IP Group to raise £55M for university spin-offs

The university technology commercialisation company IP Group plc is raising £55 million from new and existing investors, allowing it to maintain its holdings in the companies it forms through subsequent funding rounds and increase the level of seed funding available for new start-ups.

The new money also provides scope for IP Group to establish new partnerships or collaborations with universities. At present the London-based company has commercialisation deals with Bath, Bristol, Glasgow, Leeds, Oxford, Southampton, Surrey, and York universities, King’s College London and Queen Mary, University of London, under which it forms and invests in spin-outs. Companies it has formed under the partnership with Oxford, for example, are Crysalin Ltd, Inhibox Ltd, Oxford Advanced Surfaces Group plc; Oxford Catalysts Group plc; Oxford Nanopore Technologies Ltd; Oxford RF Sensors Ltd; Oxtox Ltd and Pharminox Ltd.

Mike Townend, Director of Capital Markets at IP Group told Science|Business the timing of the share placing is a sign that investors’ appetite for risk is reviving as the financial crisis recedes. Existing shareholders expressed an interest in putting more money in and there is “incoming demand” from would-be investors.

This demand is also a reflection of the fact that there are, “plenty of really, really good and really investable ideas,” coming out of partner universities. “We have invested consistently through the downturn, in company formation and in pre-seed and seed rounds,” said Townend. “We were driven to raise more money because we see the opportunity to invest more and to up our return on investment.”

A particular spur came with the fourth private round of funding in Oxford Nanopore, a company which IP Group span-out of Oxford University to develop second generation DNA sequencing machines.

The £25 million round in April brought the amount raised by Oxford Nanopore since its formation in 2005 to £74 million. “To hold our corner we needed to invest $5 million in the round,” Townend said. “We found ourselves asking why we were diluting ourselves when we’ve funded the company to the point where it is de-risked.”

IP Group retains a 22 per cent stake in Oxford Nanopore. Townend noted that one of the other features of the approach to technology commercialisation it has developed with its partners, is that the universities are typically retaining larger shares in companies based on their research.

Investing in post-seed companies

IP Group expects to invest 70 per cent of the funds raised in the placing into companies that are post-seed stage. It has got 30 such businesses, in which it has made initial investments of around £500,000.

Investments are divided across physical sciences and life sciences, and Townend said this will continue to be the case. “We are still seeing good opportunities in both, though in the last two years pure life sciences, and particularly therapeutics, have been hard to invest in, because co-investors were not there.”

At present, IP Group is in talks about a couple of new collaborations, which Townend said will be additional small agreements “to infill”, rather than “major deals.” Although there is plenty of good intellectual property elsewhere, IP Group will maintain its focus in the UK.

However, Townend said, intellectual property is global and it is important to be aware of what is happening outside the UK. Again, Oxford Nanopore is a case in point, with the company having moved to pull in intellectual property in nanopore sensing coming out of Harvard and Texas State universities, to ring fence its position.

The £55 million fundraising by IP Group comes five months after its counterpart Imperial Innovations plc, the technology commercialisation arm of Imperial College London, raised £140 million in a rights issue. “We were very pleased to see that. It shows there are people in the UK who are prepared to back this field,” Townend said. “What’s good for them is good for us.”

Investors may be looking more favourably on technology start-ups, but there is still a big barrier in place across the main route to exit via a public listing. Townend said there is more realism about the time it takes to advance a company – in any technology sector – from start-up to maturity. And for its part, IP Group has got better at managing the expectations of investors.

Since its formation in 2000, IP Group has made £16 million in exits, mainly through trade sales and the sale of equity. Some companies in the portfolio have advanced to the point where they are self-sustaining and paying dividends. “Part of the reason for the fund raising is that we see opportunities to invest more money,” Townend said.

“Overall, we are optimistic about the future. The last two years were tough, but the outlook changed halfway through last year and got easier: investors got back their risk appetite.”