January 21, 2021

Octopus Ventures publishes report on fourth industrial revolution powered by university spinouts

UK university spinouts are achieving record breaking exit values, according to the latest figures from Octopus Ventures’ Entrepreneurial Impact Ranking 2020. The second annual edition of the report found that universities received £61 million from spinout exits; an increase of 37% year on year from 2017/18 to 2018/19.

The spinouts that achieved the highest exit values were in artificial intelligence (AI), quantum computing and life & medical sciences. Universities and investors remain optimistic that success in these areas will continue despite Covid-19, while highlighting the huge economic and societal benefits they offer, both now and in the future.

Simon King, Partner and deep tech investor at Octopus Ventures, explains:

“When investing in spinouts you have to take a long-term view. We’re thinking about how these technologies could revolutionise the way businesses and society operate in ten years, well beyond the challenges posed by the virus today.

“The scientific research produced by UK universities is genuinely world class and, as we start to think about the UK’s post-pandemic recovery and our future outside the European Union, there’s no question that producing more successful spinouts could unlock huge economic growth. The momentum we’re now seeing, particularly in the fields of deep tech and life sciences, could help to power the fourth industrial revolution, creating thousands of jobs and giving the UK a strong competitive edge. That makes it even more important that we maximise their potential.”

The economic benefits generated by these sectors are already significant. The UK’s life sciences industry alone contributes over £70 billion a year and 240,000 jobs across the country. Figures from Innovate UK also demonstrate that government support to help commercialise spinouts pays off, with every £1 invested returning almost £42.

The ranking

Queen’s University Belfast maintained its top spot in the ranking for the second year running and is noted for its highly effective approach to developing spinouts, with a key focus on ‘customer discovery’.

The University of Dundee was a new entrant to the Top 5. It specialises in two of the fields leading the charge: computer and medical sciences. Combining both, one of its spinouts, Exscientia, is an AI-powered drug discovery company, which was founded in 2012 and raised $60 million in a Series C funding round earlier this year.

The ranking measures UK universities’ effectiveness in terms of their production of intellectual property, creation of spinout companies, and successful exits from such spinout companies, relative to their total funding3.

Entrepreneurial Impact Ranking 2020 – Top 10

1st – Queen’s University Belfast

2nd – University of Cambridge

3rd – Cardiff University

4th – Queen Mary University of London

5th – University of Dundee

6th – University of Leeds

7th – University of Oxford

8th – University of Nottingham

9th – University of York

10th – King’s College London

Brian McCaul, CEO of QUBIS and Head of Innovation at Queen’s University Belfast, said:

“We are delighted that Queen’s has achieved the top position for the second year running. The fact that this measures spinout activity and investor returns over 10 years underlines Queen’s continued ability to effectively and efficiently translate research innovations into commercial success. We can be truly proud of our significant contribution to regional economic development, demonstrated perhaps most clearly in Northern Ireland’s flourishing life sciences sector, where many of our spinouts have performed well whilst helping in the fight against Covid-19.

“Whilst 2020 has been an extremely challenging year for many spinouts, particularly those seeking to raise equity, most ventures have been able to successfully progress and we are optimistic for what the future holds when we look at the quality of the commercialisation opportunities that continue to emerge from the research here at Queen’s.”

Dr Matt Perkins, CEO of Oxford University Innovation Ltd, commented:

“Spinout companies are an essential tool for outputs from Oxford and other universities to deliver societal and economic impact. Our companies span the sciences, and transform world-leading research into world-changing reality. We welcomed our 200th spinout, PhishAR, in July and have created a further nine spinouts since. Meanwhile, our spinout family is attracting record investment, with $1.1 billion raised in 2019/20. These companies are creating jobs, economic growth and, more importantly, are bringing technologies to market that can positively transform lives and society. Despite recent uncertainty caused by the Covid-19 pandemic, the Oxford ecosystem continues to develop and thrive, and we expect that spinouts nationally will form a major building block of the UK economy as they mature.”

How to create more commercial success stories

The report reveals that many of the universities at the top of the ranking share similarities in their approach to developing and commercialising spinouts and includes six recommendations for how universities can help propel spinouts to greater commercial success:

● Focus on customer discovery: Spinouts should aim for at least 100 conversations with potential customers

● De-risk technology and teams: Use proof of concept and prototyping, along with quality hires, to de-risk the spinout

● Align incentives for different skill sets and development phases: Ensure ownership structure and incentives are aligned to attract the right people at the right time

● Use milestone-based valuations and fundraising targets: Aim to raise funds in stages according to what is needed to reach the next milestone

● Be creative in fundraising: Leverage all sources of fundraising available

● Build scale through alliances: Use networks to add value to spinouts in different circumstances

To read the report, including the full rankings, a deep dive on Queen’s University Belfast and more detailed recommendations, please visit octopusventures.com