Douglas Hansen-Luke, Executive Chairman of Future Planet Capital & Rosamund de Sybel, political and economic analyst, writer and consultant.
Last week, The Rise of British University Venture Funds - Part One explored the emergence of a new generation of UK institutions focused on innovation investing. When it comes to funding for university spin-outs, the country has progressed from being one of the world's laggards to one of its front-runners in just two years. It is now home to the world's largest university venture investor, Oxford Sciences Innovation (OSI), and an expanding roster of similar entities.
In Part Two, we take a closer look at OSI and its Cambridge counterpart, Cambridge Innovation Capital (CIC). Founded in 2015 and 2013 respectively, these two entities are now setting the tone for investment in the country's university clusters. They are also attracting the attention of sophisticated investors worldwide. With an evergreen structure enabling a more long-term horizon than conventional venture capital funds, their recent fundraising rounds have brought leading sovereign wealth funds and investment managers knocking alongside the more familiar UK university investors.
At Future Planet, we believe that all long-term investors should pay close attention to this trend. The greatest investment opportunities of the coming decades will surely lie in addressing the world's greatest challenges. Innovations born from university ecosystems will be used to tackle global healthcare, climate change and food scarcity, to name a few.
Case Study: Cambridge Innovation Capital
CIC aimed to fill a gap in the funding landscape: while there was plenty of seed capital for spin-outs, there was little in the way of follow-on funding to build leading businesses. CIC was set up in 2013 with an original investment of £50 million, which came from Cambridge University as well as a number of institutional investors such as the hedge fund Lansdowne Partners and technology company ARM Holdings.
In August 2016, CIC raised a further £75m from new investors including Woodford Investment Management, Winton Ventures and the Oman Investment fund (OIF), ahead of a planned listing in 2017 or 2018. Cambridge University remains the largest shareholder, owning 33% of the fund. The fund operates an ‘evergreen’ strategy, giving sustained support to the companies it invests in.
CIC works closely with Cambridge Enterprise, the university’s technology transfer arm, and has access to pre-emption rights over companies spun out of the university. Yet, unlike other UVFs, CIC is not restricted to investing in such firms. Around half of the portfolio has instead come from the wider "Cambridge cluster." Cambridge is somewhat unusual in that if academics at the university have no obligation to use Cambridge Enterprise to commercialise their research, giving them more freedom than other academic institutions, so it made sense to endow CIC with similarly broad latitude.
Victor Christou, CIC’s CEO says: “The Cambridge cluster has a long standing entrepreneurial track record with a world leading academic institution at its core. Our links with the University, with Cambridge Enterprise and with leading local angel groups provide us with a unique position within that cluster. Our investment history over the last three years has cemented us as a trusted counterparty in the region.”
He adds: “Cambridge combines a world leading academic institution that attracts the brightest brains, broad support for entrepreneurialism amongst those who lead the University, a relatively long and comprehensive track record of past successes in commercialization of innovation such as Cambridge Antibody Technology and ARM, and a well-developed business angel network in the Cambridge cluster who are keen to provide both funding and expertise.”
At the time of writing, CIC had invested or committed £53m to 16 spin-outs, in both healthcare and technology. One its largest stakes to date is in PragmatIC Printing, a company (read more about PragmatIC here). The company has created patented technologies to design and manufacture flexible integrated circuits without the need for expensive silicon chips.
Another potentially groundbreaking company in which CIC has invested is Storm Therapeutics, which is looking at the role of RNA modelling in the progression of cancer to develop oncology drugs.
Case Study: Oxford Sciences Innovation
Launched in May 2015, Oxford Sciences Innovation is the largest University Venture Fund in the world, having raised £500 million in under two years. It partners with OUI, the University’s technology transfer unit, to develop Oxford’s scientific research and to work with academics to commercialise their companies over the long-term.
Like CIC and Imperial Innovations, OSI and has attracted multiple long-term investors. Alongside Oxford’s Endowment Fund, OSI’s stakeholders include Invesco, Lansdowne Partners, IP Group, Wellcome Trust, Woodford Investment Management, multiple Asian and Middle Eastern strategic investors and the British Innovation Fund (sub-advised by Future Planet Capital and Milltrust International). It has also attracted investment from Google Ventures, Google’s corporate venture unit.
The model draws on four key strengths: science from the world's leading research institution (according to multiple rankings including TES); more than half a billion pounds worth of capital to spend; a network of shareholders which can be called upon to deliver expertise and connections as well as investment; and a truly long-term view.
By providing funding through growth stage, cutting out the time that spin-outs would otherwise need to take in order to raise various rounds of capital, and by drawing on that network, OSI intends to speed up the pace at which small start-ups grow into major global companies.
So far, OSI has so far invested £40 million in 25 spinouts. The average start up investment is approximately £1 million, while follow-on funding tends to lie between £2 and £5 million. Portfolio companies include life science, computer science and engineering firms. Navenio, for instance, is working to refine and commercialise technology which tracks the locations of people inside buildings, opening up opportunities for targeted marketing and more efficient use of staff. Oxflow, an engineering company, has designed a pressure valve regulator which is far less complex and lighter than any other, potentially applicable to any industry in which pipes are involved. Vaccitech, a vaccine firm spun out from the University's Jenner Institute, is currently trialling a universal flu vaccineamong others.
The British innovation investing landscape has evolved significantly during the past five years. Yet there is a great deal of scope for further improvement, and for long-term investors to benefit. Future Planet has already committed to invest in spin-outs from CIC, OSI and Epidarex, and has signed agreements with Tsinghua Berkeley Shenzhen Institute as well as some of Asia's largest relevant corporates. We are working to secure allocations in leading university innovation clusters around the world, from Israel and South East Asia to Russia and the Baltic Republics, and of course the US. As well as allowing us to harvest innovation on a global scale, we believe that an international approach opens up the door to valuable inter-connectivity between these clusters, making further advancement and commercial success more likely.