The world’s number one incubator has been making a big impact since 2002, having supported more than 4,000 entrepreneurs that have raised more than $2.2bn between them.

SETsquared, the enterprise partnership between the UK-based universities of Bath, Bristol, Exeter, Southampton and Surrey, has always thought big. Launched in 2002, it has held the top spot as the best university business incubator in research firm UBI Global’s international ranking since 2015. Even before becoming the number one globally, it was already the leading incubator in Europe.
Simon Bond, the partnership’s innovation director, and his team make it look deceptively easy. That is, at least in part, thanks to the model on which SETsquared was built. Bond told Global University Venturing that the incubator was a response to the government’s ambition to create universities in the UK that did what policymakers thought was going on in the US. In particular, they were drawn to the Massachusetts Institute of Technology (MIT) and Stanford University models.
The universities were looking to operate a network of incubators on a single brand with a common structure, Bond explained. “Some of that was to do with cost-saving,” he acknowledged, “but more importantly, they thought it would give them the scale to make a real presence. That has really borne fruit with the subsequent developments of SETsquared.”
The “fantastic” decision they made, Bond continued, was that SETsquared would focus on spinouts and spin-ins. “That has allowed SETsquared to scale up, long before terms like knowledge exchange had been established,” he said.
The idea came from a trip taken by the foundation team to the US where they visited ecosystems such as those in Boston and across California.
“It is often forgotten that TTO funding is pretty light in the US,” Bond said. “They get it over the wall and into the ecosystem as quickly as possible. MIT’s university business incubation capabilities are fairly modest compared to this superstructure, this external system that is filled with risk-taking investors, visionary CEOs and people who want to work for them.

“String together five universities that have more than £2bn of income each year, thousands of students and a seven-digit population, and it is still not quite Boston but you are approaching it.” – Simon Bond

Building SETsquared as a partnership between different universities meant circumventing the challenge that a small city like Bath – whose population across the metropolitan area stood at an estimated 192,000 in 2018 – does not have the resources of a city like Boston – which counted an estimated 692,000 residents last year.
Simon Bond
But “string together five universities that have more than £2bn of income each year, thousands of students and a seven-digit population,” Bond said, “it is still not quite Boston but you are approaching it”.
He cautioned that the SETsquared model was easy to misunderstand: “I do see, particularly within the European context and our heavy state way of doing things, that when people try to replicate our model, they misunderstand it as a closed system, a one-way conduit that takes research from labs through a tech transfer office and throws it out into the entrepreneurial classes.
“We do real labour. If you wanted to emulate the success of SETsquared, it is built on knowledge exchange and genuinely open, on equal terms with entrepreneurs coming out of the universities, wanting to work with the universities or just wanting to work with each other. That is the element worthy of replicating.”

4,000 entrepreneurs and $2.2bn of funding

Why would others want to replicate SETsquared’s model?
Firstly, the incubator is a global leader and leaders tend to get emulated. Bond noted that, while this was great recognition, it was not without challenges: “I love being global number one and since 2015, too. It is a big team that helps us to hang on to that recognition. It is not without its problems. Something that has been on my mind since the last tremendous victory is that our business is in global markets and global challenges. Entrepreneurs can be attracted to certain countries and incubators, but they soon all have to connect internationally with customers, partners and talents.
“The way forward for SETsquared and other university business incubators is around partnerships. Competing in UBI’s ranking is not a zero-sum game and I worry that a league table situation might interfere with our ability to create these partnerships. We have to get past this global oneness and hook up with the other leading incubators to get our solutions out there – as we are learning that is what is helping us to beat Covid-19.
“We share everything with all the different incubators in UBI. The competitiveness is not good for entrepreneurs, we need channels to swap insights, ideas, companies, entrepreneurs, access to customers, and so on, between the world’s leading incubators.”
Secondly, the numbers for SETsquared speak for themselves. In 2019 alone, portfolio companies generated £439m in funding and through acquisitions, and across eight programs SETsquared saw 347 participants. The funding is impressive, but even more so when looking at the progression over the past several years.

