About this survey
Two years following the publication of the first UK Synthetic Biology Startup Survey in 2017, sufficient time has now passed to look again at how synthetic biology startups are progressing in the UK. This latest survey provided an opportunity to update the listing of synthetic biology companies to reflect as accurately as possible the aggregate number of startups and explore the trends in funding activity, industrial sectors and regional variation represented in these numbers.
Summary
Synthetic biology startup activity across the UK continues to generate an increasing number of innovative companies each year.Recent data revealed the number of synthetic biology companies has increased by 28% in the past 5 years, with the highest concentration of startups found in the East of England followed by London.
Universities were the source of over half (52%) of the UK synthetic biology startups, although the number of startups created by each of the universities varied considerably. There are signs of an increasing correlation between universities with Synthetic Biology Research Centers and the number of companies spun out from those institutions. For the first time, synthetic biology non-university startups have overtaken the number of university startups. The continued growth of synthetic biology startup activity reflects a vibrant innovation ecosystem capable of supporting entrepreneurs and innovation in the UK.
Matching the rise in new synthetic biology companies has been an increase in the amount of private investment raised to fuel their growth. Between 2005 and 2018, synthetic biology startups received £1.1B in equity funding. Despite a drop in the number of deals, a record of £268m of equity finance was invested in synthetic biology startups in 2018. The average deal sizes have more than doubled from £4.3m in 2015 to £9.9m in 2018. Health Tech received the majority of all equity funding in 2018, which is increasingly been driven by foreign investment. The steady flow of capital from outside the UK continued to grow in 2018 with more than 50% of funds raised had at least one foreign investor. Early-stage companies continue to dominate investment, with 84% of all equity deals in 2018 at the seed and venture stage — forming the largest segment of the market.
As previously reported, there are distinct clusters of synthetic biology companies across the UK. The increasing geographical concentration of companies and investment shows no sign of changing and looks even starker when the regions in England are collated — the North-South divide shows 82% of synthetic biology companies are clustered in the South, receiving 96% of the investment and 83% of the public sector funding.
These findings should not be viewed in isolation. There are significant changes taking place both in and outside science, which present opportunities and challenges for startups in this sector, which don’t necessarily show up in the raw data. But in this rapidly developing technological sector, claiming significant economic and social benefits, it is more important than ever to have data to identify the trends producing startups that can scale and capable of delivering an impact. I hope this survey provides some new insights into the developing innovation ecosystem supporting synthetic biology startups in the UK.
The Numbers
There continues to be a steady increase in the overall number of synthetic biology companies in the UK over the period examined from 2005–2018, with an average of 6 new companies started each year. The smallest number of startups was in 2008, during the financial crisis, with only 3 companies formed. Two years later, in 2010 the economic climate had recovered with a return to an above-average number of startups. Company formation reached an all-time high of 11 startups in 2015, since then there has been a dip in the number of businesses started. Recent data revealed the number of synthetic biology companies grew by 28% in the past 5 years (2014–2018), which is down from 58% in the previous 5 years (2009–2013). It is important not to place too much emphasis on the absolute number of companies, more is not necessarily better, just as a fall is not necessarily worse, but these new businesses are expected to form the next generation and so the level of activity can be an indicator of the overall health of the sector.
Spinouts vs Startups
The downturn in startup activity during 2014–2018 is more apparent among university startups as their numbers fell, for the first time, below non-university startups. Within the startup population as a whole, there is a fairly equal distribution of university startup (52%) and non-university startups (48%). Although, between 2005–2009 and 2012–2016 there has been a doubling of non-university startups, which has contributed to the majority of synthetic biology startup activity. Non-university startups tend to appear in regions with a high concentration of other startups and can be considered a bellwether for the synthetic biology innovation ecosystem developing in the UK.
Historically, the high-tech startup scene has been dominated by university startups, spinouts that license university derived technology. In contrast, non-university startups will typically develop IP once started. This has led to the assumption that university startups are the only source of innovative high-tech companies, like those involved in Health Tech, while non-university startups tend to focus on Tools & Services, and the lower-tech end of the sector. This distinction would not appear to be as clearcut among synthetic biology companies, as non-university startups now account for 13% of the Health Tech companies, albeit less than the 18%, which originate as university startups.
Regional Variation
The majority of synthetic biology companies are predominantly based in the south of the UK. The East of England dominates the scene, with almost a third (27%) of synthetic biology companies in the UK, London comes second (18%), followed by Scotland (15%) and the South East region (14%). This leaves a fairly thin spread of companies across the rest of the UK, with just 4% in the West Midlands, North West, North East, and Wales, 3% in East Midlands and a low of 1% in Yorkshire and the Humber. Recent startup activity in Bristol has driven the share of companies in the South West to 6%, the highest level in England outside the Golden Triangle. Other trends in recent startup activity only underline the rapid increase in companies in the East of England which has now overtaken London as the hotspot for synthetic biology startups in the UK.
