Sky News can reveal that Northern Gritstone, which is chaired by the former Treasury minister and Goldman Sachs economist Lord O'Neill, is making a seed investment in LC AuxeTec.

Established by Professor Helen Gleeson, former head of the physics department at the University of Leeds, LC AuxeTec claims to have developed the world's first material that is auxetic at the molecular level - meaning it becomes thicker rather than thinner when stretched.

In nature, a material's ability to react in this way - its auxeticity - can be found in a person's Achilles tendon, and in cats' skin.

The discovery has excited investors because of its potential application to materials used for shock absorption and which require qualities such as durability and robustness.

One person familiar with the company's work described it as "a wonder material".

LC AuxeTec was effectively created by accident, when Prof Gleeson and her colleagues were exploring the semi-soft elasticity of liquid crystal elastomers and realised the potential to develop auxetic materials using them.

Northern Gritstone is participating in LC AuxeTec's £2m seed funding round, marking the first time it has invested in a Leeds spinout company.

The deal is expected to be announced publicly on Wednesday.

The new capital will help the business expand its team and begin testing the material's commercial uses in areas such as polymers for wind turbines and laminated safety glass for automotive applications.

It has just appointed Robert Gunn, previously the CEO of consultancy business Enceladus Ventures, as its chief executive, and Matt Reynolds as senior engineer.

Prof Gleeson, who won the Times Higher Education Award for Outstanding Research Supervisor of the Year in 2018, said: "When we discovered that our materials were auxetic at the molecular level, we began to realise the opportunities that they could hold across a number of different industries as they can be stretched further than other materials already available.

"As we continue to test the properties of our material and expand our understanding of what is achievable, Northern Gritstone's funding will enable Robert and his new team to start making these potential use cases a reality."

Duncan Johnson, Northern Gritstone chief executive, said: "In pushing the boundaries of their research to develop a unique auxetic material, Helen and her team have showcased Northern universities' ability to drive innovation and create world-leading businesses in the region.

"This investment will help ensure LC AuxeTec's technology reaches its full potential and maximise opportunities for commercial use."

Northern Gritstone, which intends to become one of the UK's most prolific investors into academic spin-outs and intellectual property-rich businesses, was founded by the universities of Leeds, Manchester and Sheffield.

It has raised hundreds of millions of pounds from backers including M&G Investments, Lansdowne Partners and Andrew Law, the CEO of hedge fund Caxton Associates, who has invested in a personal capacity.

The vehicle is focused on spinouts in sectors such as advanced materials, energy, health technology and cognitive computation.

Combined, the universities boast a talent pool of more than 8,400 dedicated researchers and 33,000 postgraduate students.

They generate an annual income of over £2.6bn, and have been home to 38 Nobel Prize winners.