Our prediction that we would see the highest number of deals yet in a calendar year has come true with another quarter still ahead of us.
Readers of Global University Venturing will know that this publication has predicted a phenomenal run for university venturing as we approach the end of the decade, and while this was an easy claim to make in the July issue that followed a record-breaking 111 deals, it was still a bet that could have been lost.
But our prediction that we would see the highest number of deals yet in a calendar year has come true with another quarter still ahead of us. The current total for 2018 stands at 570 – a whopping 89 deals more than the total for all of 2017, itself then a record year. The increase is significant in both absolute and relative terms – 2017 beat 2015’s 454 deals only marginally.
Although activity slowed over the summer months, both July and August held their own with 58 and 56 deals respectively. September may appear to have performed less well than the same month last year, but the reason is more mundane – Global University Venturing has improved its processes of adding deals from tech transfer offices’ annual reviews to its database, avoiding such spikes in graphs. So while September’s drop compared with most of this year may be of concern, it may simply be that this has always been a slower month that was more difficult to identify as such as deals from annual reviews were added in bulk.
Notably, both July and August still outperformed most of last year’s monthly deal count. This could be another explanation for the slow-down in September – with more transactions occurring throughout the summer months, fewer of them are left to be signed as campuses face the new academic year.
The third quarter has been strong in terms of total deal value, with over $2.87bn invested – more than half as much as the $4.9bn recorded for the whole of 2017, and a vast improvement over the $1.75bn raised during the third quarter last year.
The running total for 2018 stands at $7.27bn. It has already pushed 2014 ($7.18bn) into third place. Spinouts will need to raise slightly more than $2bn during the remainder of this year to dethrone 2015 and its $9.38bn – a feat that seems increasingly likely.
Exits tell a similarly heartening story. The summer months had little impact this year or last – 20 in 2017, 18 this year. As always, numbers tell only part of the story but things are intriguing beneath the surface. Among the past quarter’s exits was Principia Biopharma, a US-based cancer and autoimmune treatment developer based on research at University of California San Francisco, which completed a $122.2m initial public offering in September.
The offering was noteworthy because underwriters exercised their greenshoe option in full, pushing IPO proceeds up from an initial $106m. Principia had also floated at the top of its range, issuing 6.25 million shares at $17 each.
Principia’s flotation accounted for a third of September’s exit value, which was in line with much of this year and previous years, bar the monster May exit figure.
What may be a cause for concern is that spinouts still fail to command large acquisition fees or blockbuster IPO prices, despite a steady flow of companies being purchased or making their way to the public markets. It will be interesting to see if that remains true as the flurry of investments from the past nine months starts to bear fruit.
The institutions producing the largest number of spinouts during the third quarter were led by University of Michigan, followed by Massachusetts Institute of Technology (MIT) and Stanford University. The first non-US institution, University of Oxford, was in seventh place – although with a new program to support social enterprise spinouts expected to generate 10 companies a year, Oxford should be nearer the top in future quarterly rankings.
ETH Zurich and University of Leiden have also made it into the top 10, proving that Europe is working hard to catch up with its US peers.
While healthcare continues to dominate research commercialisation, it is interesting that other sectors also made an appearance near the top of the deal volume table, but life sciences towered over everything else in terms of capital raised. No other area appear until fifth place, where MIT spinouts in the IT and industrial spaces accounted for some of the cash raised.
Institutional investors – denoted by “other” in the graph – continue to be the most important backers, despite the fact that universities continue to launch university venture funds. But it is good news that corporate venture capital units have backed around a fifth of deals.
Stanford University leads the league of top backers of university spinouts, with many well-known players also on the list – Allied Minds, Osage University Partners and Arch Venture Partners will be familiar to those in the university venturing industry. Here, again, it is heartening to see corporates, in the form of conglomerate Alphabet and healthcare group Johnson & Johnson.
Finding IP Group at the top for Europe is hardly a surprise, while BPIFrance, a French state-owned investment bank, continues to be an influential player locally.
Things look much more varied in East Asia, where investors participated in one deal at most, making it difficult to determine which was more influential. Yet again, however, we find some corporates in the mix – materials company Japan Material Technologies, cryptocurrency platform Bitmain and consumer electronics company Sony – and one university venture fund in the form of University of Tokyo Edge Capital.
The rest of the world is equally divided, though Tel Aviv University tops the league with seven deals. The only real challenger is Australia, where multiple funds have made an investment – underlining just how much places like South America or Africa still have to achieve to catch up with international peers.
As we approach the end of the year, and GUV’s annual review in early January, it looks as though with one record smashed – most deals in a calendar year – the second record – most money raised by spinouts – is not far behind. The question is not so much whether it will be broken by the end of the year, but how long before then and by how much.