Northern Gritstone to open doors to external investors in 2025

Spinout investment firm Northern Gritstone, founded by the universities of Leeds, Manchester and Sheffield, is set to welcome external investors from the second half of next year, as it seeks to expand funding for its portfolio of spinouts beyond Series A.

The firm, whose shareholders currently include blue-chip companies and pension funds, will shift to a new structure allowing external investors – known as limited partners (LPs) – to participate. This move aims to boost Northern Gritstone’s capital reserves, enabling it to support its most successful spinouts in securing later-stage funding.

Duncan Johnson, CEO of Northern Gritstone, noted that the structural change will allow the firm to raise capital more efficiently, rather than relying solely on its balance sheet.

He said: “We have a massive opportunity set that we can’t fund at the moment because of how much money we want to deploy to different bits of portfolio construction. So, we’ve got ourselves regulated to give us the optionality to allow us to manage more money in different formats that suit different funders, and also gives us more firepower. We would like to participate strongly in some of those [later stage funding] rounds, but we can’t do that from the balance sheet. If you’re an LP, this stuff has already been incubated by us. We would like to manage more money to go into those businesses to help them scale and move forward.”

The firm secured a final close of £312 million in November 2023, with over £150 million sourced from local and regional authority pension funds in northern England, but could raise an additional £180 million through the new general partner-limited partner model, bringing the total to £500 million – the amount it originally targeted when launched in 2021.

Existing shareholders have expressed interest in providing more capital as limited partners, while talks with external investors, including those from corporate entities and Gulf state funds, are ongoing. These investors range from family offices to sovereign wealth funds. Northern Gritstone is waiting until next year to raise additional capital, as that is when the firm predicts market conditions will improve and its track record will be stronger.

Since its launch, Northern Gritstone has invested in 24 companies, primarily spinouts from the universities of Leeds, Sheffield, and Manchester, which all hold a small stake in the firm. Northern Gritstone was established to address a significant gap in venture capital funding for spinouts emerging from northern England, which often struggle to attract attention compared to those based in the so-called Golden Triangle of Cambridge, Oxford, and London.

The firm, which focuses on funding deep tech, provides funding across all stages, from pre-seed to Series B and beyond. Notable companies in its portfolio include Iceotope, a firm developing precision immersion cooling technology for data centres, and Floreon, a bioplastic made from crops such as corn and sugar cane.

Recent investments have ranged from seed to Series D funding rounds. In June, Northern Gritstone made an £850,000 seed investment in Cavero Quantum, a University of Leeds spinout developing encryption technology for secure key generation. Earlier, in March, it invested £5 million as part of a Series D fundraising round for Phagenesis, a medical device company specialising in treatments for swallowing disorders.

In a bid to further support its spinouts, Northern Gritstone has partnered with UK venture capital fund and accelerator Deeptech Labs to launch NG Studios, a 10-week accelerator programme aimed at fostering business creation among its portfolio companies.