EIF steps into the seed funding gap

11 Jul 2006 | News | Update from University of Warwick
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This week the European Investment Fund took the first step in its ambitious new plan to unleash a wave of technology transfer across Europe. In doing so it endorsed a model pioneered in the UK.

The European Investment Fund (EIF) announced it is partnering with the quoted UK technology commercialisation company, IP Group Ltd, to form a £30 million venture fund to invest in university spin-outs.

This is the first fund to be set up on the basis of recommendations made in ‘Technology Translator Accelerators’, a pan European study of technology transfer activity funded by the European Commission and published by EIF late last year.

And the EIF is promising to set up more funds based on the IP Group model of negotiating long-term technology transfer deals with universities.

The new fund, IP Venture Fund, has reached a first closing of £15.5 million of which London-based IP Group has put in £1.4 million.

“We want it to be operational from day one, so we wouldn’t go above £30 million because we think that is the right amount,” said Jacques Darcy, Head of Division Equity Fund Investments of EIF, in an interview.

“We are now seeking funding from a range of different investors. Institutional investors, strategic investors, or those who also want access to the technology, venture capital funds and some individuals are being approached as well.”

The fund, which will be managed by an IP Group’s subsidiary Top Technology Ventures Ltd., will commit about 25 percent of the amount of post-seed financings of IP Group portfolio companies alongside capital committed by external investors, subject to the terms of the new fund.

It will also have the option of investing alongside IP Group in seed finance rounds of companies set up as part of future IP Group university partnerships, subject to the agreement of the relevant universities.

Generating intellectual property

Darcy explained that fund is not set up on the traditional venture capital model. VC investors typically stay with an investment for only about 5 years, while the IP Venture Fund is intended to more of a “generator of IP” and it takes a long-term view, he stated.  

“We intend to set up partnerships from 10 to 20 years with a given university or a research centre,” said Darcy. “We won’t negotiate an individual investment every time, we will negotiate a whole relationship.”

“The key is to get the cream of the crop of the worldwide technology segment. You know that what is going to come out of the relationship will be top notch,” said Darcy

IP Group, formerly known as IP2IPO, has proven the model in seven long-term relationships it has established with King's College London, and the universities of York, Leeds, Bristol, Surrey and Southampton. As at 13 June 2006, 42 spin-out companies have been created among the group's university partners.

Darcy said the form of agreement with the IP Group could, and would, be replicated in other European countries.   

“Our relationship with IP Group is very important as it’s the first one,” said Darcy. “We are open to working with other investors. We are actually finalising an investment on the continent. We are working on deals in Belgium, Germany, Portugal, Scandinavia and elsewhere. I think we expect to sign another agreement by the end of September and a few more by the end of the year.”

Defining the role of technology transfer offices

In its 450-page investigation into the state of technology transfer found the innovation gap is growing between Europe and its chosen role model, the US.

Among the shortcomings that the report identified are that European Institutions get far less licensing revenue from their inventions than their US counterparts, to date technology transfer has been given a lower priority and there is a lack of expertise among technology transfer staff.

On top of this the goals of technology transfer offices are often poorly defined. Are they there to maximise profits or create the greatest number of spin–outs? The report concluded that as a result of these issues, “The strategy as to how to develop technology transfer is often blurred.”

This in turn underscores another conclusion, that most technology transfer offices suffer a lack of critical mass, both in terms of expertise to marshal technology so that it is ready for commercialisation and in terms of having the muscle to pull in outside funding.

The EIF said that to try and solve these many and various problems it would assess which European technology transfer models work best, and set up a new facility to invest in the good ones. Apart from IP Group, two other roles models cited by the EIF were the Karolinska Institute’s incubation model, and Cancer Technology Research Ltd, the commercialisation arm of the research charity, Cancer Research UK.

Commenting on the formation of the IP Venture Fund, Alan Aubrey, CEO of IP Group said, "The EIF is one of the leading venture capital investors in Europe and has a similar view to IP Group of the investment potential and importance of successful intellectual property commercialisation.”

The EIF was set up to specialise in making equity investments in venture capital funds that support small, high technology companies and currently has a portfolio of over Euros 2.55 billion invested in 191 funds. In the IP Venture Fund, as in the other funds it supports, the aim is play a catalytic role by taking minority positions to pull in other investors.

When it described the new strategy, the EIF asked the European Commission to provide up to Euros 70 million a year over seven years to support it. That money is not yet forthcoming, but in using its current budget to forge ahead with trial projects, the EIF hopes to prove the concept, and loosen the purse strings.

The EIF team also includes Laurent Braun, the Head of Investment of technology transfer, and Felicitas Riedl, the Investment Manager of technology transfer.

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