UK university spinouts are poised for a resurgence in funding, having raised £1 billion in the first half of 2024 alone, according to new research from Parkwalk, the country’s most active university spinout investor.

This comes after a decline in investments following the record £2.73 billion raised in 2021. However, while funding appears to be on the rise, challenges remain, particularly in securing early-stage investment.

Moray Wright, CEO of Parkwalk, emphasized the critical role spinouts play in tackling global issues. “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,” he said.

Wright stressed the importance of a 2024 investment resurgence for Britain’s long-term prosperity, adding that government action, including the extension of the Enterprise Investment Scheme (EIS) to 2035, would help drive growth in the sector. "We applaud the new 2035 extension to the EIS, which will see thousands more spinouts secure funding," Wright added.

Despite positive signals, the sector is grappling with a decline in first-time equity deals for spinouts. The report reveals a 15% drop in these deals, from 86 in 2022 to just 67 in 2023.

Compared to 2021’s 120 first-time funding deals, the numbers highlight a growing bottleneck in early-stage investment, which could hinder the development of new startups.

Parkwalk's report shows that although total investment in spinouts has yet to fall below pre-pandemic levels—remaining higher than the £1.53 billion raised in 2020—the challenges facing early-stage funding could limit future growth.

The number of overall spinout deals has remained consistent over the past few years, averaging 423 annually from 2020 to 2023. However, the slowdown in first-time funding points to a potential gap in support for the next generation of spinouts.

To fully unlock the potential of the UK’s science and technology sectors, Wright called for the effective implementation of the Mansion House reforms, which would allow access to large pools of domestic pension capital.

“To truly realise the potential of UK science and technology, it’s now essential that the Mansion House reforms are effectively implemented, and we unlock vast pools of domestic pension capital,” he said.

In addition to government reforms, a recent review of university spinouts recommended that academic institutions consider lowering their equity stakes in new companies.

Research from Beauhurst and the Royal Academy of Engineering shows that universities have increased their average equity stake in spinouts from 19.1% to 22% in the past year, potentially deterring outside investment.

The review suggests universities should take stakes of around 10% for non-IP-intensive spinouts, and 10% to 25% for more IP-intensive companies, in order to encourage entrepreneurship and attract investors.

As the UK government works to boost economic growth through innovation, addressing the early-stage funding gap will be key to ensuring that spinouts can continue to thrive and deliver the next generation of technological breakthroughs.