Imperial Innovations to raise £140 million for funding start-ups

Imperial Innovations is set to reshape the landscape for commercialising university research in the UK, raising £140 million in a rights issue, which it will use to set up and fund companies based on Imperial College research, and through a series of new agreements, that of University College London (UCL) and Oxford and Cambridge universities, as well.

Following completion of the fundraising Imperial Innovations will have access to cash of £160 million, which it plans to invest at a rate of £60 million a year. This will make the quoted technology transfer company the largest single UK investor in start-up technology ventures, a field that attracted £800 million in total in 2009, according to Susan Searle, CEO of Imperial Innovations.

Working with partner universities

In addition to continuing to start-up and fund spin-outs from Imperial College, Imperial Innovations will turn its attention to forming and supporting companies around intellectual property from its partner universities, working with their respective technology transfer arms. However, Searle stressed this is “absolutely not” a move to take over these bodies. “They are really professional and we will sit alongside,” she told ScienceBusiness.

At the same time as casting its net further, Imperial Innovations intends to put more money into its companies. “We will build bigger companies and try to get over the fact that in the UK we are often underfunding technology start-ups,” Searle said. The money will put Imperial Innovations in a position to support and fund companies from the very earliest stages, of understanding research in progress and interacting with scientists, putting in money pre-seed and for proof-of-concept work, providing seed funding, and then organising and contributing to formal private funding rounds with other investors.

“We are clear our model is always getting involved early: we want to be part of that because that is where our expertise lies – in packaging intellectual property, in knowing where technology fits in terms of what industry wants and shaping a company, getting everything into place and building it to scale [up],” Searle said.

This is what distinguishes Imperial Innovations from traditional venture capitalists (VCS), Searle believes. “We are very good at understanding the university environment, how to work with scientists and package research in the right way. VCs want things to be more advanced.”

The other big difference between Imperial as a quoted company and traditional VCs, is how the investors get their returns. While investors in a VC fund get a direct return if an investee company reaches a cash exit, investors in Imperial Innovations will only get a return if Imperial Innovations pays a dividend, which it is yet to do. They do benefit from any increase in the share price of course, but in fact the stock is fairly illiquid and tightly held. Searle said shareholders were convinced to invest in the rights issue because they, “Have seen the quality of the company and believe in the model.”

The rights issue consists of new shares and warrants, both priced at £3.50, a 26.7 per cent discount to the share price the day before the deal was announced. The shares will be paid for in three installments over three years. Imperial Innovations said this staging of payments will avoid it holding too much cash, while knowing it has committed funds. Imperial College itself is not taking up any shares.

To give an idea of the impact this fund raising will have, since it went public on the Alternative Investment Market in London in 2006, Imperial Innovations has invested £47.9 million in spin-out companies that have raised £211 million in total. It currently has equity in 79 companies. The strategy is not to try and make every company a blockbuster: around one third of these companies are SMEs that are growing organically, another third are companies where Imperial Innovations’ interest comes through having granted licenses and other intellectual property rights.

The Imperial Innovations portfolio

At the core of the portfolio sit 31 companies that do need further investment and where Imperial Innovations is hands on, with a seat on the board. It is this band that can now expect to see further investment to accelerate growth. Searle said companies in line for more money include Nexeon, which is developing silicon anode technology that can increase the capacity of lithium-ion batteries, providing lighter batteries with more power and longer lifetime between charges.  “We think they’ve cracked the storage problem and the technology can be applied across sectors from mobile phones to car batteries,” Searle said.

Another is Circassia Ltd, which is developing treatments for allergies and other immune system disorders. “There are several products in Phase II and an outstanding management team with a good track record,” said Searle. And while it would be hard to turn down an offer to buy a company, Searle said had it had this amount of cash at the time, Imperial Innovations might not have sold Thiakis Ltd in December 2008, but instead grown it into a specialist anti-obesity drug company. Imperial Innovations owned 23.7 per cent of Thiakis, which was sold for a potential US$150 million, with $30 million paid upfront and the balance due against clinical milestones.

Imperial Innovations’ move to make agreements with Oxford, Cambridge and UCL rests not only on the fact that, along with Imperial College, these are the UK’s leading research universities, but also because of pre-existing relationships with their technology commercialisation arms, Cambridge Enterprise Ltd, Oxford Spin-out Equity Management and UCL Business plc. Imperial Innovations has received non-binding letters of support from each of these, agreeing to explore opportunities to increase co-operation in incubation and investment in technology companies emanating from them.

Teri Willey, Chief Executive of Cambridge Enterprise said Imperial Innovations’ plan to raise £140 million, “Is good news for the UK and for Cambridge.” The new funds will be a valuable addition to the spectrum of follow-on investment available to Cambridge start-ups. “We have enjoyed a collaborative relationship with Imperial Innovations for a number of years and look forward to building on this by co-investing in new businesses, from pre-seed through to later funding rounds,” Willey said.

Similarly, Cengiz Tarhan, Managing Director, UCL Business, said, “We support the Imperial Innovations proposal to raise £140 million and look forward to continuing to work with them to enable some of those funds to support spin-outs from UCLB.”