Northern Gritstone, the spinout fund created for northern university science innovation, is well on its way to raising £500m.
The fund, which was only launched in September, has already had £100m pledged by pension and life assurance funds, with another £300m to close soon.
If it hits its half-billion-pound target, Northern Gritstone plans to back 100 science spinouts and spin-ins from and to the universities of Leeds, Manchester and Sheffield.
This would make it the second-largest university spinout fund in England after the £600m Oxford Sciences Innovation fund, which is on track to create nine unicorns – companies valued at over $1bn.
More importantly, Northern Gritstone plays to the Government’s “levelling up” agenda of rebalancing the north and south. Duncan Johnson, CEO of Northern Gritstone, credits politicians with smoothing the way for him to speak to institutional investors.
Lord Jim O’Neill, cheerleader for the whole Northern Powerhouse concept promoted by the previous Conservative government, is chairman of Northern Gritstone.
The fund wants to back 24 university science lab spinouts and spin-ins each year, divided equally between life sciences – which include drug discovery, medtech and diagnostics – and broader technology, which embraces engineering, robotics and software.
It says it already has 136 spinouts seeking funding over the next three years in the pipeline, with more being added each month.
The fund is needed, says Johnson, because northern universities have only attracted 1.8 per cent of venture capital funding going into English universities, with the rest going to the “golden triangle” universities of Cambridge, Oxford and London.
This is despite the three founder universities having the second-highest level of research income after Oxford and more Nobel Prize winners. The University of Manchester for example won two Nobel prizes for its work pioneering graphene as a usable material.
Just as the north of England has the best football teams, so northern universities have the best IP, jokes Johnson.
Johnson, who spent a decade running the private investment side of Caledonia Investments and before that worked in venture capital for RBS, says Northern Gritstone’s profit-with-purpose ethos resonated for him.
Says Johnson: “I wanted to use my skillset to help build businesses that will drive not just the northern economy but the whole of the UK economy for years ahead, passing the baton on for future generations.”
His ambitions for Northern Gritstone chime not only with levelling up, but are about job creation, wealth creation and rebalancing the north and south.
Johnson says: “Everything is there – the infrastructure, the entrepreneurialism, but what hasn’t been there is the capital. What we have seen is a lack of venture capital kills innovation. Northern Gritstone will be catalyst to release all this amazing science.”
As a seed fund (“Seed capital is a good name for it, you’re sowing your seeds”), Johnson is phlegmatic about how many of his start-ups will go on to succeed. Using Oxford Sciences Fund as his model, he expects 50 per cent of his start-ups to fail for one reason or another. But venture capital investing, he says, uses the Power Law, where one fifth of investments more than cover the failures.
Johnson says: “I couldn’t have been given a better wicket to play on than this. Half a billion pounds of early stage investing is game changing, not just for the north of England for the whole of the UK.”