Is there such a thing as a ‘downturn-proof’ area in the UK? If there were, it might be Oxford. PwC’s Good Growth for Cities index ranks it as the top-performing UK city, calling it “one of the UK’s most highly skilled and important cities”. It estimates that Oxford contributes about £6.8bn a year to the UK economy.

Spin-out investments incubated by the University of Oxford’s research commercialisation arm, Oxford University Innovation (OUI), have consolidated the area’s position as a hub for entrepreneurship and led to a plethora of VC, private equity and corporate investment. OUI figures demonstrate that Oxford spin-outs raised £956m in external investment in 2022, 45% of the total raised by university spin-outs across the whole of the UK. 

Local seed and early-stage investor Oxford Science Enterprises has secured 106 deals with a combined investment value of £1.45bn. Tech and life sciences companies Osler Diagnostics, OMass Therapeutics and MiroBio raised more than £400m between them in the past year from domestic and international investors, including Gilead Sciences and Google Ventures.

Centre of excellence

But are there now clouds forming on Oxford’s horizon? In 2021, a rare LSE IPO for the biotech company Oxford Nanopore saw its book value surge to almost £5bn. Two years later, the DNA sequencer is valued at less than £2bn. The city is obviously not immune to national economic factors either, including the availability and price of debt.

Corporate finance advisory services for Oxford are often based in Reading, where the Big Six have regional offices, and there are other, smaller, corporate finance teams. Investors are a mix of local, London and international players. 

“Oxford used to be a very closed network, almost as if there was a moat around the town and you had to have been to the university yourself,” remembers Wendy Hart, a partner with HMT and a veteran of the Oxford corporate finance market. “But now it’s part of the wider Thames Valley network, along with London. There is also an international flavour. Oxford is now much more connected.”

Doing things differently

International students at the Saïd Business School have led to Silicon Valley connections, and what Hart calls “a network of two halves”, one “controlled by the university” and the other not. Milton Park and Harwell Science and Innovation Campus, both in South Oxfordshire, attract many innovative businesses using a variety of tech, Hart says: “With clever people leaving the university and starting businesses with their own intellectual property, they base themselves in the county and add dynamism to the cluster.” To the north of the county, Bicester is also becoming a business hub.

EDP Ventures is one of the largest energy providers in southern Europe and will help the firm with its ambitions for expansion in Portugal and Spain. Oxford Science Enterprises, Kiko Ventures, Foresight WAE Technology and Centrica continue to back Mixergy as existing shareholders.

Hart also points to the traditionally robust motorsport operators and the newer electric vehicle and battery subsectors being strong in Oxfordshire. BMW still makes the Mini (both internal combustion and the electric versions) at Cowley, to the west of the city. But, says Hart: “Oxford is mostly a city of small businesses, with SMEs driving the economy and without US businesses being attracted in the way they have been to Cambridge.” It’s the continuation, she says, of a tradition of the two university cities doing things differently that has been the dynamic for hundreds of years.

Catrin Dilloway, an investor at BGF who’s based in its Reading office, spends much of her week on the ground in Oxford. She is perhaps too young to remember the town’s ‘closed shop’ era, and finds both the Reading and Oxford markets to be “very collegiate. That could be a function of them being quite small markets where relationships between individuals can go back decades.

“People here couldn’t have been more welcoming in terms of plugging me into their own networks and introducing me to local companies,” she says. From that network, Dilloway aims to make about one investment a year in Oxfordshire – in her words, “educating businesses about the options available to them for growth capital”.

Where the local banks don’t have as much appetite as they once did, she adds, BGF receives introductions as “potential equity partners”. 

According to Adrian Howells, managing director of the corporate finance team at Quantuma: “Lending is interesting at the moment – the market is completely upside down”, with even the intellectual property-rich boomtown being affected by national economic factors. “Nobody really knows what’s going on,” he says, “which has nothing to do with the lenders, but is a reflection of the uncertainty around base rates. That’s led to a slowdown in decision-making, a slowdown in activity and an impact on values.

“When the lending market is tricky, the big four high street banks tend to retrench to existing clients, creating an opportunity for challenger banks, which can be a bit more expensive.” But for most firms with which Howells comes into contact in the small and mid-market around Oxford, “things are still looking quite good, and lots of business owners will be thinking it’s a good time to sell”.

He adds: “There is an almost 50/50 investment split between corporates and private equity, with a small proportion being companies going into employee ownership trusts, which is a growing area.”

Early funding is vital

As an investor, Dilloway sees one of her main barriers as being “apathy – people not having thought of raising growth capital”. That’s what makes a local network and boots on the ground so important, as she says she definitely sees people make a distinction to reward her for investing time in the city.

BGF often prefers to use local advisers such as James Cowper Kreston or HMT, and also uses local and national law firms based in the city. In some ways, the BGF pipeline is also benefitting from earlier work done by OUI and, specifically, Oxford Sciences Innovation (OSI), which manages a £600m seed fund for university spin-outs. 

Hart says that early-stage money has been “transformational in making sure that these businesses are well funded from day one, and it has an impressive black book of co-investors, ranging from the Wellcome Trust to Sequoia Capital”. The investment portfolio has now expanded from seed funding as far as Series B.

As Jim Wilkinson, CFO of OSI’s enterprise fund, says, Oxford’s success with spin-outs is “testament to the vibrant innovation ecosystem built by the university and its partners to transform academic research into groundbreaking companies. As we begin to see the impact of this work, it has never been more important to sustain and nurture this thriving ecosystem through continued investments.” 

The university and its associated investment network are a key part of this but, as local corporate finance professionals testify, that’s far from the full story. Transport infrastructure improvements, such as Network Rail’s £160m redevelopment of Oxford station and the proposed reopening of the Cowley Branch Line, will improve connectivity, as public/private partnerships and the strength of the ancient university insulate the town from many, but not all, of its country’s problems.

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