Is Northern Gritstone a model for driving economic regeneration?

Northern Gritstone, the investment company created by the universities of Leeds, Manchester and Sheffield, aims to address a major, damaging imbalance within the UK’s economy. “There is very little money reaching the north of England as a whole for science and tech investment,” said its chief executive, Duncan Johnson.

By raising finance to invest in spin-off companies from the three universities and other science and technology businesses linked to them, Northern Gritstone, he continued, will be helping to create “businesses that will power the northern economy, the UK economy, for generations to come…And through that we will create well-paying, highly productive jobs in parts of the UK that really need it. From that, we will all get a benefit.”

As doubts hang over the agenda for levelling-up in the UK regions amid chaos in the Conservative government and a renewed commitment to public spending cuts, Northern Gritstone connects with a pressing question in many Western nations: how to ensure that former industrial regions can build their own innovation economies and create good jobs.

And as the company starts now to inject capital into the north of England following its July 2021 launch, the recent announcement of its first three investments – including in a spin-off that has re-engineered insect brain patterns to drive advances in autonomous machines – offers a chance to reflect on its progress and potential benefits for the universities and cities of Leeds, Manchester and Sheffield.

Private investment capital, alongside public research and development investment, matters in building innovation economies. In the US Midwest, for example, it is lamented that the venture capital needed to turn university spinouts or other innovative companies into bigger businesses is concentrated in New York, Boston and Silicon Valley – meaning that those superstar metropolitan areas dominate in technology and innovation, deepening regional and social inequality.

In aiming to tackle the UK's problem here, Northern Gritstone offers investors “profit with purpose”, said Mr Johnson, who started as chief executive in September 2021, having previously been head of Caledonia Private Capital and, before that, a founding partner at RJD Partners, a private equity fund manager. He works alongside a chair with significant political weight: Lord O’Neill, vice-chair of the Northern Powerhouse Partnership and former Goldman Sachs chief economist.

Northern Gritstone announced a first close of £215 million in its fundraising, with plans to raise £500 million overall. It secured investment from funds managed by M&G Investments, Lansdowne Partners and Columbia Threadneedle; Manchester-headquartered real estate firm Bruntwood; “high net worth individuals”; plus the local authority pension funds of Greater Manchester and West Yorkshire.

“The reason we got the backing from Greater Manchester and West Yorkshire is because, absolutely, it’s local,” Mr Johnson said.

For the universities, Northern Gritstone is a means to respond to pressure – from government and funders – to commercialise their research and, to that end, to redress the regional balance in science and technology investment: in 2019, data platform Beauhurst found that £22 million went to the whole of the north of England against £900 million for the golden triangle of Oxford, Cambridge and London, said Mr Johnson.

Across the universities of Leeds, Manchester and Sheffield, “you’ve got this incredibly rich vein of science that is being under-exploited”, he added.

The three universities started collaborating on the Northern Triangle Initiative to commercialise research in 2017, and the new company emerges from that experience of working together – perhaps unusual in England’s competitive, marketised university system. The three universities were also inspired by the success of Oxford Science Enterprises – the investment company that takes a stake in all science spin-offs from the University of Oxford – in boosting spin-out activity around Oxford.

One of Northern Gritstone’s first three investments puts £3.5 million into Sheffield spin-out Opteran Technologies. The firm bills its technology, which mimics how animals such as honeybees navigate, as providing “a paradigm shift in machine intelligence that provides a path to true general-purpose autonomy” – technology that can be applied in drones, robots in warehouses, driverless cars, using far less energy, data and equipment such as sensors and cameras than other autonomous technologies. The company has demonstrated its technology by installing it in a robot dog that finds its way around mazes.

Two of Opteran’s co-founders are James Marshall, professor of theoretical and computational biology at the University of Sheffield, and Alex Cope, a former Sheffield PhD student and researcher, who developed the technology after research on mapping the insect brain.

Other robotics companies have told Opteran that it is “the only company in the world that is doing it differently”, said the firm’s other founder and chief executive, David Rajan.

