A Step-by-Step Guide to Spinout Funding for Academic Researchers
Bringing innovative research from the lab to the real world often requires significant funding, especially when building a spinout company or licensing a technology. Understanding the stages of investment can help you navigate this journey with greater clarity. Here, we outline the key stages of investment, tailored to support our academic community.
Pre-Seed Funding
While not a formal investment stage, pre-seed funding—often in the form of research grants and early-stage investments—lays the groundwork for commercialisation. At the University of Manchester, Proof of Principle (PoP) funding is a key example of pre-seed support, helping to de-risk innovative projects. Additionally, the Innovation Factory provides pre-seed investment to accelerate the transition from research to market readiness. Research councils, such as UKRI, also provide grants for translational research that bridges the gap between academic study and industry application. While not a formal investment stage, pre-seed funding—often in the form of research grants—lays the groundwork for commercialisation. Research councils, such as UKRI, provide grants for translational research that bridges the gap between academic study and industry application.
Seed Funding
Seed funding is typically the first formal round of investment, designed to help you take your idea from concept to proof-of-principle. This stage focuses on:
- Developing a prototype or minimum viable product (MVP).
- Conducting early-stage market research.
- Establishing intellectual property (IP) protection.
Funding sources may include university grants, government schemes (such as Innovate UK), angel investors, or university technology transfer offices like the Innovation Factory. For academics, seed funding is often critical in validating your innovation’s potential.
Early-Stage or Series A Investment
Once your spinout demonstrates proof of concept and some market validation, you may seek early-stage funding to scale up. This stage often includes:
- Hiring a core team.
- Refining your business model.
- Conducting larger-scale testing and market validation.
Venture capitalists (VCs), including sector-specific firms like Northern Gritstone, often provide Series A funding. This stage is about building traction and preparing for growth.
Growth Stage or Series B and Beyond
At this point, your spinout is generating revenue and demonstrating product-market fit. Growth funding supports:
- Expanding into new markets.
- Scaling operations and production.
- Increasing marketing and sales efforts.
Investors in this stage include larger VC firms, private equity, and corporate investors. Demonstrating a strong growth trajectory and a clear return on investment (ROI) becomes essential.
Late-Stage or Pre-IPO Investment
Late-stage funding is for mature spinouts ready to expand significantly or prepare for an exit strategy, such as an Initial Public Offering (IPO) or acquisition. This stage involves:
- Strengthening infrastructure.
- Enhancing product offerings.
- Positioning for a successful exit.
Institutional investors and strategic partners are typical sources of funding at this stage.
Exits: IPOs and Acquisitions
The final stage in the investment lifecycle is the exit. For some spinouts, this means going public through an IPO. For others, it involves being acquired by a larger company. Both scenarios can provide financial returns for founders and investors, as well as the resources to scale the impact of your innovation.
Additional Support for Academics
The University of Manchester Innovation Factory is here to guide you through each stage of this journey. Whether you’re developing a groundbreaking technology or seeking your first investment, our team provides tailored support, from securing seed funding to preparing for growth.
License or Spinout: How Do We Decide?
Check out the video below to find out what makes a great spinout, and what is better suited to a lucrative licensing deal.
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