Two Scottish universities among UK’s top five for spin-out deal activity

Two eminent Scottish universities have ranked among the UK’s top five for spin-out deals, as it emerged that Scotland has been punching above its weight overall for such activity that realigned with pre-pandemic levels, according to a new report out today.

The latest annual Small Business Equity Tracker from the British Business Bank (BBB) has found that Scotland accounted for almost a fifth of all UK equity deals involving university spin-outs last year. A dozen involved businesses with roots at the University of Strathclyde, while the same amount were associated with the University of Edinburgh. Only Cambridge, Oxford, and the University of Bristol accounted for more deals, the lender said.

Overall, about a quarter of transactions in Scotland were classified as spin-out deals in 2023 – the second-highest proportion in all UK regions and other devolved nations. Chemify, which span out of the University of Glasgow, and Prothea Technologies from the University of Edinburgh were among the high-growth-potential businesses to secure equity funding during the period.

Susan Nightingale of the BBB says: 'It is encouraging that investment now looks to be stabilising and returning to a pre-pandemic norm.' Picture: contributed.

The BBB added that in Scotland as a whole, there were 169 equity deals in 2023, with a 21 per cent year-on-year decline “bringing activity back in line with 2019’s pre-pandemic levels” after a flurry in the immediate wake of Covid. The total investment value north of the Border was £402 million, 50 per cent down on 2022, and both annual declines were in line with trends seen across the wider UK market, the BBB added.

The lender also pointed out a positive long-term trend, noting that while the UK’s equity market has seen two consecutive years of contraction, overall investment values have increased by 182 per cent over the last decade, with deal numbers 42 per cent higher.

It also said Edinburgh ranked among the top UK cities for European venture-capital (VC) investment, achieving the fifth-largest share of capital outside London between 2014 and 2023. Businesses in the city secured £1.3 billion of European VC investment, with life sciences among the most active sectors, credited to the strength of the city’s universities.

Last year, the BBB launched its £150m Investment Fund for Scotland to increase the availability and supply of finance across the nation, with beneficiary firms including cosmetic surgery group Elanic Clinic.

Susan Nightingale, director UK network, devolved nations at the BBB, said: “Scotland has world-leading research facilities and top talent coming out of its universities, making it an ideal place for spin-outs to establish roots. It is highly encouraging to see businesses backed by cutting-edge research spinning out of universities and securing a high proportion of UK equity funding.

“As has been the case globally and across the UK, 2023 was a tough year for the equity finance market in Scotland. However, despite the continued challenges of higher interest rates and fewer exit opportunities, it is encouraging that investment now looks to be stabilising and returning to a pre-pandemic norm.

“For high-growth businesses looking to scale up, knowing that finance is available is key. The Investment Fund for Scotland was established last year to address regional imbalances in access to finance – and unlock new opportunities for smaller businesses, wherever they are based.”

A separate report from EY found that Scotland attracted a record number of inward investment projects last year.