly targeted by European VCs, such as Earlybird and Air Street Capital.
There’s no doubt that the research institutions can bring life-changing solutions to the real world. But turning those into a successful business requires time and expertise that founders with a research or academic background don’t always have. Investors and founders say that encouraging these spinouts will be key for the entire European ecosystem — and where a little public money can give a boost. Plus, of course, policymakers want to make sure they’re involved in backing important innovations.