Amounts contain public and equity investments and acquisitions. Source: SETsquared
Since 2002, SETsquared has supported more than 4,000 entrepreneurs that have raised more than £1.8bn ($2.2bn at current exchange rates) between them.
Research from consultancy Warwick Economics and Development in 2018 revealed that SETsquared’s portfolio had contributed £8.6bn to the UK economy and generated 10,900 jobs. By 2030, the report estimated, the economic impact would reach £26.9bn and a total of 22,200 jobs would be created.

By 2030, SETsquared’s economic impact is estimated to reach £26.9bn and a total of 22,200 jobs are expected to have been created.

These are staggering figures, particularly in a university innovation context and considering the oft-touted view from policymakers that the UK was not doing enough compared to the US.
Yet notably, SETsquared continues to be interested in scaling. While the partnership had always been between the five universities spread across the south of England, it worked “with a lot of partners that are not universities, such as the UK Space Agency, the National Health Service and corporations such as software producer Oracle,” Bond said. “We are looking at how we could work with more university partners. Recently, we have been working quite deeply with Cardiff University on one of our programs, and that has been a very positive experience.”

Participants of SETsquared and the UK Space Agency’s Female Space Entrepreneur’s Program
Rosie Bennett, investment manager at SETsquared, added that the Cardiff collaboration revolved around a scale-up program that was two years into a three-year run and was funded through national science and research funding agency UK Research and Innovation. “The program involves companies undertaking collaborative R&D with our partner universities and Cardiff. It is a national catchment, with the regional aspect being the collaboration with the university in question.”
She added: “The objective across the centres and the scale-up program is the same: to support companies on the growth path. Much of that is about getting funded, so a lot of the work we do is about investor readiness. We are not cohort-based, the process is more bespoke, and companies operate on their own timelines. That is one of the benefits and one of the reasons why we are effective.”
Bennett specified: “We are sector-based in the sense that we are aligned with the UK government’s Grand Challenges and the specialities of the universities. The most important thing is that it leads to R&D collaboration opportunities. This is a really important and exciting bit when you add in the corporate element: if we can set up three-way consortiums with a growth startup, a university’s innovation and expertise, and a corporate partner, that is a great thing.”

Making companies successful

One instance where the corporate element paid off was with Xmos, a fabless semiconductor producer focused on voice applications and edge AI that came out of University of Bristol. Xmos attracted both industrial group Robert Bosch and chipmaker Infineon, though Mark Lippett, chief executive of Xmos, noted that Bosch was much more of a financial investor.
“Infineon is very interested in the voice space and what that means for their sensors,” Lippett said. “They are happy for us to be their scouting team and obviously they have a stake in the business that hopefully, they will profit from handsomely.”
He added: “You have to acknowledge that, quite rightly, a corporate usually has an agenda which they are exploring. It may be that it is forward-looking and they do not necessarily want to bring it into their own business where processes mean the idea might not thrive.
“Sometimes it is better to have a company that you invest in and you have visibility as they try and explore that area on your behalf. Then there is the opportunity for you to become part of that larger company downstream. That can be a beneficial dynamic.”
Xmos is a prime example of what a company can achieve long-term – it left SETsquared many years ago, having benefitted from the incubator when it was in the early stages at University of Bristol in 2005.
SETsquared was able to provide “access to a lot of resources that we needed and frankly could not afford to pay for,” Lippett recounted. “There is the office space but also, as a chip design company, one of the bigger capital outlays that you make is on the tools that you use to develop chips.
“SETsquared had alliances with, if I remember correctly, Mentor Graphics and possibly one or two others. We were given access to those tools at very economical rates, possibly even free of charge at first so that we could get going and start to validate the proposition sufficiently to raise more money. The free lunch does not go on forever, but it does give you that opportunity to get some momentum going, build your valuation and raise money. That was a compelling part of the proposition.”

Xmos is a prime example of what a company can achieve long-term.

