Amid a general downturn, spinouts have been faring much better than the startup world at large.

a plant flourishes in the desert

It shouldn’t come as a surprise that investments in spinouts stayed relatively flat in the second quarter of 2022. Public shares and bonds have been under pressure, inflation has soared, central banks have raised interest rates – in the EU, for the first time in 11 years – while a cost of living crisis and soaring energy prices amidst Russia’s bombing of Ukraine has further dampened consumer confidence and hampered leaders’ ability to manoeuvre.

But the need for research commercialisation has arguably never been greater. Huge areas of western continental Europe have been literally on fire while the UK, for the first time ever, breached 40 degrees Celsius (104 degrees Fahrenheit). California’s Oak Fire meanwhile has destroyed more than 17,200 acres and, as of the time of writing, is still only 16% contained.

Q2’s biggest deals

It shouldn’t come as a surprise then, either, that out of the 275 investments in spinouts in the second quarter, the largest by far was in Climeworks, a Switzerland-based direct air capture technology provider spun out of ETH Zurich, which raised CHF600m ($646m) in April from investors including reinsurance firm Swiss Re. Partners Group and GIC co-led the round, which also included Baillie Gifford, Carbon Removal Partners, Global Founders Capital, M&G, BigPoint Holding and private investor John Doerr.

Climeworks’ technology pulls carbon dioxide from the air. Its partnerships include one with Microsoft by which it has been contracted to remove 10,000 tons of CO2 emissions over the next ten years.

In June, Personio, a Germany-based human resources software producer spun out of TU Munich (TUM), picked up $200m in a series E extension led by Greenoaks, bringing the round – opened in October 2021 – to a $470m total.

Personio is one of the biggest successes to emerge out of the TUM ecosystem; it was the university’s third spinout to reach unicorn status, in January last year, following data processing technology provider Celonis and electrically powered personal air vehicle developer Lilium. It had raised the initial series E tranche at a $6.3bn valuation, pushing that even higher to a $8.3bn valuation with the extension.

The third biggest deal of the quarter is also an interesting beast. Retro Biosciences, a US-based company focused on the cellular drivers of aging, emerged with $180m in funding from undisclosed investors in April. Unusually, the company made its announcement via Twitter rather than a press release or press coverage. It remains in stealth mode but its website says it will focus on expanding the healthy human lifespan by a decade by developing therapeutics that can prevent an array of diseases. Its founding team includes Sheng Ding, who holds appointments at Gladstone Institutes, University of California, San Francisco, Tsinghua University and Global Health Drug Discovery Institute.

Company University Country Sector Round Size
 Climeworks ETH Zurich Switzerland Industrial Undisclosed $646m
Personio TU Munich Germany Services E (extension) $200m
Retro Biosciences US Health Undisclosed $180m
Zap Energy University of Washington US Energy C $160m
Agility Robotics Oregon State University US Industrial B $150m
Improbable University of Cambridge UK IT Undisclosed $150m
Aspen Neuroscience Scripps Research Institute US Health B $147.5m
Ayar Labs Massachusetts Institute of Technology US IT C $130m
Kinexon TU Munich Germany IT A $130m
Booster Stanford University US Transport D $125m

What is a more worrying trend than the relatively flat number of investments – 275 in Q2 compared to 284 in Q1 – is the downward trend in capital deployed. Despite the three big deals just described, all in the top 10 were nine-figure deals but overall only $5.3bn flowed into spinouts, a considerable drop from the $6.6bn in the first quarter. Year on year, the difference is even starker: spinouts raised $9.9bn in the second quarter of 2021.

It may seem disheartening, but the good news is that this isn’t a problem with spinouts. VC funding fell overall, according to an analysis by deals database Crunchbase, which found a 26% decrease quarter-on-quarter. That is good news for spinouts, because here the difference was just under 20%, showing the relative resilience of these companies compared to the startup world at large.

In fact, if we look back further to 2020, we find 295 spinouts raised $7.3bn in funding. That is still more than 2022, but it also shows what a record year 2021 was and it seems unlikely we will live through such heights again any time soon.

