RAEng Enterprise Hub’s Spotlight on Spinouts report published for 2024

6 mins

Yesterday, the Royal Academy of Engineering (RAEng) Enterprise Hub published their annual Spotlight on Spinouts report for 2024, in collaboration with Beauhurst. The RAEng Enterprise Hub has been supporting UK spinouts for over 10 years, with a mission to identify and support bold IP-rich innovations that can help tackle some of the most complex environmental, economic, and societal challenges. UK spinouts are crucial to improving economic growth and they play a pivotal role in helping to solve some of the most pressing challenges we face.

Investment and equity

In 2023, equity investment in UK spinouts fell by 30.7% from £2.36b to £1.66b. This aligns with a wider trend in the high-growth company ecosystem following record investments in 2021 and 2022.

However, while private investment took a back seat in 2023 compared to recent years, the government has focused on spinouts. The Spotlight report points to the Independent Review of University Spin-out Companies, released in November 2023, which outlines 11 recommendations to accelerate the commercialisation of university IP by creating spinouts to bolster the UK economy.

A total £747m of Innovate UK (IUK) grant funding has awarded to spinouts between 2014 and 2023. In 2023, spinouts secured 34.0% more investment by value compared to the previous year, reflecting the importance of public funding, especially in the face of a more challenging private funding environment.

As of January 2024, 56.7% of active UK spinouts tracked by the Report are at the seed-stage. This figure is closely aligned with the 56.5% recorded in January 2023, indicating a steady influx of new, innovative firms at the initial stage of development which could evolve into key players for future expansion. Overall, the number of companies in the venture (362), growth (112), and established (67) stages also remain similar compared to the precious year.

Sectors

The pharmaceuticals sector, focused on drug discovery and development, is the largest sector for UK spinouts with 331 companies. It is followed by the research tools and reagents sector, which has 302 companies that supply specialised machinery and reagents such as antibodies and DNA for scientific experiments. The vast research capabilities and state-of-the-art facilities of universities can be crucial in this domain to fuel scientific breakthroughs. Emerging sectors in genomics and precision medicine also have significant spinout populations, representing 101 and 94 spinouts respectively. However, investment in engineering biology spinouts has seemingly declined over the last two years, following a record high of £1.33b in 2021 which was likely driven by the demand for this technology during the COVID-19 pandemic.

The Spotlight report draws inference between the analytics, insight, and tools sector (representing 270 spinouts), paired with the software-as-a-service (SaaS) sector (144 spinouts), which underscores the continued demand for data-driven decision-making and cloud-based software solutions. The high number of companies in these areas illustrates the long-term demand for leveraging big data and advanced analytics to gain competitive advantages across various industries.

The AI sector has also grown significantly over the past five years with 184 active AI spinouts. This industry appears to be poised for sustained expansion, propelled by the widespread adoption of large language models (LLMs) and widely publicised breakthroughs in generative AI technologies like OpenAI’s ChatGPT.

Innovative semiconductor technologies also present a complementary offering for AI sector growth. Semiconductor spinouts represent 47.7% of active high-growth companies in this field. Equity funding volumes into semiconductor spinouts fluctuated over the past five years, however this has been rising since 2021, reaching a new high of £49.3m in 2023. While investment has grown in semiconductor spinouts however, it is concentrated among a small pool of investors which may reflect both the small number of companies available for investment and the need for specialised knowledge to effectively assess the viability of semiconductor technologies.

Last year also marked a peak in funding for spinouts in the telecommunications sector, with a total of £81.2m in equity finance. The global telecommunications market is expected to grow rapidly in years to come, driven by emerging technologies such as 6G, quantum, and AI.

Quantum technology is also demonstrating encouraging trends in the UK, with just over a third of the active population of high-growth quantum companies being spinouts. Over the past five years, equity investment in quantum spinouts has increased considerably, securing a record-breaking £184m in equity investment in 2023. The increases in 2023 goes against the wider downturn in investment across the same period in the high-growth ecosystem.

The above sectors appear to be broadly aligned with the priority sectors identified in the UK Science and Technology Framework delivered by the Department for Science, Innovation and Technology (DSIT) in 2023, which included artificial intelligence, future telecommunications, engineering biology, semiconductors, and quantum technologies. It is therefore encouraging to see how UK spinouts are contributing to sectors where the UK shows pre-existing strengths or exhibit strong potential for future development.

Universities

For 2023, the University of Oxford remained the leading institution in terms of spinout creation, with its number of spinouts increasing from 205 to 210 over the last year. The University of Cambridge continues to hold the second spot, with its total spinouts count increasing from 145 to 149. However, it is Imperial College London which has experienced the most significant growth in spinout numbers, with a 14.8% increase, raising its total from 108 to 124 in the last year.

Looking ahead

The trends in the UK spinout economy highlight that the UK is on its way to becoming a science superpower, with continued growth in both established and emerging sectors.

An uncertain economic outlook and the threat of a looming recession during 2023 unsurprisingly seems to have been reflected in private capital being invested more slowly and at more normal valuations. However, while we should not ignore this decline, it seems unlikely to be here to stay.

It will be interesting to follow how the spinout industry continues to change and what new trends may arise throughout 2024.

The full report can be found here.

Written by: Jessie Harrison