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31 October 2017

Universities raise the stakes for their spinout progeny

Quarterly review: Q3

Author: Thierry Heles, editor

Universities have been significantly upping their game in the third quarter of 2017. Before diving into the figures, however, it is important to acknowledge one caveat with the graphs used in this analysis. The data is slightly skewed for September – several universities revealed new spinouts in their annual report without providing details, leading them to be added to our database that month.

Notwithstanding that issue, it appears that the third quarter of 2017 has performed just well as, if not better than, previous quarters this year. In fact, even July and August – which one might expect to show a lull in activity over the academic summer break – have outdone February to May. In fact, compared with June’s heights, there was only a marginal drop in activity in July and August.

The US and Canada remained at the top for the number of deals conducted in the third quarter but Europe managed to catch up significantly in September and it is here that we find the reason for the steady number of investments and exits – jumping from 16 in July and 10 in August to 21 in September. These are all transactions that occurred in September, as Global University Venturing received no annual reports from Europe-based institutions.

Generally, North America does not appear to have experienced a lull over the summer – the number of new deals even increased from 21 in July to 31 in August.

The rest of the world is almost negligible compared with North America and Europe. This partially illustrates the strengths and expertise of the US, Canada and Europe when it comes to tech transfer, but may also be because these countries do not publicise their successes as much as their peers in the western world.

The capital raised by spinouts in September shot up dramatically and this is not due to annual reports either, as none of those provided breakdowns for any funding spinouts may have raised. The fact that the figure more than doubled on August’s performance – the second highest performer in 2017 so far – and towers over the rest of the year, is indicative of a seismic shift towards the end of the third quarter.

Europe, with its 21 deals, was responsible for just over $1bn in transactions, though even North America’s $423m was an impressive feat considering that amount alone outdid four previous months this year.

There have been no dramatic changes in the number of exits over the year so far, though they have stayed below April’s peak of seven. With many spinouts not disclosing purchase prices, it is also impossible to ascertain whether or not the $558.9m of disclosed exits in September is indicative of the quarter.

January is missing from the chart because there were no exits disclosed in the first month of 2017.

The number of deals also tells only part of the story, not truly reflecting the importance of deals such as the initial public offering of Nightstar Therapeutics, which is developing treatments for rare inherited retinal conditions based on research at University of Oxford. Nightstar’s flotation, analysed elswhere in this magazine, is part of a small set of flotations that could yet break the spell that has largely kept life sciences businesses away from the public stock markets.

It is in the ranking of top backers in North American spinouts that we finally see the vast number of companies that emerged from University of Minnesota and Washington University in St Louis, leading to the slightly skewed charts. While not all these spinouts were founded in the third quarter, it stands to reason, however, that at least some of them did.

Other backers could be considered the usual suspects. It is hardly a surprise to find the Stanford University-affiliated StartX fund, for example, or spinout-focused investment firm Osage University Partners in the list.

Alphabet, the diversified conglomerate whose subsidiaries include internet company Google and life sciences business Verily, should also come as no surprise – it has been a keen investor in university spinouts for a long time and is even a limited partner in university venture fund Oxford Sciences Innovation through its early-stage corporate venturing arm GV.

The rankings for the UK and Europe similarly offers few surprises. Commercialisation firm IP Group may have primarily been in the news for attempting a takeover of peer Touchstone Innovations, but that did not stop it from injecting capital into a total of four spinouts this quarter.

High-Tech Gründerfonds, the German public-private partnership, and Scottish Investment Bank, the investment arm of government-owned economic development agency Scottish Enterprise, are also prolific investors in spinouts, specialising as they do in helping innovative early-stage companies get off the ground.

It is heartening to find corporates here, too, in the form of industrial conglomerate Robert Bosch and pharmaceutical firm Boehringer Ingelheim. The graphs are a clear sign that the triple helix is well and truly alive.

With the relatively small number of deals reported from Asia, it is difficult to make any definitive statement about which investors stand out – each disclosed only one deal, making a true ranking impossible. Nevertheless, it is interesting to find several corporates here, too, such as technology company Lenovo, e-commerce and internet group Alibaba and pharmaceutical firm Daiichi Sankyo.

The same is true of other regions across the world, where notable investors include Uniseed, the multi-university venture fund that introduced a $15m follow-on fund in March this year.

Overall, it looks as though the third quarter, which included Kansas State University (KSU) Research Foundation, a part of KSU’s technology transfer operations, celebrating its 75th anniversary, has set up the industry for a bumper finish to the year.

The optimism is shared by Matt Perkins, chief executive of Oxford University Innovation (OUI), University of Oxford’s commercialisation arm, who said: “Oxford University Innovation will soon be celebrating its 30th birthday, and that is not the only milestone in sight.

“By the time November 27 rolls around, we should have created our 150th spinout. In addition, we have surpassed £1.5bn ($2bn) in external funding raised for spinouts since 2011, and another £1.5bn over 11 exits during the same timeframe. All of this indicates that OUI and the surrounding tech cluster is in good shape as we approach 30 years of helping University of Oxford create global impact from its research.”

The odds favour us seeing more impressive deals, initial public offerings and fund launches, such as Massachusetts Institute of Technology’s $200m Engine initiative, before the year ends.

Copyright Mawsonia Limited 2010. Please don´t cut articles from www.globaluniversityventuring.com or the PDF and redistribute by email or post to the web without written permission.

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