Cambridge data points to funding boom for the University’s spinouts 

And according to the data – published at the end of last month to coincide with an innovation summit – spinout companies are doing particularly well, with total investment rising from £46 million in 2015 to £879 million in 2024. To some extent, this reflects rising across-the-board investment in the region’s tech ecosystem, but the report suggests that on a deal-for-deal comparison, companies born out of academic research and deploying IP created under the umbrella of university projects, are raising more money than their non-spinout counterparts.

So why are VCs prepared to invest more (on average) in deep tech and life science spinouts?

Spinouts Bring Deep Knowledge

Michael Anstey is a partner specializing in life sciences and healthcare at Cambridge Innovation Capital, a VC focused on investment in the Cambridge region. As he sees it, academic research has generally been thoroughly tested and validated before the time comes to seek a pathway to commercialisation.

“University spinouts often have had academics working on something for ten years. As academics, they can experiment, they can fail and they can pivot. So by the time they emerge as spinouts, you have someone who is an expert and who has thought deeply about something for a decade,” he says.

According to Anstey, this deep well of experience can be hugely attractive to investors, enabling a newly spun-out company to raise relatively large sums of money in early rounds.

Anstey cites the example of Trimtech Therapeutics, a portfolio company that has developed treatments for neurodegenerative diseases. “The founders are true experts,” he says. “So at the seed stage, we very quickly raised £25 ($31) million. We were able to do that because the science had been worked on for a long time.”

That sounds logical enough, but the challenge is surely to identify research that has a viable commercial application. As Anstey acknowledges, the science has to be “Translatable.”

In Cambridge, an Entrepreneur in Residence is employed to act as a bridge between academics, VCs and the University’s technology transfer operation. Once suitable candidates have been identified, a lot of work is done to prepare a business plan.

In the case of Deep Tech spinouts – such as those working in AI or quantum – much of the preparation centers on finding product/market fit. Anstey says this is less applicable to life sciences, where the application of new technologies is more obvious. After all, a drug to cure a disease has clear benefits. So the challenge there is to ensure everything is in place to offer a route into highly regulated healthcare systems.

According to Anstey, preparation work takes time – possibly years – but it pays off in terms of going public with something that is investible.. “With a plan and science, you can raise money. We go slow at the beginning, so we can go fast later on,” he says.

Public Funding For Science Startups

It would be wrong to suggest that spin-outs are now the center of attention. While they tend – in Cambridge at least – to raise more money, there is funding available for science entrepreneurs bringing their own IP to the market. And crucially, there is government support.

Michael Chen is the CEO and co-founder of Nuclera, a Cambridge company that has developed protein prototyping technology. As he explains, access to proteins is essential for drug discovery. “We founded Nuclera to make proteins easy through our protein discovery system, which is a benchtop device,” he says.

Nuclera was created in 2013 while the three founders (Chen plus Gordon McInroy and Jiahao Huang) were studying at the university. Chen says early funding was available, even for an offering built on complex science. He cites tax breaks as key to bringing investors into the market.

“There is a lot of Seed funding that is encouraged through tax-favored schemes like EIS and SEIS,” he says. These initiatives (the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme) provide tax breaks that essentially derisk investment in qualifying companies. In addition, grants are available through Innovate U.K., the body charged with supporting technology startups in key sectors.

Routes To Venture Capital

As Chen sees it, these early sources provide a route to future fundraising. “We could raise angel funding – supported by SEIS,” he says. “Off the base of SEIS, you can raise Innovate UK money, and that’s how we have funded Nuclera.”

Public support will only go so far and in recent years, overseas investment has assumed a crucial role in bringing science-led companues to market. According to the data, U.S. investment in the region now amounts to 19% of all deals, with European investment amounting to 12%.

Chen says Nuclera’s Series B and C rounds ($42.5 million and $75 million, respectively) were led by U.S. firms with domestic VCs also involved and he sees overseas investment as essential in the growth of the U.K. innovation economy. However, he adds that the UK needs to create more funds that can take bold bets.

There is a policy concern here, about overseas investment ultimately leading to a later-stage brain drain as UK-founded companies move elsewhere to secure further investment. Anstey says it’s important to strike the right balance.

Even the most successful companies benefit from having domestic and international capital,” he says. “Too much overseas capital has some risk. But too much domestic capital also has risk.”

CIC’s policy is to encourage local businesses to scale, but keep their HQs and research operations in Britain. “An example of this is Bicycle Therapeutics. As they became successful, they expanded into the Boston area, but the core of Bicycle is centered in Cambridge.

If the Cambridge experience is anything to go by, it is getting easier for U.K. science-led startups to take their work from the labs to the marketplace. But the key is a support system that provides support and funding in the early stages, with investors, mentors, and lawyers on hand. It is also important to strike the right balance between domestic and overseas investment.