The number of Welsh spinouts firms have also fallen shows new research from UK Research and Innovation
John Atack and Simon Ward of Draig Therapeutics.
The new UK Research and Innovation report has revealed what too many Welsh founders already know – we create technology firms but struggle to finance them through the critical early stages. Too few are supported through to serious scale and this is especially true of those spinout businesses that are founded to take university research into the marketplace.
On initial reading, the report shows some good news, with Wales accounting for 3% of UK research income and producing 3.6% of UK university spinouts founded between 2013 and 2024, suggesting we may be punching above our weight in creating companies.
However, the bad news is that Welsh spinout formation has fallen from around 19 per year in 2013-15 to around seven per year in 2022-24, which means fewer bets, fewer shots on goal, and fewer companies reaching the stage where external capital can realistically back them.
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This should worry anyone who cares about productivity, private sector job creation, or building home-grown firms. Indeed, here is where we should all pay attention, because the report’s figures are genuinely alarming.
While Wales generates 3.6% of UK spinouts, it captures only 1.4% of pre-seed and seed equity investment into spinouts, and an astonishing 0.1% of early-stage VC equity investment. In other words, while we create innovative businesses, they just don’t get the finance necessary to scale.
This is not a small gap but a massive market failure at the exact stage where spinouts transition from “clever science” to commercial execution i.e. building a product, hiring commercial leadership and pricing a serious seed round.
This is the phase where companies either become investable businesses or remain permanently “nearly ready,” and where momentum is either built or lost. If we are capturing virtually none of the early-stage venture capital equity going into spinouts, we are effectively saying they are not a strength of the economy and that Wales, through its Development Bank and other funders, is not properly backing our own potential when it needs it the most.
In fact, the biggest constraint, and one I have been highlighting in this column for two decades, is that Wales simply does not have enough experienced venture capital investors on the ground with the capability and appetite to lead rounds to back winners again and again with only 1.1% of venture capital firms having any office presence here in Wales (and that includes the Development Bank).
If you don’t have lead investors with the necessary expertise, you don’t just get fewer deals, you get weaker syndicates, smaller rounds, slower progress, and a higher risk that firms are pulled towards stronger ecosystems once they show promise. When that happens, Wales loses the long-term value created when a business finally scales.
Worst still, the report suggests that of the Welsh spinouts founded since 2013 and at least three years old, the majority have failed to raise at all: the worst performance in the UK. In addition, only one in 50 have secured later-stage venture capital rounds above £10m, i.e. a tiny proportion of university-born Welsh firms are reaching the funding thresholds associated with meaningful scale and long-term value creation.
That is scandalous. Those who are part of the funding ecosystem should not try to celebrate spinout formation and then quietly ignore the fact the majority go nowhere because there is insufficient capital being made available.
We know Wales is never going to outspend London, south east England or the east of England on venture capital but that is not the issue.
What is important is whether we can build our own coherent pathway that converts research-led potential into investable ventures and then into scaling businesses that stay and grow here.
Unfortunately, the evidence suggests we are failing at that test, and it is a shameful performance because it is not inevitable as Wales has universities generating commercialisable research and founders willing to take the leap. And while an outlier, the recent success of Draig Therapeutics, a recent spinout from Cardiff University that has received more than £100m in venture investment, shows the massive potential that exists within our academic institutions.
On the other hand, there have been no real spin-offs from the compound semiconductor sector in South Wales despite it receiving more than £500m of funding from public and private organisations. In addition, one of these funders – the Cardiff Capital Region – has its own £50m investment fund and yet despite operating alongside one of the UK’s most strategically significant deep tech clusters, it has made little impact on turning this investable innovation into businesses that scale.
This is despite the report showing that in the UK, semiconductors are a sector where spinouts dominate and if Wales is going to win in this vital industry, it typically wins through university commercialisation and scale finance which simply isn’t happening.
Therefore, a funding system that includes the Development Bank of Wales, the British Business Bank and the Cardiff Capital Region that cannot get companies from pre-seed to seed, and from seed to meaningful growth, is inadequate at best. At worst, it becomes a machine for producing failure with talented founders wasting time, universities burning credibility, and taxpayers subsidising activity that does not translate into long-term value.
We need to face the reality caused by those funding Welsh businesses, namely that most Welsh spinouts go nowhere due to a lack of capital. In the absence of any meaningful private venture capital, we need our economic development bodies to build a coherent funding pathway.
Only when we commit resources to doing that properly and create a group of sustainable technology-based scaling firms that create wealth and well-paid jobs in Wales, can anyone claim that our spinouts are a strength and that innovation from our universities are the engine growing the economy.
