Cambridge breaks through the billion barrier

Cambridge Enterprise (CE), the commercialisation unit of UK-based Cambridge University, has hit its £1bn ($1.55bn) external fundraising target, raised over the past 18 years, bringing it into a select group of universities to crack the billion barrier.

The follow-on funding announcement came in CE’s annual report, and adds strength to Cambridge’s claim to be the most successful technology cluster in Europe.

The university has more than 1,500 technology companies with a combined turnover of £11.8bn in 2011 and employs more than 53,000 people. The cluster has generated 12 companies valued at more than $1bn over the past 15 years, with two, microprocessor manufacturer Arm and Hewlett-Packard-owned Autonomy, valued in excess of $10bn.

CE maintains an 80% three-year survival rate for companies receiving investment from the venture unit, a big increase over the UK national average of 58%.

Also revealed in CE’s report was Cambridge’s big win on biotech spin-out BlueGnome, which became the university’s most profitable spin-out when it was acquired by life sciences firm Illumina last September in a £60m deal.

Once fees were paid, the university walked away with £8.5m, or 92 times its initial investment.

Another big deal last year for CE was the acquisition of LED manufacturer CamGen, spun out in 2010, by engineering firm Plessey for £10m – a fast turnaround from start-up to exit.

Despite the notable wins, there have also been some blemishes. Autonomy, the largest independent UK software company at the time, was acquired by computer company Hewlett-Packard (HP) in 2011 for $11.1bn.

While not the result of CE’s work with Autonomy, the acquisiton remains mired in controversy after HP took a $8.8bn writedown against the acquisition sum amid allegations – denied by Autonomy’s former managers – that Autonomy was overvalued. HP shareholders have also filed a lawsuit against HP board members, including current and former HP chief executives Meg Whitman and Leo Apotheker.

CE is currently putting together its second enterprise fund, allocating $2.2m for the 2013/14 tax year.

The first fund made three investments – Cambridge CMOS Sensors, DefiniGEN and Inotec AMD – in November last year, and took part in a $2.5m series A round for life sciences spin-out Sphere Fluidics in February, which also attracted investment from private equity firm 24Haymarket and the Royal Society.

Tony Raven, CE’s chief executive, said: “Cambridge spin-outs are developing solutions in cancer treatment, renewable energy and in-vitro fertilisation.

“The amount of follow-on funding raised demonstrates the market’s confidence in our portfolio companies, and also shows the importance of the early-stage support and funding which Cambridge Enterprise provides.”

The university is now well ahead of other UK institutions in terms of raising external investment for spin-outs. Within the UK’s “golden triangle” of Oxford, Cambridge and London, CE leads when it comes to money on the books. Oxford has raised £340m since 2000, and University College London, which is spending $1bn on new facilities for start-ups in London, said it had raised £370m for UCL spin-outs since 2001.

Imperial College London’s Imperial Innovations, which since 2011 has also worked with Oxbridge licences and technologies, has raised £408m since its initial public offering in 2006, indicating that Imperial would also be in the $1bn club had it been operating for the same time as CE.

Away from London and Oxbridge, SETsquared, the tech transfer partnership involving the universities of Bath, Bristol, Surrey, Exeter and Southampton, has also broken the $1bn barrier, with £750m ($1.17m) raised by 650 supported companies over the past five years.

Manchester’s commercialisation unit, University of Manchester Intellectual Property, reported a healthy £225m invested by venture funders in the university’s 30 spinouts since 2004. Warwick, which has created 60 spin-outs through Warwick Ventures since 2000, has raised £44m.

Cambridge joins several US universities in the $1bn club, but accurately identifying institutions and the amounts they have raised highlights issues with the quality of data currently collected on spin-out activity in the US.

When asked how much the Massachusetts Institute of Technology (MIT) had raised over the years, Lita Nelson, director of MIT’s technology licensing office, said it would be “impossible to answer”, but that it was certainly in the “tens of billions”.

Noting that a comparison would not be appropriate due to the length of time MIT had been involved in supporting its spin-outs, she added: “We have licensed literally hundreds of spin-out companies over the past 20-some years, some of which have died young while others have grown to be major corporations – for example Akamai, Momenta Pharmaceuticals and A-123.

Many have individually raised hundreds of millions of dollars. Some have had major successful public offerings. Others have achieved success through mergers.”

However, the recent and inaugural University Entrepreneurship report helps to shed light on the matter. From 2007 to 2011, Stanford, Harvard, UC Berkeley, New York, Pennsylvania and MIT have all secured $1bn or more in venture capital and angel funding.

Unsurprisingly, with names such as Google, HP and Yahoo in its long list of spin-out alumni, Stanford leads the pack, raising $4.1bn over the 2007-11 period.

It was closely followed by Harvard, which raised $3.8bn.

However, propped up by a number of investments during the period, including a $1.5bn round led by Goldman Sachs, Facebook accounted for a large chunk of investment raised for Harvard. Without the social network, Harvard falls to $1.8bn, which is still enough to come second against Berkeley’s $1.3bn. New York University and the University of Pennsylvania both raised $1.2bn, with MIT netting $1bn.

Worldwide, it is not expected that Cambridge will have many peers in the $1bn club outside the US. However, due to high spin-out rates, both Peking and Tsinghua universities make likely candidates – in the 1990s, government figures showed 85% of the start-up funds for new technology companies founded in Beijing came from the research centre or university that nurtured them.

BOX: The Lynch-pin in European VC

While the fight around Autonomy continues, former chief executive Mike Lynch has removed himself from the quagmire by raising £1bn for Invoke Capital to support university start-ups, looking to apply the same thought process to UK spin-outs that took Autonomy from a £2,000 loan to a $11bn valuation, or to “bring a gun” to the venture capital “knife fight”.

He said: “UK universities are the best in the world but the technologies on the bench rarely reach the market. Autonomy showed a way of doing this and [with Invoke] we have access to substantial sums of money and the people who did it.”

Invoke, which also has an office in California, said it was “the only investment team in Europe with a dedicated, in-house R&D division, based in Cambridge, UK,” led by Pete Menell, former chief technology officer of Autonomy.

Alongside Lynch and Menell at Invoke are Nicole Eagan, who previously was chief marketing officer at four listed software companies, including Autonomy; Sushovan Hussain, former chief financial officer and president at Autonomy and who handles its investments and portfolio mergers and acquisitions; Andrew Kanter, former chief operating officer and general counsel of Autonomy; Martina King, w
ho is responsible for media technology; Vanessa Colomar, looking after investor relations; and, as an adviser, Suranga Chandratillake, a technology entrepreneur who founded the video search engine Blinkx in 2004 that was spun out of Autonomy and listed in 2007 at a £225m valuation.