The UK’s leading research universities are to get a massive boost for their spin-out activities from a new £150 million investment fund that is to be raised by the private equity firm MTI Partners.
The Orion Fund, to be established in collaboration with the technology transfer offices (TTOs) of University College London and Manchester and Edinburgh universities will be the largest specialist fund in the world dedicated to university spin-outs, according to MTI.
While it will invest the majority of the money in technology that has already crossed the Valley of Death funding gap and reached proof of principle, the Orion Fund will also include a proof of principle investment programme. This programme will be overseen by the three TTOs, providing pre-seed funding to get technologies to the point when they are ready for a larger investment from the Orion Fund of £250,000 - £750,000.
Wall of capital
Richard Henderson, managing director of MTI, a firm that has specialised in technology investing since 1983, said the Orion fund represents a “tremendous opportunity” to supercharge the commercialisation of intellectual property, with additional, rather than replacement capital and expertise. “The introduction of a significant wall of capital, capable of investing from proof of principle, and crucially, capable of following through to later stage, should provide a great opportunity for business creation and investor returns,” Henderson said.
This was also the motivation behind recent large fund raisings by the two largest publicly-quoted funds that support university commercialisation in the UK, IP Group plc and Imperial Innovations plc. In June 2011 IP Group raised £55 million from its investors, while in December 2010, Imperial Innovations raised £140 million. Both said their intention was to make larger investments and to stay with the companies they back for longer. In the case of Imperial Innovations, this strategy saw it lead a £60 million investment round in Circassia Ltd, which is developing treatments for allergies, in May 2011.
The launch of the Orion Fund builds on the success of MTI’s UMIP (University of Manchester Intellectual Property) Venture, a £32 million fund set up in 2008, in partnership with Manchester University. To date, that fund has invested in 12 spin-outs from Manchester, Southampton and Oxford universities, and has made 18 proof of principle investments, including a number based on Manchester’s Nobel Prize-winning graphene research.
Capital markets on campus
In addition, MTI has pre-existing relationships with the TTOs at Cambridge and Oxford universities, and it is expected that the Orion Fund will invest in their start-ups too.
Clive Rowland CEO of UMI3 Ltd, Manchester University’s TTO, said the formation of the Orion Fund is an opportunity to develop on a bigger scale the effective model of bringing the capital markets onto the campus which Manchester has developed with MTI through the UMIP Premier Fund. “One of the stand-out features of MTI is the willingness to get directly involved in shaping-up new technology businesses and to provide productive introductions to mentors and clients - and to get some pace into our projects.”
Rowland said campus investing is a difficult environment for investors to feel comfortable. “The complexity and immense range of the cutting edge technologies, and the associated early stage risks can be daunting, but the financial rewards for investors, and also the reputation for the universities, can be very attractive,” he said, adding, “It’s worked well at Manchester, for four years now."
Timothy O’Shea, the principal of Edinburgh University said the deal with MTI is important both for the university and the Scottish economy as a whole. “It will introduce a new investor to the Scottish scene, and one capable of making significant investments.”
Under the terms of the agreement, MTI will have privileged sight of spin-out deal flows from the three partner universities. Cengiz Tarhan, managing director of UCLB, the TTO of University College London said the partnership will, “bring in new money and established expertise,” enabling UCL to generate more start-up companies.
MTI said it is recruiting four new partners to run the Orion Fund. One of these, Richard Heygate, a former McKinsey consultant and software entrepreneur believes this is an ideal time to create a larger and more comprehensive fund. “The UK has always been one of the most innovative countries in the world, although sometimes it has lagged behind others in turning this creativity into world ranking businesses,” he said. Now though, the UK has some of the highest ranked universities, a concentration of private equity, venture capital and other investment skills. “The new fund is well positioned to take advantage of all of these opportunities,” Heygate said.