Xmos was now “moving beyond the stage where [it] need[s] to be funded,” Lippett revealed, adding: “at least with the current strategy. There is always the possibility of seeing a big opportunity and deciding to invest in front of it which might require more funding.”
Xmos, now a company with 64 employees, has been on a roll for years. Its technology revolves around edge AI, primarily in consumer products, consisting of both software and hardware. “We sell, effectively, platforms that deliver the opportunity for embedded systems engineers to build differentiated products, including artificial intelligence and various other classes of processing,” Lippett said. “In terms of our focus, we have become well-known for capturing voice in noisy environments. But as we push forward, we are building more and more human sensing capabilities that are not just about sounds, they are more about presence, context awareness and so on.”
The company recently released the third generation of its platform and this would be a cornerstone for the next five years of growth, Lippett said. It was “the sum of many years of research and development and working with customers. During that time, we have taken a technology out of the university that was already really well adapted to deliver the flexibility that was required for fragmented markets like the internet of things.”
Xmos was now one of only a few companies with a mature technology capable of running artificial intelligence on edge devices, Lippett said. “One of the analysts in this space released a report looking at the market size for edge AI and saw a $3.5bn to $4bn market. Then they told us that if they had known about our chip, they would have estimated the market to be even bigger. They did not imagine anybody could sell this kind of capability at this price, which is going to push it into places where it would not ordinarily have been possible. We feel well placed with a hot chip in a super-hot market and a team that is knocking it out of the park right now. It is pretty exciting,” Lippett concluded.
Xmos had come across SETsquared because, at the time, both were located in the same building on Bristol’s campus. But the routes into SETsquared were manifold, Bennett explained. “We are multi-layered at SETsquared because we have the physical incubators that are attached to each of our partner universities. They do not just serve the universities in terms of spinouts and graduate startups, they also serve the local ecosystem. So those incubators are open for applications from any innovative growth tech company. That is the fundamentals of our pipeline and it has been since 2002.”
Participating in SETsquared did not preclude startups from joining other incubators either, Bennett continued. “We have companies that are SETsquared members for three, four or five years. The scale-up program means we have a very long tail. We might meet the company, either as a graduate entrepreneur or a lone startup founder that wanders in, but then we are with that company all the way through.”
Harry Destecroix, the co-founder and chief executive of Bristol spinout Ziylo – which was working on a treatment for diabetes and was acquired by pharmaceutical firm Novo in a deal worth $800m in 2018 – was one such graduate entrepreneur that SETsquared accompanied all the way through, Bennett noted.
Bond added: “The entrepreneurial journey is not a six-month thing, certainly not in deep tech or technology innovation. Those cohort-based programs can only ever be part of that journey – probably a really important part. We are in this for the long game, 18 years and counting. Those long-term relationships are quite relaxed in that we do not have an issue with our members joining other incubators – quite the opposite in fact, it is fantastic.”
SETsquared celebrate being ranked as the global number one university business incubator for the third time in a row
“We are based in the Southampton Science Park, which is also where the local branch of SETsquared is based… It seemed like a good fit because a lot of the other SETsquared companies are engineering-based focused on solving industrial problems.”
He added: “SETsquared have really good investor events and they do not tolerate substandard pitches. They have a coach who gives you time and then they run practice sessions before the main event, which is helpful to figure out how you make sure you say what you need to in five minutes.”
That Kingdon would praise this particular aspect underlines just how deep SETsquared’s expertise is: Kingdon was already an experienced chief executive by the time he founded Utonomy. He recalled its origins: “I started a company called I2O Water in 2005 to develop technology for reducing leakage on the water network by optimising the pressure in the network. The pressure in the water network is handled manually, so we developed technology to automatically control the valves and keep the pressure at the minimum level. We were able to manage the pressure 25% to 30% better and that reduced the leakage by 20% to 25%. That is a huge benefit.”
Kingdon revealed that in one instance, I2O’s technology prevented the city of Kuala Lumpur from running out of water and noted that the company’s successes garnered the attention of gas networks, which were dealing with methane leakage. “It is really bad for the atmosphere,” Kingdon explained, “because methane is a greenhouse gas and networks are coming under pressure from the government and being heavily incentivised. But I2O was focused on water.”
But the problem persisted – in fact, it persists today – and when Kingdon left I2O after 10 years, he reached out to gas suppliers again and founded Utonomy to take on the challenge.
A startup often “has technology and is looking for a market, whereas we were confident from the beginning that if we can crack the problem, we have a market,” he said. “One of the gas networks has actually contributed a lot and given us quite a lot of money.
Their engineers also work very closely with us to develop a solution because the one thing we need to do is understand their network very well. They have a lot of safety procedures and risk assessments. We had a successful trial with them last year and now they want to run trials on a wide variety of networks in London, Edinburgh and the south, to check that the solution works well on different types of networks. As soon as we have done that, they want to start rolling it out, so we are getting close to commercial launch.”
Getting to this point was no easy feat: because methane is explosive and engineers have to assume that there is leakage when they open a kiosk, tools cannot have a single point of failure and need multiple backups to make it impossible for the device to cause a spark or heat up. Kingdon said: “That involves huge constraints on the design. It is like an aircraft certification you go through, where the certifying body spends months testing your stuff to death – shorting batteries, shorting motors, and so on. That is a huge hurdle.”
Apart from collaborating with gas distributor SGN, Utonomy’s backers also include Foresight Williams Technology EIS Fund, backed by engineering services provider Williams Advanced Engineering. Although SETsquared was not directly involved with that – Foresight Williams found Utonomy independently, Kingdon said – “there is a lot of informal advice from the SETsquared team” on funding.
Both Kingdon and Lippett would recommend SETsquared to peers. Lippett said: “There is not much not to like. It is a very good environment to be in as a young company.
“That was the other thing: there were a lot of companies at a similar stage in the building and the then-centre director Nick Sturge provided mentorship as well. There was a lot of camaraderie about building new companies and a lot of assistance and support that we benefitted from.”