Industrial Sectors
A breakdown of the industrial sectors within the startup population revealed a gradual decline in the proportion of Tools & Services startups compared to the number of new Health Tech companies being formed. In 2005–2009, Tools & Services accounted for 46% of the overall number of UK synthetic biology startups, but in the 2014–2018 population, the figure has dropped to around 38%. One possible explanation is the maturing of the sector over time, the business opportunity is more defined, as companies become less technology-driven and more product-focused. The recent up-ticks in Chemical & Energy (20%), Clean Tech (2%), Food Tech (3%) startups, a sign of more diversification, also reflects the increasingly significant sustainability-and-environmental market that synthetic biology companies are looking to address. Puraffinity, Colorifix, and Phytoform Labs are just some of the recent startups making tackling environmental issues central to their business model.
Startup to Scaleup
Analysis of the synthetic biology companies in our dataset revealed that 8% of the startups have gone out of business, 10% if zombie companies are included. 15% of the companies tracked have gone on to successful exits, either through IPOs (4%) or acquisitions (11%). Recent notable IPOs include Autolus Therapeutics (£150m, NASDAQ: AUTL) in 2018 and Nightstar Therapeutics (£65m, NASDAQ: NITE) late in 2017. Mergers and acquisitions in 2018 included Desktop Genetics, bought by Celixir (undisclosed price), Biocatalyst was bought by BRAIN AG (undisclosed price) and Carbosynth merged with Biosynth.
Only 5% of synthetic biology companies have achieved the sustained growth required to reach scaleup status. Of the remaining, the majority of startups are classified as seed (37%) or venture (26%) stage and have failed to progress beyond the venture stage of evolution. This is not surprising given the time and capital needed to develop the highly complex innovative products using synthetic biology. But because the average age of a startup is 7 years, and many have received sizable Innovate UK grants (57%) and/or equity funding (85%) there may be other fundamental reasons why these companies are failing to scale.
Finance
The increase in the number of startups is no measure of the quality or ultimate success of a company. Quality is difficult to measure in early startups, but a reasonable surrogate for quality is whether other people are prepared to invest money in the business. Along with the growing number of synthetic biology companies in the UK, startups are also increasing the amount raised through equity fundraising, with over £1.1b being raised between 2005–2018. A record £268m was raised by synthetic biology startups in 2018, up from £224m in 2017, the increase occurred despite a drop in the number fundraising deals to 27 from 33 in 2017.
The average deal size has more than doubled from £4.3m in 2015 to £9.9m in 2018. During this period the amount of money going into larger (>£10m) deals has increased by more than 10-fold, while the number and value of smaller (<£1m) deals have remained constant. In 2018 the top 10 startup investments accounted for £241M or 93% of all recorded investment in early-stage companies. This reflects an increasing concentration of investment in a smaller proportion of well-funded businesses when compared to the top 10 investments in 2015, which represented 71% of funds raised. As to be expected the majority of top investments were in Health Tech companies, which typically require the most funding. Interestingly, all but one of the top ten largest investments between 2005 and 2018 were university startups. The sole exception was Green Biologics, a producer of bio-based specialty chemicals, which raised £128m since its formation in 2002.
Early-stage companies continue to dominate private investment, with 84% of all equity deals in 2018 at the seed and venture stage — forming the largest segment of the market. Increasingly funding of UK synthetic biology startups is been driven by foreign investment. The steady flow of capital from outside the UK continued to grow in 2018 with more than 50% of funds raised having at least one foreign investor. The record high influx of private equity and venture capital 2018 appears to be continuing into 2019 with over £20m raised in Q1, equal to the same quarter in 2018.
Regional Variation in Funding
There are distinct regional variations in the number of synthetic biology companies across the UK. Analysis of the regional differences in the two main types of financial support for startups, investing and grant funding, it is possible to discern how the availability of funds is affecting the number of startups.
Startups typically use a combination of grant and equity funding to provide cash for future growth. Therefore, the expectation would be that the distribution of funding would be proportional to the number of synthetic biology companies in each region. Reviewing the percentage distribution of companies, grants received, and equity deals closed revealed that the East of England with the highest percentage of synthetic biology companies benefited the most with the highest number of grants and equity deals. Other regions, Scotland and the South East, also with high concentrations of synthetic biology companies exhibited a similar pattern. The one exception was London which appears slightly disadvantaged receiving fewer grants, that one would expect given the higher number of companies present in the region. This shortfall appears to have had little effect on the share of equity deals London was able to close.
