Manchester pioneers new route to technology commercialisation

Image courtesy UMIP Premier Fund

It is a long time since any VC bothered itself with the minutiae and overhead costs of making seed investments, but MTI has announced the first closing of the UMIP Premier Fund at a very respectable €42 million. And despite the heavy weather it faced in getting this far, the firm says it will press on and hopes to reach a final close of €65 million by the end of 2008.

Although the fund attracted money from institutional investors, including the Manchester-based Co-operative Insurance Society, the anchor investors are public bodies, namely the European Investment Fund and the UK’s Nesta (National Endowment for Science, Technology and the Arts).

But David Holbrook of MTI insists the UMIP Premier Fund, is a true VC fund. “It is as much a VC fund as any other VC fund we have managed. It will be managed exclusively by ourselves.”

The fund will make most of its initial investments in the G£250,000 to £750,000 range, but with the intention and the capacity to continue investing up £3 million. When fully invested, the UMIP (UMIP stands for University of Manchester Intellectual Property) Premier Fund is expected to have a portfolio of around 20 investments.

The UMIP Premier Fund will have preferred access to all investment opportunities generated by the university.

More than one route to market

UK universities are exploring a number of different routes to finance the commercialisation of intellectual property. One model is the quoted technology commercialisation company – IP Group plc and Biofusion plc being prime examples – which sign deals to access technology at multiple universities and raise their funding on public markets.

Another model is the Imperial College technology commercialisation arm, Imperial Innovations, which is publicly quoted also.

UMIP Premier Fund is a different way of trying to do what a lot of others are trying to do, says Holbrook, who worked in technology commercialisation at Imperial College previously. “We are all on a big learning curve in terms of commercialising academic IP.”

Manchester, the UK’s largest university, with over 4,500 academic and research staff, considered the various role models before deciding the further the commercialisation of its IP via the venture capital route. It consulted with the finance house Matrix Securities which advised it to stage a beauty parade of fund managers.

That was the easy part

Having won the business, MTI had to raise the fund. “It’s hard enough to raise any sort of money currently, but it is not at all easy to raise a seed fund,” said Holbrook. He was pleased to attract local private investors like the Co-operative Insurance in the first close, and said that a number of private investors from further afield who were approached indicated their interest if the fund got off the ground. “We hope to attract more private investors in the second close,” Holbrook said.

Whatever the balance of public and private, it was a fair claim by Alan Gilbert, President and Vice-Chancellor of Manchester University, when he said, “This is a ground-breaking initiative establishing a hugely creative vehicle for providing academics with access to the capital to develop the world-leading research, for which the UK is renowned, into world-beating companies.”

The big question

But what attracted MTI to get involved in seed investing when no VC worth its salt is interested in such tiddly, work-intensive deals? MTI itself, one of the most successful and experienced technology fund managers in the UK -  having run four funds over more than twenty years - has not previously shown an interest in this part of the food chain.

Holbrook says the difference is that the UMIP Premier Fund has the capacity to follow on. “The range is up to £3 million into any one investment, over two or three rounds. In addition, we can make first investments of up to £750,000, which is probably half a million more than the usual range.”

It is important to note that MTI will not get involved the costly and high risk area of drug discovery, where the university has an existing agreement with IP Group.

The ability to follow on is an key distinction between this fund and most public seed funds, which are not allowed to invest in subsequent rounds. The UK’s University Challenge Fund for example, is restricted to investing £250,000.

On top of being able to follow on, MTI will not have to involve itself in the tedium of coralling intellectual property, grooming academics and shaping business plans. This remains the responsibility UMIP Ltd, one the longest-running and most experienced technology transfer arms of any UK university.

Some of the money in the fund will be channelled through UMIP into early stage proof-of-principle awards to kick-start new ideas, and the companies presented to MTI will be investor-ready. It could be said that this stretches most people’s definition of seed investing. MTI refers to its entry point as “late seed”, others might view it more as a first round.  

The university says it currently has up to ten spinout companies looking for funding. Holbrook said MTI is about to embark on due diligence and he expects to make the first investment shortly. MTI has the right to invest outside Manchester if the university cannot generate enough suitable deals.

Whither the exit?

In terms of exits, Holbrook says companies will either be self-sustaining or groomed for trade sale. “For most technology it would be folly to predicate strategy on getting to a public market.”

“Our customers will be other technology companies: in terms of the business plan we will be looking at entities based on the concept that they will be acquired.”

The firm may be going where other VCs (and many business angels) fear to tread, but Holbrook says MTI does not want to be seen as being a university-focused fund manager. “We have refocused our business strategy over the past few years, to be managing a family of funds. We are a classic general technology investor.”