“There was a lot of camaraderie about building new companies and a lot of assistance and support that we benefitted from.” – Mark Lippett

It is a sentiment shared across SETsquared’s portfolio companies. Chris Erven, co-founder and chief executive of Kets Quantum Security, which has developed on-chip quantum-secured encryption technologies, said: “Absolutely, we would recommend it. While we started with a year’s free subscription we have continued ever since. The seminars they run and specifically the advice from their entrepreneurs-in-residence – people with real experience in startups, rather than just understanding it from an academic perspective – have been invaluable and have made a huge difference to us getting Kets off the ground and seed funded.”
He added: “There is a number of other advisers from financial to IP to investors that SETsquared and [University of Bristol-backed innovation hub] Engine Shed also makes available which would otherwise be incredibly expensive for a small startup that we have benefitted from.”
Erven also pointed to SETsquared’s many events, such as Tech Xpo, as a key way of finding customers.
While neither Kingdon nor Lippett were ever all that interested in joining another incubator – though they have come into contact with other programs – Erven noted that Kets had taken part in four others. However, he said, “SETsquared and Engine Shed filled the perfect niche for us to refine the initial idea and get it off the ground, and then to come back to for course corrections.
“We have definitely used them as that early-stage incubator. We have then benefitted from a number of others that have fleshed out our initial startup thesis into a full business plan (Qtec, the Quantum Technology Enterprise Centre), and expanded our outlook to engaging with customers (Thales’ Cyber@StationF program) and thinking about scale-up and follow-on funding (University of Toronto’s Creative Destructive Labs).
“SETsquared and Engine Shed fill their early stage, digital niche incredibly well and are actively looking at building newer scale-up initiatives (that Kets is also benefitting from).”
In Kets Quantum’s case, SETsquared was also instrumental in raising capital – the company has obtained £2.25m in equity and grant funding so far – and “SETsquared was a big part of this successful raise and for getting us in shape with board meetings and the full rigours of a startup afterwards.”

Taking SETsquared to the next level

With this much success in supporting companies, there is an obvious question of why SETsquared does not have a venture fund like countless other incubators do. But it turns out, such a fund has been in the works for close to two years.
“We are looking at raising a £100m investment fund,” Bond announced. “We are incorporating SETsquared to commission fund managers and we have a review of candidate fund managers going on in early June. These are clear moves to take SETsquared to the next level where we would have a fund in our name that could deploy capital into member businesses along with other investors. We have such a great deal flow.”
Bennett added: “What we find as we go out to talk to investors is that we occupy a very interesting space in terms of the R&D-rich companies that we work with as part of the ecosystem. This is traditionally a sector that is quite hard to fund because it is deep tech.
“It is not easy to understand these businesses in the way that it is to understand tech companies. But they have enormous growth potential if you get the consortium right. Because we know companies all the way through, often from when they are spun out of the university, we have a long relationship with them. We have insight and the due diligence because of that long-term relationship, so when they get to the scaling phase, we feel confident that we can build a funding consortium around these companies, which is a unique selling point for the fund.”

