Fundraising of the Year 2014: Cambridge Innovation Capital

It has been noted on numerous occasions since launching Global University Venturing that critical mass, ie. the weight of research and resources, is instrumental to success in transferring technology out universities.

One of the primary examples of critical mass in action is Cambridge University. Its technology transfer unit, Cambridge Enterprise, is in possibly one of the best locations in the world for innovation outside of Silicon Valley and the eponymous city in the US that houses both Harvard and the Massachusetts Institute of Technology. As a top flight university, Cambridge attracts some of the smartest minds from around the world, and with them, a research budget of £332m (end of academic year 2012-13). Its endowment is the largest of any university outside of the US at £4.9bn ($7.9bn). And, with a combined 1,584 companies across numerous sectors with 57,666 employees and £13bn in total revenue, Cambridge is also home to the largest tech cluster in Europe.

It is on the back of this size and scope that Cambridge launched Cambridge Innovation Capital (CIC) late last year. The £50m evergreen fund has a broad remit. Not only will it invest in Cambridge spin-outs and companies utilising Cambridge technology both within and outside of the cluster’s borders, but it will also be looking to make investments in startups and regular companies operating in and around Cambridge.

The fund came about after Tony Raven, the CEO of Cambridge Enterprise, and Edward Benthall, then chairman of Cambridge Enterprise, now Chairman of CIC, drove for the formation of a follow-on fund for Cambridge spin-outs – a process which took roughly 18 months to complete. However, the focus of the fund had to be broader to work, said Peter Keen, CEO of CIC.

“To sell it to the investment community, just keeping it to university spin-outs was felt to be too restrictive. Also, considering the way that the university is intertwined with the entrepreneurial community around Cambridge, there are very few technology-based projects that don’t have some link, in some shape, size, or description, to the university, it would be wrong to make the differentiation of establishing the fund just for university spin-outs without extending it to the Cambridge cluster.”

Peter believes it is this wider spread that ultimately made the fund more attractive to the investment community. Investors Lansdowne Partners and Invesco were both brought on board at first to cornerstone the fund, providing half as long as the fund was in excess of £30m. The university’s endowment fund then invested £10m in the fund, followed by commercialisation firm IP Group. Microchip manufacturer Arm, one of the two Cambridge spin-outs to be valued at over £10bn, also invested into the fund, and the remaining £5m came from alumni and other sources.

CIC is looking to step up its resources in the next couple of years as it eyes an initial public offering. The aim stated at launch was to complete the IPO within three years to double the cash of the evergreen fund, and CIC is broadly on track to stick to its game plan.

Cambridge’s large dealflow and resources means that CIC is, for now, somewhat of a unique creation. “You have very few institutional investors prepared to play in the early stage technology space,” explained Peter. “It is long term, and a fund manager’s performance, generally speaking, is monitored quarterly with their performance fees paid annually. What you tend to find in these sort of funds is that you find out who the losers are going to be long before the winners actually materialise.”

According to Peter, it is generally only the larger investment fund managers who will invest as they can afford to have this long term view. “So, if you are starting to raise a fund, you’ve got to get one of the big players to cornerstone it in the first place.”

However, CIC has started the conversation around putting together similar funds on numerous campuses around the UK, and its success could well clear a path for more investment to come the way of early-stage university spin-outs far beyond the borders of Cambridge. It is for that reason that Cambridge Innovation Capital is this year’s Fundraising of the Year.