Number deals from Q1 2021 to Q2 2022
Value of deals from Q1 2021 to Q2 2022

Q2’s biggest exits

Exits were also down quarter-on-quarter, from 28 to 21, but that is comparable year-on-year as the second quarter of 2021 saw 22 exits. A total of only $314m in proceeds was disclosed during this past quarter, down from $794m, but mergers and acquisitions announcements are all too often made with undisclosed figures, making it difficult to ascertain whether there really was a downward trend. June, for example, saw three exits but none of the prices were disclosed.

Company University Country Sector Type Size
Pepgen University of Oxford UK Health IPO $108m
Mayht TU Delft Netherlands Consumer Acquisition $100m
Vai Photonics Australian National University Australia IT Acquisition $27.6m
Rigenerand University of Modena Italy Health Acquisition $24.7m
Microba Life Sciences University of Queensland Australia Australia Health IPO $22.5m
ALung Technologies University of Pittsburgh USA Health Acquisition $10m
Aclarion University of California, San Francisco USA Health IPO $9.4m
Promimic Karolinska Institutet Sweden Health IPO $8m
3D Bio-Tissues Newcastle University UK Health Reverse merger $3.1m
Arioso Systems Fraunhofer Institute Germany IT Acquisition

The largest exit of the quarter belonged to Pepgen, which raised $108m in its initial public offering in May. The University of Oxford spinout was founded in 2018 to develop genetic therapeutics for degenerative neuromuscular diseases. It is using proceeds to move its primary drug candidate through phase 1 and 2a trials, and get another asset through 1/2 trials. Its investors included university venture fund Oxford Science Enterprises, CureDuchenne Ventures and Deerfield Management, among others, and it had raised more than $162m in equity financing ahead of the flotation.

Mayht, a Netherlands-based solar-powered speaker developer spun out of TU Delft, was acquired by smart speaker producer Sonos for approximately $100m in cash in April, offering an exit to tech transfer office Delft Enterprises and Forward.One.

In a more unusual twist, a majority of the top 10 exits in the second quarter occurred outside the US, a reality further underlined by the third entry, Australia-based Vai Photonics. Spun out of Australian National University, the autonomous navigation technology developer has been looking to establish a significant link to the US: it is in talks with Nasa, which may use the technology on the next moon landing.

Vai Photonics’ acquisition by artificial intelligence-powered robotics company Advanced Navigation is worth a relatively modest $27.6m but is notable for another reason: the buyer is itself a spinout, commercialising research originating at University of Western Australia. And Advanced Navigation has its own US links both through clients such as Nasa and Google, but also through its shareholder In-Q-Tel, a venture capital firm with ties to the Central Intelligence Agency.

Number of exits from Q1 2021 to Q2 2022
Value of of exits from Q1 2021 to Q2 2022

No time to despair

The quality of investments and exits remains undoubtedly high among spinouts, even if their number and values have decreased. Essentially a month into the third quarter and with summer holidays only kicking off, while public markets aren’t exactly showing a return to boom times, it seems safe to predict that 2022 will not be a record year.

This is all before considering the fact that the National Securities & Investment Act is throwing a spanner in the works of UK universities. That’s true perhaps most noticeably for University of Manchester, which was blocked by the government from licensing computer vision technology to a Chinese entity. University of Oxford meanwhile noted that it had not spun out a single company in the second quarter, despite having eight lined up, because it was trying to navigate the practicalities of the law.

Yet with spinouts faring better than startups overall – and money continuing to flow into university venture funds, including the $300m additional capital secured by Oxford Science Enterprises in mid-July – there’s no real reason to be gloomy. More difficult times lie ahead, but if anyone knows how to navigate complex challenges, it’s tech transfer offices and their spinouts.

Thierry Heles

Thierry Heles is the former editor-at-large of Global University Venturing and Global Corporate Venturing, and was the producer and host of the Beyond the Breakthrough podcast until December 2024.