Northern Gritstone will be a “massive, massive fund” that helps to redress the regional investment imbalance, he added. “It is not that the north generates less IP or lower quality IP – it’s the same. But the funding disparity is enormous,” Mr Rajan continued.

Since the Northern Gritstone investment in Opteran in July, the firm has grown from 18 staff to 40 at its Sheffield base. That growth means the firm can “double down on the technology we’re building and turning it into products”, while new hires such as its first sales member of staff “mean we can really start commercialising”, Mr Rajan said.

But university spin-outs tend to be quite small – so will Northern Gritstone really make a difference in supporting large numbers of new good jobs for people of all backgrounds?

“We expect to be having a portfolio of 80 to 100 investments in five years’ time,” said Mr Johnson. “We expect to have created somewhere north of 1,000 new jobs through that process.”

Northern Gritstone won’t be investing only in direct university spin-offs – it will invest up to 40 per cent of its balance sheet into science and technology businesses in the north of England, with a preference for those associated to the three universities.

Another of the trio of opening investments is in Iceotope, a member of the University of Sheffield’s much admired Advanced Manufacturing Research Centre (AMRC), which bills itself as “the global leader in precision immersion cooling technology”.

The firm employs 70 staff, ranging from PhD graduates to “the guys who are actually hacking, creating, cutting metal…all skilled, all highly paid, all good career prospects”, said Mr Johnson.

There are also economic “multiplier effects” that go beyond jobs in the companies that Northern Gritstone will invest in, he argued, supporting innovation districts around the universities where other companies will be able to “pull in more capital, more human capital”.

Mr Johnson likened his job to a kind of “Dragons’ Den” identifying science for which there’s a commercial market.

What about the risk that the spin-offs flop and the investors lose money?

University spin-outs and start-ups are “a high-risk part of the work”, Mr Johnson acknowledged. “However, the winners are quite often very big winners.” And investing in less risky later-stage businesses, like Iceotope, as well as seed-stage businesses, aims to give investors a “much smoother journey”.

Northern Gritstone has had plenty of political support, including from Greater Manchester mayor Andy Burnham and South Yorkshire mayor Oliver Coppard.

“Oliver and Andy talked at our investor day a couple of weeks ago. They made keynote speeches on what they are trying to achieve – we are really fortunate to have their backing,” said Mr Johnson. He feels a positive “weight of expectation” from the mayors.

Mr Coppard said South Yorkshire and the north as a whole, despite being “home to a wealth of talent and expertise, especially from our world-leading universities”, have “faced decades of underinvestment in both public and private innovation”.

“We’ve got to fix it ourselves; and Northern Gritstone is one of the ways we can start doing that,” he added.

In creating the company, the three universities have shown “commitment not only to excellence in research and innovation, but also to enterprise and regional economic growth”, Mr Coppard continued. The three investments by the company so far are “nothing short of astonishing”, he said. “It just shows that we have the people and the talent to create businesses that will transform the world.”

Northern Gritstone aims to accelerate a shift to innovation already well under way. The University of Manchester’s £1.5 billion ID Manchester project is described as Europe’s largest innovation district; the Leeds Innovation Arc is led by the city council and clustered around the city’s universities and hospitals; while Sheffield’s AMRC is nationally and internationally admired.

“In a decade, we can have something that is competing with Silicon Valley, for certain things,” said Mr Johnson.

With London and the south-east overheating on housing costs, there is an argument that the Leeds-Manchester-Sheffield triangle, with its great cities and universities, plus the quality-of-life attractions of its wild Pennine landscape and more affordable housing, might be the nation’s biggest opportunity for growth.

Mr Johnson said Northern Gritstone was attracting people northwards as a direct employer – it is headquartered in Manchester – as well as through its investment in science and tech companies, making it part of that bigger shift. He added: “You can have a higher quality of life, do something really exciting and have well-paid, interesting jobs in the north.”

john.morgan@timeshighereducation.com