Beyond the Capital with Northern Gritstone

Northern Gritstone Image credit: Northern Gritstone / UKTN

After nearly 11 years running Caledonia Private Capital, Duncan Johnson wanted to do something that would leave a “legacy”. In 2021, he took the reins at Northern Gritstone, an investment company focusing on spinouts in the North of England.

“I wanted my children to be proud of me,” Johnson tells UKTN. “Just making rich people richer isn’t actually what this is about”.

Northern Gritstone, which is chaired by Lord Jim O’Neill, was established by the universities of Manchester, Sheffield and Leeds. It backs “IP-rich” businesses in the North of England to support them with commercialisation, and has invested in eight companies so far.

The investor announced its first close of £215m in May 2022 and has since bolstered its funds with £30m from British Patient Capital. More recently, it closed an extra £50m, with “another £50m-£100m in the hopper”.

Chancellor Jeremy Hunt has said he wants to encourage more investment from pension funds into tech businesses amid concerns that a lack of liquidity is harming the UK’s tech sector.

However, this is not an issue that Northern Gritstone has encountered, with the likes of the Greater Manchester Pension Fund and West Yorkshire Pension Fund providing capital. Johnson says that it is also looking to bring the Merseyside Pension Fund on board, which would be the fifth local authority pension fund to provide a commitment to Northern Gritstone.

“Everybody is moaning in this sector as you know about pension funds, don’t invest into this, don’t do that,” says Johnson. “Well, three-quarters of my money comes from pension funds.”

If all goes as planned, Northern Gritstone will be in charge of capital up to £400m.

Northern startups

In Manchester, the CEO is most excited about ID Manchester, a £1.7bn innovation district between the University of Manchester and Bruntwood SciTech, which will “compete” with the Cambridge Science Park.

However, he says that Sheffield is “at the other end of the spectrum” and needs further incubation space.

“I hope that what we see in five years’ time is Sheffield being where Manchester is now but it’s on a faster curve,” he says.

Johnson, speaking from the University of Leeds’ Nexus incubation centre, says a second one will be constructed not far away, where a “whole innovation district” could emerge.

Companies in the venture capital firm’s portfolio include a cat-like skin material from University of Leeds spinout LC AuxeTec, and the University of Sheffield infrared sensor spinout Phlux Technology.

Other investments include life sciences company Imperagen and immersion cooling technology producer Iceotope.

‘Patchy’ semiconductor strategy

Johnson says that the UK government’s recently unveiled £1bn semiconductor strategy is “patchy” and part of a broader problem stemming from geopolitcs and a lack of long-term planning.

“I don’t think [the semiconductor strategy is] particularly coherent, but I don’t think that’s anything different to any other industrial strategy we have because we don’t really have an industrial strategy. That is the bigger issue here,” he says.

“The semiconductor [strategy] is just one of many things that is sort of ad hoc to short-term reactive rather than planned.”

When it comes to regulating AI, the chief executive shares a similar view to those expressed by both Prime Minister Rishi Sunak and opposition leader Sir Keir Starmer: that AI has high potential but comes with risks if used in the wrong manner.

Regulating AI is something Johnson is unsure how the government will get right and will require a global regulatory figure to make happen.

“That’s not going to exist” as you cannot prevent “rogue states” from exploiting AI, he says.

As for ESG, it’s not a term that Northern Gritstone uses, as in Johnson’s opinion it has become “a bit hollow” thanks to greenwashing.

Beyond the Capital, an interview series with tech investors and venture capitalists based outside of London, is published monthly. Last month UKTN spoke with South East Angels.