We talk to Moray Wright, co-founder and chief executive of Parkwalk Advisors, about how deeptech may be the only solution to some of the biggest challenges facing humanity, the importance of environmental, social and corporate governance, and maintaining a focus on British startups and spinouts.
Please note, the intro and outro have been omitted.
Moray, thank you very much for joining us on the podcast today.
Thank you for having me, pleasure to be here.
To start with, maybe you can give us a bit of an overview of what Parkwalk Advisors does, who you are, maybe some key figures.
Perfect. So, Parkwalk is an enterprise investment scheme fund manager. So the enterprise investment scheme is a sort of UK tax relief that the government gives to high-net-worths to sort of encourage them to invest in early-stage and perceived sort of high risk investments. And we set up in 2009. We have 16 full-time employees and we’re based in London. We’ve invested about £270m over the last decade into UK university spinouts and we currently have assets on the management of about £325m. And we’ve returned about £40m to investors so far to date.
We manage some early-stage funds with the universities — with the tech transfer departments — at the University of Oxford, Cambridge, Bristol and recently Imperial College. And to date, I think we’ve invested in about 130 companies and had roughly 30 exits so far. So we’ve got a portfolio currently of about 100 companies and those exits have generated an IRR for us of about 25% to date.
Wow, that’s impressive.
As you said, you’ve been doing it for 11 years so it’s a good run.
Yes. I think the actuaries want to see a 20-year track record.
As you said, you handle funds for a range of universities across the UK. What is your impression of the domestic landscape and what areas could be improved still?
So, I think in general the landscape is pretty healthy. Yeah, the way that the government allocates our R&D spend has historically been in the golden triangle of Oxford, Cambridge and the London universities. So, in our experience, input does correlate to output. So, we have seen historically quite a lot more companies coming out of the golden triangle.
You know, the majority of our companies are from that area, but we are a national investor. And we do invest from universities ranging from Aberdeen down to Southampton and across to Cardiff.
I think one of the things the government is trying to do with their sort of levelling up and other sort of policies at the moment is try and improve the process on the ground for getting more spinouts out of more of the regional universities. And I think that will take time, but I think it’s perfectly achievable. And you know, are view is that if the government can help the tech transfer departments in those universities — maybe that’s through sort of pooling some of the universities and creating sort of perhaps centres of excellence — that will help to encourage investors to come, which will be beneficial for those for those companies.
Obviously, covid has been a pretty sort of shocking time this year for a lot of these spinouts. Well perhaps, we’ll be going into that in a little bit more depth later on, but generally, yeah, could be worse.
Spoken like a true optimist.
It might be bad timing for my next question but Parkwalk is obviously part of IP Group which has been expanding into the US and Australia and then you have Frontier IP in the UK as well which has been expanding into Portugal. Does Parkwalk itself have any international ambitions?
Well, probably not. Mostly because currently we are an EIS fund manager. And that means that our investors have to be UK-based taxpayers. And the EIS basically only allows us to invest in UK companies. I mean, there is a little bit of a caveat around there that they can have a sort of significant sort of operation in the UK. But, you know, we currently don’t really have any international expansion plans.
But I mean, having said that some countries such as Australia do have a sort of “EIS light”-equivalent system. So, you know, who knows what might happen in the future but it would certainly be nice to be there during the winter here.
No, but in all seriousness, we think there’s enough going on here in the UK to keep us sort of busy and focused here for the time being.
Fantastic. You wrote a guest comment for the FT Advisor earlier this year arguing that deep tech will save us. And I very much agree that it’s good the government wants to double down on science and technology as well, you mentioned that earlier as well.
Is there a risk — I know there’s been some calls from the entertainment and arts scene that Rishi Sunak hasn’t been supporting them quite as much as he as they would have wanted him to — is there a risk that the UK might miss out on other opportunities, kind of social enterprises? I know Tony Raven mentioned his favourite spinout came out of Trinity College, helping bishops resolve arguments which is not something that I would call deep tech by any measure.