Rosie Bennett
Bond admitted it was “an unusual time to be raising a fund, but these things take time, so we might as well get stuck into it. We have been working on it since the spring of 2018. It has taken a bit of time, but it has been quite the haul to align five research-intensive major British institutions behind the common purpose of a scale-up investment fund and to build relationships with fund managers.
“We are really excited about the fund. It represents a tremendous amount of work from the whole team, including Rosie and others, to align those universities to this important purpose.”
These unusual times also mean some startups are in more desperate need of funding than others. Kingdon revealed Utonomy was due to start a larger rollout ahead of a full commercial launch that had now been put on hold.
Lippett, on the other hand, said the lockdown had not affected Xmos all that much: “We are a hardware company, so we require certain environments and certain capabilities. We cannot fully divorce ourselves from having an office or at least a lab.
“We had a fairly large spike of activity when the chip came back where at least some staff had to be co-located, but since then we have managed to work from home very effectively. Some might say even more effectively. At the moment, we are trying to understand how our staff feel about the current situation to try and formulate what the new normal might look like for us.
“We have encountered some issues outside the company as customers have gone through those transitions from working in the office to lockdown and in some cases back again – that has caused some delays here and there, but nothing too serious.”
Bennett explained that some had been winners, too: “Okko Health has developed a remote eyesight monitoring app and has seen an upsurge in interest for trials. Another company, Forth With Life, has just done the first home testing kit for Covid-19. For those companies, it is fantastic – not that they are cashing in. We also have edtech companies, remote productivity tool developers, and so on.”
Some companies are facing challenges, Bennett conceded.
“Gen3D, which is presenting at the GCV Digital Forum as part of SETsquared’s showcase, has created online computer-aided design tools for additive manufacturing. They were just about to sign a number of big clients but some agreements have been put on hold due to the economic climate.
“For a company like that, it is tough. It is a challenging time, but hopefully, that is when our network really comes into play – we can backup these companies when they need us.”
It is a challenging time, but hopefully, that is when our network really comes into play – we can backup these companies when they need us.”

“If we run the entrepreneurial journey as an ecosystem play supported by our incubators and the programs, it is very sustainable and very flexible. It has this resilience that takes you through these bad times as well as the good times.” – Simon Bond

That large network was coming in handy in this time of need, Bond said. “We base our business around the entrepreneurs and innovators – the people. If we run the entrepreneurial journey as an ecosystem play supported by our incubators and the programs, it is very sustainable and very flexible. It has this resilience that takes you through these bad times as well as the good times.
“Another thing I have noticed is that sometimes businesses fail, but the talent just emerges elsewhere. This crisis is Covid-19, the last one was the 2008 credit crunch, and before that dotcom, a couple of Gulf Wars… With each one, the ecosystem helps to, quite efficiently, reallocate talent to the best opportunities that are coming through. If we are honest, that might have been a good fortune in the beginning, but we have learned to repeat that good fortune: now it is our strategy map.”
Bennett added: “My favourite comment from Nick East, the chief executive of retail software producer Zynstra, is that ‘it takes a city to build a startup’. I used to run the Bath Innovation Centre, as did Simon before me, and I always felt that we were part of the city.”

“Problem-driven innovation is how you get universities and industry to cluster around an issue.” – Rosie Bennett

