SETsquared's investment vehicle will fund companies that are spun out of the universities of Bath, Bristol, Cardiff, Exeter, Southampton and Surrey.
SETsquared, a group of six universities in the UK’s southwest, has partnered with venture capital firm QantX to create an investment company that will invest mostly in spinouts from the six partner universities of Bath, Bristol, Cardiff, Exeter, Southampton and Surrey.
The new company, which has yet to be named, is seeking to raise £300m ($392m) from a mix of investors including UK pension funds and corporates.
It is structured as an investment company rather than a fund because this structure “is slightly better designed for patient capital,” says Marty Reid, executive director of the SETsquared Partnership.
“There’s less pressure than there is on a fund for those near-term returns, and that really brings it into alignment with the needs of deep tech and science companies that have a much longer-term realisation of their value and getting their products into market,” says Reid.
SETsquared, which runs a business incubator, joins several other UK institutions that are launching financing vehicles to fund spinouts.
Midlands Mindforge, a partnership of eight research universities in the UK’s Midlands region, is raising a targeted $309m for an investment vehicle, while Northern Gritstone — set up by the universities of Manchester, Sheffield and Leeds — has been investing from its $400m pot. Several London-based universities are also in talks to form a joint fund — reportedly called London Atrium — to invest in their spinouts.
SETsquared partner universities have created more than 230 spinouts, but they receive much less financing compared with those emerging from academic institutions of the Golden Triangle of Cambridge, Oxford and London. The group’s early-stage startups tend to raise five times less seed investment than Golden Triangle spinouts, says Reid, and it can take them several months longer to raise funding.
The investment company aims to attract pension money that has been unlocked by the UK’s Mansion House Compact, an initiative that allows the country’s defined contribution pension providers to allocate 5% of assets to unlisted equities such as venture capital. The UK has historically invested very little of its pension money into venture capital compared with other countries.
As a result, spinouts that are raising later-stage funding tend to have difficulty receiving financing from UK investors and often leave the country when they start to scale to be closer to their investors, which tend to be in the US.
“There’s an incredibly supportive and positive environment in the UK at the moment around the potential of science and technology, and particularly with the new government’s commitment to how science and technology or research and development can be an engine of economic growth,” says Reid.
While the new investment company will mostly focus on spinouts, it will also invest in startups in the UK’s south and western regions. UK VC partner QantX, which will run the investment vehicle, has invested in more than 100 early-stage companies in these regions.
