Fusion IP, the university intellectual property commercialisation company, said one of its firms had raised 2.5m pounds to develop motors for the hybrid and electric vehicle market.
The company said Magnomatics, which was spun out of the University of Sheffield in 2006, had raised the money to fund the development of its magnetically geared motors.
The system is designed to offer motor vehicle manufacturers a lighter, quieter, more efficient direct drive motor.
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IP Group and Finance Yorkshire will both invest £1.06m, while Fusion IP will invest £366k.
The first tranche of funds, totalling £2.25m, has been invested and the second tranche of £246k is dependent on certain milestones.
When the full amount is invested, Fusion's shareholding will be 31%.
Fusion's Chief Executive David Barnes said Magnomatics, which is based in Sheffield, had made major technological advances over the last two years and had an impressive list of development contracts with many of the world's leading manufacturers.
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