In some regards, Covid-19 was an opportunity to re-evaluate how innovation was approached, Bennett pondered: “University College London’s Mariana Mazzucato has a very interesting view on mission-led innovation. We are still working out the triangle between the universities’, the government’s and the private sector’s roles. What is their role in R&D and stimulating innovation in the UK? I think SETsquared is part of the solution. Problem-driven innovation is how you get universities and industry to cluster around an issue.
“Covid-19 is a really interesting example of how that is working, but there are so many other challenges. Climate change is another big problem that is forcing collaborations. That is what I would like to see more often, leveraging those collaborations but from a government perspective.”
SETsquared was no stranger to working with policymakers and government agencies, Bond said, but added that “over the years, big government initiatives come and go – there is the growth accelerator, different agencies, different programs, all very worthy, good initiatives – but they have a beginning and they have an end.
“Whereas SETsquared, because it is based on the people, has always found its way through and can flex to a new environment.
“Currently, we are working closely with the people who are behind the government’s Future Fund. We are also working closely with all of the emergency packages going through the various local economic partnerships. We are a great route to access the talent they need to build their economies. And after the packages are finished and the stimulus funds been effective, we will still be here, and we will be moving on to the next thing. That is a key lesson for SETsquared: base your business model on talented people.”
Corporate venture capital units, too, were important, Bennett said, “especially at the scale-up stage. There is always this challenge when you are going out for a series A that you need to hit your metrics, have your pipeline and have relationships with end-users and markets – here, the credibility of having a big corporate customer is invaluable.
“The flow of information of where the problems are could be better, so companies could tailor products to the market more effectively. I would love there to be more opportunity at an earlier stage for dialogue between companies. There is a consideration around IP and small companies feeling that they might get swamped, but if we can establish dialogue and positive working processes there are fantastic opportunities.”
Bennett added: “When we talk to entrepreneurs, we share a list of 20 reasons why startups fail and lack of market need is number one, above cashflow. Going back to the valley of death, raising a series A and the problem of hitting those metrics: VCs are so risk-averse that the monthly and annual recurring revenues become the decision point. CVCs, on the other hand, understand the wider impact of something unique that is going to have an impact on their industry. There is sometimes more of a chance for investment at an early stage for a company that is not quite hitting the revenues yet.”
Bond explained that the traditional 10-year LP structure was not a problem per se, “but because that is the way funds are structured, we coach entrepreneurs to work within that cycle. The patient capital movement is beginning to get traction, so we need to ask how we can make 15-year funds work to give a runway to complex science to be translated and turned into big market products and services.”

“We could see the interests of CVCs are so neatly aligned to our market, our ecosystem and the various outcomes for entrepreneurs, technology and talent acquisitions.” – Simon Bond

He continued: “The rigour of the 10-year LP structure is not ideal for taking research out of university labs. It has been fantastic for CVCs these past few years since Global University Venturing and Global Corporate Venturing have been around, but I think it could get a lot better and be even more exciting. We have been part of your network from the beginning and obviously, it is because we like you, but more importantly, we could see the interests of CVCs are so neatly aligned to our market, our ecosystem and the various outcomes for entrepreneurs, technology and talent acquisitions. It is a better alignment in many cases.”

Community service

It is almost redundant to ask why Bond and Bennett joined SETsquared. They clearly both have an inexhaustible passion for the partnership, but their paths in could not have been more different.
Bond, when asked what brought him to SETsquared, joked that it was “community service” – though it is easy enough to argue that indeed he has dedicated his life to precisely this: supporting the entrepreneurial community. Bond joined SETsquared in 2003, coming from the telecommunications sector where he had sold a couple of businesses before realising that the industry would not be making a comeback anytime soon after the dotcom crash.
“Telecoms is a very networks-based business, you never really had to apply for a job and just got passed between companies. The first job I ever applied for in my life was an 11-month contract to run SETsquared’s incubation network in Bath… and that was 18 years ago,” Bond recalled.
“On reflection, I love telecoms and I was working for very innovative corporations that were going public, and it was very exciting. You could see things happening at scale.
“Having my own businesses was brilliant, but it is intense, and you are completely in those single companies. What made me stick around SETsquared beyond month 11 was the chance to work with 30 or 40 members of the incubators. It is everything that you enjoy about startups but times 30 or 40. And that has kept me going ever since.”
Bennett agreed: “For me, it is similar in terms of working with lots of companies – no two days are the same. I came from a background of always being on the edge of innovation: I started with BBC Online, I worked for Liberty Global on digital TV and landed in Bath.
“I became involved in a couple of startups and that is how I got involved in the Innovation Centre: I was a tenant there. I have been everything at SETsquared – I was a member, then a mentor, then an entrepreneur-in-residence, then the centre director. And now I am working for the central team as an investment manager. It has always felt like a startup to me, we are always inventing, being agile and responding to how everything else shifts around us.”
Bennett concluded: “It is a really nice place to be.” It seems everyone else would agree.