For all the discussion around the UK’s innovation economy, one reality is often missed.
Some of the most exciting, world-class technologies are emerging not from London, Oxford or Cambridge, but from universities across the North. The real challenge is not the quality of the research. It is how that research is converted into scalable commercial ventures, and whether those businesses can stay rooted in the regions where they began.
A good example is Mesenbio, a University of York spinout backed by DSW Ventures. The company grew out of decades of pioneering stem cell research focused on extracellular vesicles, or EVs. These tiny biological packages have the potential not only to suppress diseases such as arthritis, but also to repair damaged tissue. Frustratingly for patients, these EVs have previously been almost impossible to manufacture at scale. Mesenbio is applying its exceptional science to fix this problem.
What made Mesenbio different was the combination of factors that came together at the right time. Intellectual property and academic excellence were essential, but they were only the starting point. Its management team was a key component. Once we got to know them, we were confident that they had the energy and resolve to take this winning approach to market, so, alongside co-investors including London-based firms, we provided the capital the team needed to turn this venture into a commercially viable business. Finally, it required the ongoing moral and practical support of the university, coupled with a pragmatic approach to negotiating the spinout. The early backing from Arthritis UK was also a huge stepping stone for the business. So, to slightly mangle an old adage, success needs many fathers.
This story also highlights a wider challenge facing Northern university spinouts. Money talks, and it talks with a Southern accent (or American, or anywhere but the North). In the early stages, founders are unlikely to uproot themselves, lose academic connections and rebuild facilities just to secure a modest seed round. The real risk comes later, precisely when things start to get interesting. When a business has proven its technology and needs serious capital to commercialise and grow, the cheques are usually written overseas.
For a life sciences company, the idea of moving to Cambridge or Boston to secure a $100m investment round suddenly doesn’t sound so crazy. And this is where the problem lies for the UK regions. The more successful a spinout becomes, the larger the funding rounds it requires, and the more likely that capital will come from the US or other international markets, where investors will want them to scale-up in their own backyard.
Regional venture capital still has a vital role to play, though. Without capital, even the best ideas struggle to leave the lab and without our early support, precious few spinouts would be funded in the regions. We help get the ball rolling, backing businesses early and working hard to assemble syndicates of like-minded investors, contrarians who like us believe that globally significant companies can be built outside the South-East. London and Oxbridge-focused funds rarely make the journey North in the early stages and, over time, that would seriously dampen the entrepreneurial ambition of academics and potentially determine whether they even bother to make the North their home in the first place.
There are also important lessons here for founders navigating funding, investor expectations and commercialisation. University technology transfer and commercialisation offices have a great deal to offer, and founders should build strong, collaborative relationships with them. But founders must remember that, while the university may still be paying their salary, the spinout is their business and must act accordingly. It’s up to them to decide when to spin out, how much to raise and who from, how to commercialise the intellectual property and who should be on the team, from non-executives to funding partners. The university is a valuable resource, but it should not act as a gatekeeper. Founders need to get out, explore the world and find out for themselves to make their own decisions.
Keeping successful spinouts in the North for as long as possible delivers long-term benefits that extend far beyond individual exits. First, it builds management capability. Every successful company creates experienced leaders, some of whom go on to invest in or run the next generation of businesses. That is how clusters such as Silicon Valley and Boston were formed. Second, it creates inspiration. When academics see peers building successful ventures, it reshapes perceptions of what is possible and encourages others to take the leap.
Northern universities are producing extraordinary research. With the right mix of capital, commercial expertise and regional commitment, they can also produce the next wave of globally significant businesses, without those businesses having to leave home to succeed.