An independent investment company has been set up by eight universities in the UK’s Midlands region, to help spur local socio-economic development and address the funding deficit for science-based start-ups.

Midlands Innovation, a group of institutions including Loughborough University, the University of Warwick and the University of Birmingham, announced ‘Midlands Mindforge’ in April 2023. The vehicle aims to raise at least £250m from corporate partners, institutional investors and individuals to invest in businesses ‘spun out’ from research in areas including cleantech, artificial intelligence and life sciences.

Mindforge comes as universities become increasingly active in commercialising their research and promoting regional economic development. The remaining five partner university institutions — Nottingham, Keele, Leicester, Cranfield and Aston — make this the largest UK university grouping to create a standalone spin-out investment company. 

Helen Turner, the director of Midlands Innovation, says this collaboration aims to address the “knowledge gap” about what the Midlands has to offer and get investors to look beyond London and the southeast of England, which attracts the lion’s share of venture capital (VC) in the UK.

Alongside investments into spin-outs at seed and later stages, Mindforge will also allocate a portion of its capital to intellectual property-rich companies from the Midlands without any links to the eight universities. However, amid an overhaul of UK regional development policy, the success of the initiative will depend on the amount of capital raised and whether fragmented regional governmental bodies can effectively coordinate their efforts.

Catching the ‘Golden Triangle’

The main goal of Mindforge is to address the lack of funding for entrepreneurs in the Midlands. Aleks Subic, vice chancellor of Aston University in Birmingham, says that the Midlands “innovation ecosystem is not complete” due to its lack of dedicated major VC funds.

“When you look at the amount of research activity and industry engagement, this should be a powerhouse of the UK,” he says, noting that the purpose of Mindforge is to fast-track research commercialisation “without waiting on someone else” to do it.

Availability of funding in the region has improved greatly over the past decade, including through the Midlands Engine Investment Fund (MEIF) and the Innovation to Commercialisation of University Research (ICURE), a three-month spin-out support programme. But there remains a lack of funding across the Midlands, particularly for research-based start-ups that are yet to generate any revenue.

The investment deficit is starkest when compared with the ‘Golden Triangle’ of London, Oxford and Cambridge, where spin-outs raise four times more equity funding by their eighth year of operations than those in the rest of the UK, according to the British Business Bank.

Discover more rising start-up ecosystems: 

• The rocky road ahead for Pakistan's start-up ecosystem
• Silicon Zanzibar: an island's bid to diversify its economy
• New Orleans tech: from hurricanes to unicorns

“It has always been more difficult raising funds for spin-outs outside the South East and Golden Triangle,” says David Coleman, the CEO of University of Birmingham Enterprise, who notes that the patient capital brought by Mindforge could be a “game changer” for the Midlands region.

Mindforge follows in the footsteps of Northern Gritstone, a similar investment vehicle set up in 2021 by the Universities of Leeds, Manchester and Sheffield. Gritstone has raised £215m towards its efforts to back spin-outs and support levelling up and high-skilled job creation. 

Nascent stages

While in its nascent stages, the Mindforge initiative is being led by two consultants — Jonny Potter and Catherine Clarke — who are helping to hire a senior management team and raise capital. Formal fundraising does not begin until the fourth quarter of this year, with the first close expected by the first quarter of 2024. 

Mr Potter says that Mindforge aims to become a “focal point” for other early-stage science and technology investors to identify opportunities across the fragmented landscape of universities in the Midlands. 

“Midlands Mindforge will develop close links with our eight partner universities over a long-term period, thereby gaining early insight into the most exciting opportunities originating from those institutions,” says Ms Clarke.

However, Mindforge will need to manage tensions between universities and British spin-outs companies over founders having to give up too much equity in their start-ups to universities. 

Tim Luft, a West Midlands-based innovation leader at Create Central, a creative industry body, notes that Mindforge must ensure it raises enough funding and offers suitable levels of equity investment to spin-outs.

“The universities are one player in the ecosystem and have a significant role in research and development,” says Mr Luft. “However they need to be integrated into wider professional support services in order to complete the picture.”

For prominent spin-outs from the region, the prospect of early funding for new and existing research-backed companies is welcomed. But they call for more specific support beyond capital to ensure the success of new and existing spin-outs.

“[Mindforge] also needs to provide intellectual support for the businesses to enable them to understand the nuances of running a business in comparison to working in academia,” says Lindy Durrant, the CEO of Scancell, a London-listed company which develops cancer treatments that spun out from the University of Nottingham in 1996. 

Changing UK development policy

Midlands Minforge comes at a pivotal time for UK regional development policy. From April 2024, the 38 local enterprise partnerships (LEPs) across England are to be wound down as independent bodies after more than a decade of existence, in which they played a crucial role in promoting investment and business activity in their designated regions.

“As universities, we’re going to have to respond to what happens to LEPs, and engage with them and see how it plays out,” says Ms Turner of Midlands Innovation, who notes that Midlands Mindforge is aimed at working in conjunction with existing regional initiatives.

UK chancellor Jeremy Hunt also announced in his 2023 Spring budget the formation of 12 investment zones, each of which have been given access to interventions of £80m over five years. The zones, which focus on innovation and high-growth sectors, will provide additional funding for spinouts and innovative companies in the Midlands.

The local landscape in the Midlands can be “quite complex to navigate” due to different regions, counties and combined authorities working alongside one another, admits Nick Jennings, the vice chancellor of Loughborough University, who formerly oversaw research and innovation at Imperial College London.

“There are a lot of local activities that aren’t always as well joined up as they should be,” says Mr Jennings, who notes that Midlands Innovation is a good example of how regional collaboration can work at scale.

Midlands Mindforge is expected to be complementary to existing initiatives in the region, including from MEIF, ICURE and the West Midlands Combined Authority. While there remain several details to iron out to ensure the success of Midlands Mindforge and its potential impact, the coordination between universities in the region is a welcome development.

“We needed to take steps of our own,” says Mr Subic, who hopes the UK government will develop more robust schemes that incentivise support for commercialisation activities between universities and industry.

This article first appeared in the June/July 2023 print edition of fDi Intelligence.