University spin-outs on par with US

University spin-out activity in the UK is on a level with the US according to Library House, the early-stage company research body, in a new report.

The 590 spin-outs currently operating in the country managed to raise around £160m last year, which makes up 12% of all venture capital raised in 2006. On average such businesses raised £2m, and over 165 of all venture capital investments made last year were aimed at spin-out companies. Library House contends that British universities are spinning out companies which are of equal quality to many of their US counterparts.

Doug Richard, chairman of Library House said: “Spin-out activity in the UK is in an extremely healthy position. The promotion of a ‘third stream’ agenda in UK universities has been a success and despite being on average eight years younger than their US counterparts, UK university technology transfer offices are spinning out companies of a quality equivalent to many of the US’s top universities.”

The report concerned part of its time with highlighting the successes that universities have achieved over the last two years. These included Cambridge University’s Solexa which now had a market capitalisation of US$600m on NASDAQ prior to its merger with Illumina, and the combined entity now has a market valuation of US$1.5bn. Edinburgh spin-off Wolfson Microelectronics is now valued at over £335m, making annual revenues of over £100m. Vectura, the spin-out from the University of Bath listed on the London Stock Exchange, is currently valued at over £310m.

One of the many criticisms aimed at UK university spin-outs is that they are of poor quality but Library House disputes this. The average Southampton University spin-out since 2001 has attracted £4.1m in external funding compared to approximately £1.2m at both Washington and Wisconsin – universities ranked over 100 places higher than Southampton in the World Rankings (Shanghai Jiao Tong Rankings). Cambridge also out performs its American peers, with spin-outs raising a total of £140m since 2001, five times more than the likes of Washington and Wisconsin. The report argues that Cambridge is not even that far behind Silicon Valley, with Stanford raising £250m in the same period.

Richard says: “Regular criticisms surrounding UK spin-outs being poor quality or behind the US are simply not true, as is, in fact, the other notion that an equity gap is holding back spin-outs from receiving investment. As we expected, when Library House examined the actual fund raising activities of the companies we found no evidence of a gap. In fact more deals took place in the so-called “gap” than in any other size range. The Library House figures completely contradict the widely-held view that entrepreneurs do not have access to funding in this range and it is clear that institutional investors are willing to make investments at this level.”