Northern Gritstone’s fund will invest in tech business spinning out of the universities of Leeds, Manchester and Sheffield and others, a first step in the development of a northern tech hub to rival the south
In brief
- Northern Gritstone has raised £215m for the first close of a fund to invest in university technology spinouts
- The firm was founded last year by the Universities of Leeds, Manchester and Sheffield to attract investments to businesses originated from research at these institutions
- The company hopes to catalyse a northern tech hub to rival Cambridge’s Silicon Fen
- The firm is targeting a final close of £500m for the fund which has already secured backing from leading asset managers, pension funds and individual investors
Northern Gritstone, a venture aiming to channel more funds into university technology spinouts in the north of England, has announced a first fund-raising close of £215m (€252m) on the way to a planned £500m total.
The company intends to make its first investments in coming weeks. These would be the first stage in a drive to foster the development of a regional technological hub in the north of England to rival the so-called ‘golden triangle’ of tech hotspots around universities in Cambridge, London and Oxford.
The company hopes to support a number of emerging sectors, including advanced materials, health technology, cognitive computation and artificial intelligence.
“Northern universities produce science that rivals or is better than that in the south, but their spinouts only get a fraction of the private investment. We want to catalyse a northern tech hub to allow us to rival, in the first instance, Cambridge’s Silicon Fen, but ultimately Silicon Valley,” Duncan Johnson, Northern Gritstone’s chief executive told Impact Investor.
Northern Gritstone was founded in July 2021 by the Universities of Leeds, Manchester and Sheffield to attract investment to science businesses originating from research at these institutions.
Johnson joined at that time from Caledonia Investments, the UK-listed investment trust, where he was head of Caledonia Private Capital. Northern Gritstone is chaired by former Goldman Sachs chief economist Lord Jim O’Neill, a high-profile campaigner on the benefits of ‘levelling up’ the poorer parts of the UK by boosting regional economies.
At least 60% of Northern Gritstone’s investment will be directed to spinouts linked to those three universities. A 15-year agreement gives the company right of first refusal to invest in their spinouts. However, the remainder of the fund will be available for investment in technology companies unrelated to those three universities, including spinouts from other academic institutions.
Northern Gritstone sees its investment rationale as making a profit with purpose, choosing its investments on the basis of how they are likely to contribute to its goal of further developing the tech sector and creating high-skilled jobs in northern England .
“We want the companies in which we invest to be additive to the ecosystem. We want to draw businesses, scientists, inventors, entrepreneurs into our tech ecosystem. We wouldn’t invest in a business that doesn’t touch any parts of our ecosystem,” Johnson said.
Patient capital partner
It also plans to be long-term partner for the companies in which it invests.
“We’re a patient capital vehicle, so we can get the duration right, because some of these businesses can take up to 15 years to bake in the oven. With the standard funds cycle you’re forever passing the baton, so we’ve tried to create stability and the ability to deliver along the journey,” Johnson said.
Northern Gritstone plans to invest across the spectrum of early-stage companies, typically allocating £1m for a seed investment, £5m for a series A investment and £7.5m for larger investments. The objective is for the firm to run a portfolio of 100 investments eventually, making about 20 new investments a year.
Funding commitments obtained so far have come from local authority pension funds, institutional investors, high net worth individuals, and real estate investors with a stake in the tech and science ecosystem of the region.
These include UK-based insurer and asset manager M&G, Greater Manchester Pension Fund and West Yorkshire Pension Fund, Columbia Threadneedle, Lansdowne Partners, and Bruntwood. Andrew Law, the CEO of Caxton Associates, and Keith Breslauer, managing director and founder of Patron Capital, both invested in a personal capacity.
“M&G provided the cornerstone for everything we’ve managed to do. They committed to us at the end of August last year through their Catalyst Fund, providing us with the leverage to bring in others,” says Johnson.
He expects fund raising to become easier now the first close has been achieved.
“We have a lot of people interested in coming in on a second close. Some of the names we’re talking to are large pension funds and big institutions. We’ve said we’re looking to raise £500m and I believe that it’s still a very achievable target over the course of the next year,” he said.
So, what would success look like for Northern Gritstone? “After a decade, I’d like to think that with the tech hub we will create, scientists or entrepreneurs will be able to say: I’ve got real choice – I can go to Cambridge, or I can go to the tech hub in the north, and that they’re all on a parity,” Johnson said.
Earlier this month, Impact Investor wrote about the Future Planet Fund which backs growth companies also emerging from innovations developed at some of the world’s leading academic institutions aimed at solving pressing societal challenges.
