Whether it’s a solution designed to make IVF more accessible and successful through University of Leeds spinout IVFMicro, or Apini’s work to transform the treatment of chronic inflammatory diseases, a new wave of deep tech and life sciences companies is steadily emerging from Northern universities.
But turning those innovations into globally successful companies and crucially, keeping them in the North, remains one of the region’s biggest challenges.
According to David Smith, founder partner at early-stage venture capital firm DSW Ventures, closing that gap could reshape the North’s entire tech ecosystem.
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But he stresses the issue is not down to a lack of innovation. From funding and talent shortages to scaling challenges, the real problem lies in what happens after the research leaves the lab.
“There’s no shortage of brilliant academics across the UK, and the North is no exception,” he tells Prolific North. “But the challenge is that there has been a glitch in the conveyor belt that takes science to industry.”
The missing layer in the ecosystem
DSW Ventures invests in early-stage start-ups across the UK, backing both software businesses and deeptech university spinouts. The VC firm has backed companies including the likes of York-based hybrid fitness platform RoxFit and Manchester customer rewards platform Propello.
But despite the growth of tech hubs across the North, Smith believes the region still trails behind other tech ecosystems across the UK when it comes to producing spinouts at scale.
“The North has perhaps been a bit weaker in comparison with other regions when it comes to commercialising research and going from lab to industry,” he says. “The positive story is that it’s getting better. Universities are experimenting with new structures, new commercialisation teams and better processes.”
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He praises support organisations helping to close that gap, pointing to LYVA Labs in the Liverpool City Region alongside innovation ‘districts’ and facilities such as Bruntwood SciTech and Newcastle Helix, but significant structural challenges remain.
And one of the biggest barriers is a “shortage” of commercially experienced talent capable of taking some of these spinouts to their next stage of growth.
“Academics are great, and some transition into strong commercial leaders. But even those who are future CEOs or chief revenue officers need mentoring along the way.
“We’ve got a shortage of people in the ecosystem who can join these spinouts as part of the team, not just advise them. When we’re building teams across the regions, we often find ourselves sourcing commercial and operational talent from the South East or Cornwall.
While remote working means talent can technically be based anywhere, he says this limits the long-term development of regional ecosystems.
“When companies get to their end game and there’s an exit, those individuals don’t always feed back into the local ecosystem. It becomes a question of scale. In the ‘Golden Triangle’, when one door closes another opens. I think we’re getting there, but the bulk of commercial and operational talent is still down South.”
Why spinouts help build a “strong ecosystem”
For Smith, the importance of spinouts extends far beyond individual company success. They play an important role in building sustainable tech ecosystems, with successful exits creating experienced founders, angel investors and advisors who go on to support the next generation of start-ups.
But how can the North retain the innovations and academic talent capable of creating its next tech unicorns, companies valued at £1bn or more?
“It should become almost an arithmetic progression,” he says. “One company creates five entrepreneurs. Those five create five more. Eventually you start to see something like Silicon Valley or Boston. That’s what we hope for — we just need more of them.”
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Successful spinouts also act as visible “role models”, demonstrating that commercial success is achievable and helps “attract and retain” leading academic talent.
“If you develop successful spinouts that secure funding, scale and ultimately exit, you also grow the investor base as people reinvest and repeat the process. It also helps build a strong ecosystem of experienced advisors.”
The funding ‘gap’
According to Smith, the “biggest problem” facing spinouts is a funding “gap”.
DSW Ventures was founded in 2019 to help address that issue, supporting start-ups across the North of England, particularly in deep tech and life sciences, where development timelines can sometimes stretch beyond a decade.
“The funding gap for more ‘generic’ early-stage start-ups or consumer B2B companies is smaller because they don’t need funding for as long,” he explains. “If you’re developing a drug, half a million pounds might get things moving, but you need the ball to keep rolling for 10 years or more. That requires increasingly large sums of money.”
He explains that regional VC firms often work with investors from outside the North, including in places like the US and Ireland, who spot the “real value” in regional companies and are willing to look past the UK’s ‘Golden Triangle’ of Oxford, Cambridge and London.
“We’ve searched high and low as we push towards Series B types of funding, but it’s much more of a challenge than it should be. It’s tough, and while it’s doable with the right investors and advisors pulling things together, the process is harder than it needs to be. Some places have cracked it, like Northern Ireland.”
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While it remains a challenge, he says progress is being made and that he would welcome a “local ecosystem” where investors support others’ early-stage investments.
While he says progress is being made, he would like to see a stronger “local ecosystem” where investors consistently back early-stage businesses within their own regions.
He also believes government policy could play a decisive role in accelerating the scale-up journey for Northern spinouts too. But while some of the current initiatives in place might be designed to unlock investment, such as the Mansion House Accord and the pooling of local authority pension schemes, they tend to favour much larger deals.
The scale of capital involved means funds are often directed towards buyouts or major infrastructure projects rather than venture capital.
“If they do VC, it’s more likely to flow into a billion-pound fund based in the Golden Triangle, because that’s where you can deploy capital at that scale.”
Instead, he argues for a stronger network of regionally focused funds capable of backing early-stage companies outside London and the South East.
And although he credits the British Business Bank as an important part of the current support system, he says current regional funding programmes support a wide range of businesses, meaning only a small proportion typically reaches university spinouts.
“As a result, the amount that actually goes into university spinouts is typically very, very small.”
Despite some of these challenges, he remains optimistic about the future. Improvements in university commercialisation, greater access to capital, experienced leaders reinvesting into regional ecosystems and a growing number of visible success stories are all helping to build “momentum”.
For him, retaining spinouts in the North is about far more than just being about individual company success, it is central to the region’s long-term economic future by turning academic innovation into globally competitive technology businesses.
