In light of the launch of Oxford Sciences Innovation (OSI) with £300m ($474m) lined up to invest in Oxford University spin-outs, it’d come as something of a surprise if there weren’t at least a few people dotted around various smaller institutions scratching their heads and trying to figure out if and how they can replicate the UK institution’s university venturing fund in some manner.
The unfortunate reality is that this is no easy task. For a start, Oxford has been building up its research clout and critical mass for nearly a millennia now, giving them somewhat of an edge over the vast majority of universities. Much like peer institutions Cambridge and Imperial College London, both of which also maintain sizeable university venturing units, Oxford can attract the world-class students and academics, has one of the largest endowments in Europe, is a global brand, sits at the deep end of research income and impact, and provides a tantalising opportunity for investment big hitters through its innovation pipeline and networks.
Assuming that an institution has navigated the conflict of interests and university stakeholder landmines and decided that a university venturing fund is in its ecosystem’s best interests, the question then becomes how can a university put together its own OSI?
There are numerous universities which operate small university venturing funds at a seed or early-stage level, or possibly a hybrid of proof-of-concept (POC) philanthropy with the option of utilising investment cash at a later date, such as University at Illinois at Chicago’s $10m Chancellor’s Innovation Fund (CIF). However, POC and university seed funds smaller than CIF lack the backing required to see either a large volume of companies supported or to provide backing much past the seed round, and are a long way from having the investing clout OSI can offer its founding university.
To counter this, a university might attempt attract a corporate partner into backing, which is what happened at Tel Aviv with the launch of its $23.5m Technology Innovation Momentum Fund. Along with Singapore state-backed investment fund Temasek, the university at the heart of the ‘startup nation’ wooed US-based memory storage firm SanDisk and India-based conglomerate Tata Industries in to back its fund, giving the university venture fund much more capital to play with than it would be able to achieve on its own while offering a route to market for spin-outs and licenses.
Another option is to create the conditions from which an independent fund can spring, which is what happened at Chicago University when it spun-out Arch Venture Partners from its own technology transfer office in 1992 and was an investor in its first fund. Although it is now financially independent of the university, the two retain a strong relationship, something that Chicago and its neighbourhood peers can benefit from considering Arch’s eighth fund, which closed last year at $410m.
This sort of relationship also led to the creation of commercialisation firm IP Group, which came about when Dave Norwood, now chairman of OSI, secured £20m to give to Oxford for a new chemistry research lab in return for 50% of the university’s stake in chemistry spin-outs. That deal is nearing the completion of its fifteen year life cycle, but the activity has come full circle as IP Group is now a cornerstone investor in OSI, contributing £40m to its total fund.
Osage University Partners (OUP) is another investment vehicle which is looking to benefit from splitting proceeds with universities who can stump up the intellectual property (IP). The US-based university investment consortium invests exclusively in university spin-outs and startups which have licensed university IP, and draws on 70 university and research institutes in the US, which sign over co-investment rights to Osage in exchange for a share of the proceeds from its fund.
OUP has just raised an additional $15m than planned for its second fund, raising $215m, over twice as much as OUP’s first $100m fund in 2011. The new fund will invest at all stages from seed to late stage, and across all sectors. However, around half of the fund is earmarked for life sciences opportunities. This is consistent with Global University Venturing’s spin-out investment data which demonstrates that on any given quarter of the year, life sciences account for around 45% of all deals secured.
Osage has also seen returns through prominent exits already, notably Otonomy, which licensed University of California San Diego IP, and its 2014 IPO for $100m and Aerie Pharmaceuticals’ $67m IPO, which drew on research at Duke and Boston universities.
Unfortunately for this analysis, Osage has never made its limited partners public knowledge, leaving interested parties in the dark of whether the universities chipped into either OUP I or OUP II, or if either or both funds were raised through venture funds, angel backers, or other institutional investors. However, in the UK, one collaborative university venturing fund has.
Epidarex Capital, formerly Rock Spring Ventures, was created in response to a call for more venture capital for life sciences in Scotland and across the UK. King’s College London joined Edinburgh, Glasgow, and Aberdeen universities in both investing in the fund, and putting together a pipeline worth investing in. Launched in 2013, the fund attracted £47.5m in total, and brought in state-funded backers Scottish Enterprise and the European Investment Fund, as well as Strathclyde Pension Fund and pharmaceutical giant Eli Lilly.
It’s still early days for the fund, but its seven portfolio companies demonstrate that it’s looking to wander off the beaten venture capital path, and work with university-led opportunities in areas that lack venture capital, both in the UK and US. While it has invested in its partner institutions’ spin-outs, it has also brought in deals with Sussex University’s Enterprise Therapeutics, investing alongside Imperial Innovations in a £4m round, and Kentucky-based Apellis Pharmaceuticals’ $33m series C, derived from Pennsylvania University IP.
The Epidarex model should be of particular interest to universities which are willing to collaborate with others in their neighbourhood. Institutions such as Edinburgh are big enough to operate a university venturing fund in their own right, which Edinburgh does and just added £6m to its venturing unit Old College Capital (OCC), bringing its total fund size to £8m. Yet it’s clear to see that Edinburgh is looking at the bigger picture with Epidarex.
By aligning itself with partner institutions, Edinburgh has succeeded in bringing more capital to Scotland and other regions suffering from venture malnourishment, which in turn is going to lead to a stronger tech cluster, thus increasing Scotland’s critical mass and building a formidable proposition to attract a higher calibre of student, staff, investor, and research budget.
To attract cornerstone investors with a long-term outlook which have made OSI or Epidarex possible, there needs to be a strong IP pipeline on the table. If this cannot be achieved by a single university alone, it makes sense to build gravity with other local institutions, especially if there already exists a strong research or innovation network in that area already.
For example, the SetSquared incubator partnership between the universities of Bristol, Bath, Surrey, Exeter, and Southampton is a prime example. SetSquared is ranked the top university incubator in Europe, it has incubated 1,000 companies with strong survival rates which have collectively raised £1bn in external fundraising, it has strong connections with corporate partners offering good routes to market, and has secured government money to be used to facilitate technology transfer. This is a network of universities which have gone out, built an innovation infrastructure from scratch, and now has the sort of solid foundations and pipeline that would support a collaborative university venture fund and has the business case to leave investors salivating.
Essentially, any university with a strong enough research base could, theoretically, construct a venture fund that can have real impact. But in order to do so, an institution either needs to have the resources on hand to make that happen, or must be willing to cut through the red tape and bureaucracy to find partners willing and able to make a fund worthwhile.