The other regions of the UK which have demonstrated low levels of synthetic biology startup activity have received a lesser number of innovation grants and equity deals. There is some evidence of additional support, via innovation grants, in the North East and Wales, with these regions securing a slightly higher number of grants than the number of companies present would predict.
A more complete picture of the grant and equity distribution by region is achieved when the actual £-amount of grant and equity is used. Looking at the difference between the proportion of synthetic biology companies in the regions and the distribution of grant and equity funding by region, it is immediately clear how successful the East of England, followed by London and the South East, has been in creating both companies and investable opportunities. Scotland would appear to be something of an anomaly, contributing to a sizeable proportion (15%) of UK synthetic biology companies receiving 18% of innovation grants, but raising only 3% of the equity funding in the UK.
Innovation grants are a vital component of the innovation ecosystem in the UK. Awarded to businesses with technologies that are early stage and carry considerable technical and commercial risk. Funding bodies, like Innovate UK award innovation grants to early-stage companies to explore the commercial potential and technical feasibility of a product. Although a critical funding mechanism for early-stage startups, they represent an incredibly small amount when equity funding outstrips grant funding by 10 times (£1.1b compared to £107m of synthetic biology funding deployed since 2005 respectively).
Investors
Private equity and venture capital funding accounted for 44% of all the money raised and was the largest single source of finance for synthetic biology startups, this is up from 40% in 2016. Other sources of capital included angel investors (13%), commercialization companies (10%) and corporates (8%). One of the biggest investors in synthetic biology continues to be local, regional and devolved governments who combined to contribute 12% to the sector. The investor profile at the low end included crowdfunding which contributed 2% to the overall funding pool.
Comments
This latest survey of synthetic biology startups in the UK reveals the continued growth in the number of companies exploiting the latest technological changes, which are transforming the life sciences. These changes, under the banner of synthetic biology, have been catalyzed by a confluence of developments in molecular and cell biology, chemistry, engineering, automation, computational modeling, and artificial intelligence are transforming how we engineer biology. The startups in this survey are applying developments in synthetic biology to everything from the production of chemicals and biofuels to cancer therapy.
Apart from a slight dip during the economic recession in 2008, the level of synthetic biology startup formation has remained remarkably consistent. What has changed is the increased regional concentration of synthetic biology startup activity and investment in the East of England, London, and the South East. The increase in startups across these regions is being driven by a growing innovation ecosystem, nucleating activity in this part of the UK. The availability of academic research excellence in synthetic biology, entrepreneurial know-how and the managerial experience required to create viable commercial opportunities combine in attracting an increasing amount of private investment to this sector.
The current rise in investment going into synthetic biology startups shows no sign of slowing. On the surface, everything looks positive, with both the funds raised and the size of the individual deals increasing. A note of caution comes with the recent slight slip in company formation, a poor track record producing scaleups and increased concentration of investment in fewer companies. There can be no room for complacency. To maintain and increase funding, investors need to see a constant stream of startups and entrepreneurs delivering compelling scalable business opportunities.
Because the majority of deal-flow has traditionally come from the translation of the research output from the UK universities, the startup population and activity does look insular, with concentrated activity occurring between a limited number of universities and investors. There are some encouraging signs of increased diversity among startups, both in their origins and makeup, but much still needs to be done. Despite 60% of synthetic biology startups having a female c-suite member, only 8% have a female founder or CEO. There is a tremendous amount of enthusiasm and optimism among the synthetic biology startup community, as demonstrated by the increase in non-university startups, which needs to be encouraged to ensure the full potential of this sector is realized.
Methodology
In producing a database of synthetic biology startups in UK, as in the previous survey, a strict definition of synthetic biology company was employed. To be included companies must use synthetic or engineering biology, be recipients of synthetic biology grants or spun-out of the synthetic biology research centers. Companies must be research or product focused, excluding consultancies and subsidiaries. Companies must be based and incorporated in the UK between 2000 and 2018.
All financial and investment information was obtained from Beauhurst, the leading provider of rich data on high-growth companies in the UK.
Stephen Chambers is the Founder of Subsero Ventures, which advises and invests in early-stage life science companies. Stephen has previously held senior executive roles in biotechnology and pharmaceutical companies in both the US and UK, with a successful track record in drug discovery and development.
He was the founder of the life science accelerator Bio-start, co-founder of Abpro Therapeutics and founding scientist at Vertex Pharmaceuticals. As CEO at UK’s Innovation & Knowledge Centre for Synthetic Biology worked to promote the translation of academic research in synthetic biology. Recently awarded Royal Society Entrepreneur in Residence at Imperial College London.
Stephen has a BSc in Biochemistry, an MSc in Biotechnology and a Ph.D. in Molecular Biology from the University of Warwick.
