After the float: Imperial Innovations

How will Imperial College London's newly floated tech-transfer affiliate invest its stock-market millions? After raising the money, now comes the fun part: spending it.

Following its successful stock-market debut on 31 July, Imperial Innovations Group plc has an extra £23.7 million to spend on technology start-ups and licensing – on-campus and off. According to the prospectus and company officials, the pace and scale of investing will now pick up. And while the focus will be on technology developed at its parent university, Imperial College London, the company will also be considering investments farther afield.

“We currently have 58 companies in the portfolio, and a number are being formed,” said Susan Searle, Imperial Innovations CEO, in an email exchange with Science|Business. “We have invested/committed in excess of £5 million this year and we intend to scale up this level of investment.”

How Imperial Innovations spends its money - and how quickly it shows returns – will be closely watched in the small world of university tech-transfer. The company was created from the 40-employee tech-transfer operation at Imperial College, ranked as one of the hottest technology institutes in Europe. Its flotation, aimed at tapping new capital sources and speeding technology development, marks the first time a university has put its entire tech-transfer office directly on the stock market – and as such is a closely watched experiment in university governance.

And so far, so good for the Imperial flotation. The company sold £25 million in shares in a private placement with institutional investors, and a further £982,890 to Imperial staff in a public offering, giving a market capitalisation of just over £180 million.

It was planned to raise £1.5 million in the public offering, but in the end it was scaled back to allow priority applicants to get all the shares they wanted, cutting the general public out altogether, and presumably creating the pent-up demand that was reflected in the performance of the shares in the first day. As shares opened for trading July 31 on London’s Alternative Investment market, they rose as much as 8.2 percent from the offer price of 365 pence before closing at 387.5 pence.

The cost of the exercise: £2.8 million, leaving £23.7 million in investable funds.
With a war-chest of that size, Imperial Innovations is now playing in the leagues of a handful of other well-capitalised quoted technology-transfer specialists, including IP Group plc, BTG plc and Biofusion plc (the latter, a small spin-out of life science technologies from the University of Sheffield.)

While Imperial Innovations may view these as its peers, it is clearly in a somewhat different position from companies such as IP Group and BTG, which are in business solely for the interests of their shareholders, and remain quite free from the underlying institutions. Imperial Innovations has a much closer relationship, and will in effect carry the reputation of Imperial College alongside its own.

At present, virtually all of Imperial Innovations’ assets are spin-out shares, licensing agreements and other contracts based on discoveries at Imperial – and an agreement with the university gives it exclusive rights to a range of new Imperial discoveries until at least 2020. Its portfolio of spin-outs was valued at £31.5 million on 30 June, (of which £11.8 million would be due to third parties if the value was realised). The portfolio includes shares in four publicly listed companies, the most valuable of which is fuel-cell specialist Ceres Power plc.

With the extra cash, according to the prospectus, Imperial Innovations will double the size of its typical seed investment to £500,000. It will also aim to make three investments a year on a scale of £2 million to £3 million each; hitherto, its biggest single bet was £1.4 million on DNA sequencing company DeltaDOT Ltd.

Most of its investments will be in Imperial companies and technologies – and the university will share in revenues and realisations from the portfolio. In fact, the university will retain control: It holds 59.1 per cent of the shares. Two of its board members are also university executives: chairman Martin Knight is Imperial’s chief operating officer, and director Tidu Maini is Imperial pro-rector for development and corporate affairs. Searle, the CEO, was head of the university’s tech-transfer office before it was incorporated separately and spun out.

But, as Searle and the prospectus indicate, it won’t be exclusively an Imperial game – and the extent and nature of off-campus activities will be closely watched in the rest of the industry. So far, Searle said, the company has two significant non-Imperial partnerships. It incubates tech start-ups for the Carbon Trust, a foundation that promotes low-carbon energy technologies; one of its portfolio investments, engine and compressor designer Lontra Ltd., stems from that relationship. It also has agreed to help commercialise waste-recycling technologies developed by the government’s Waste and Resource Action Programme.

In addition, there is a partnership with Johnson and Johnson announced in July, to establish a proof of concept fund that will develop biomedical research projects to the point where they can attract external investment. This was the first such deal the healthcare company has done with a European University.

The size of the fund was not revealed. It will be jointly administered by Imperial Innovations, and J&J’s Corporate Office of Science and Technology.

Investments in individual projects will range from £25,000 to £50,000. An example of a typical project would be to develop the prototype of a medical device and carry out some preliminary testing. All intellectual property generated with be owned by Imperial Innovations. The fund will be open for applications from Imperial scientists from August 2006.

The prospectus adds that the company is, “in discussions with a number of major corporations about providing commercialisation services for exploitation of their non-core intellectual property.”  It doesn’t elaborate, and Searle defers detailed discussion of the company’s non-Imperial investment plans for another “three to six months.”

But generally, she says: “The mix in our portfolio of Imperial and non-Imperial technology will vary according to the technologies we identify and how we think best to develop them, and may change now that we are stepping up our investments. We will give further guidance in due course.”