No, I think there are… as a society, we’ve got all sorts of problems in the future, hence my optimism that you referred to earlier. But I do think deep tech will help us in many ways, possibly the only solution to some of the greater problems that are going to be facing us over the coming years, you know, climate change, food and water security, health, longevity, mobility, all of these things that are very important to governments around the world.
So I think we need to keep some control over the incredible discoveries that we’re making here in those areas. But I do of course agree that there are great opportunities coming out of the humanities departments and the other creative areas. And in fact, I and we have tried to help advise on some potential funding opportunities for various companies and funds in the social and impact spheres. You know, discussion involving universities and corporates as well, including using a thing called SITR, which is a sort of a social investment tax relief, which is similar to the enterprise investment scheme, but it helps funnel sort of high-net-worths’ money into impact schemes which are measured sort of quantitatively and qualitatively.
So, I mean, I think my answer to the question is I genuinely believe and I hope that they’re not mutually exclusive.
Awesome. On a slightly related note, how does environmental, social and corporate governance fit into your investment criteria?
Yeah, well, it’s very important and I think it’s pretty key to what the universities are doing as well. So I think, you know, if you look at literally from the top down of all the UK universities, this is very much top of their agendas.
But I also think it’s becoming increasingly important for our investors who are looking for a balanced investment strategy. Yeah, they want world changing technologies, but good financial returns, but also things that are not gonna damage or hopefully even improve the planet or its inhabitants. So, you know I think we’ve mapped our portfolio across to the UN’s Sustainable Development Goals and I think all of our companies hit one or two of those criteria at least each. That’s on top of employing 3,500 people in highly skilled jobs.
I mean, interestingly, our portfolio also pays over £100m a year in tax to UK plc. We think they’re all sort of important by ESG standards and it is something that we’re continuing to evolve ourselves internally to actually try to quantify and qualify it more so that we can actually give reports to our investors about the impact that we are… hopefully, the positive impact that we’re helping to create.
And that also involves, you know, we are starting to look at bringing in questionnaires that we’re sending out to our portfolio. We started doing this the last couple of years to measure their impact and also make sure that they’re adhering with all the policies that we would like them to so that we can measure impactful returns as well as financial return.
Amazing. £100m in tax combined across your portfolio that’s pretty cool as well.
Yeah, it is. It’s quite interesting. People do perceive possibly the EIS as a relatively generous tax break, our investors can claim 30% of their investment against the income tax that they pay that year. So yeah, and the enterprise investment scheme as a whole, you know, perhaps raises a £1bn per year. So the government might be saying people can say it’s costing the taxpayer £300m a year, but, you know, if our portfolio is paying £100m in tax a year just from our little bit of the scheme, it shows that it is repaying the faith that the government is putting in this scheme multiple times over.
Yeah, yeah. Going back to the very beginning of Parkwalk, I mentioned earlier that you have been around for 11 years. What prompted you and Alistair Kilgour to found the firm back in 2009? What have you learned so far?
Yeah, that’s interesting. I mean, I think at the time we thought the UK punched sort of quite well above its weight in in R&D, you know, there’s this sort of often quoted statistic that’s been doing around the rounds with the patient capital review that we’ve got 1% of the world’s population, but 15.9% of the world’s most highly cited research comes from here.
I think, my personal view is that it’s because we’ve got some very well respected global institutions here. This isn’t jingoistic, gosh, we’re clever people, but what we’ve got is some sort of very old venerable institutions that attract global talent. You know, one of my sort of observations is that if you’re the best professor in a certain field at a university in Japan or in Brazil or wherever you may be, there’s a reasonable chance that if it’s in a sort of deep science that you’re working in, you will try and get yourself tenured to somewhere like Oxford, Cambridge, or MIT or Stanford. It’s not just us, but you get these great minds coming here and working together collegiately.
So, you know, that appealed to us. We also thought that following the financial crisis of 2008-9, that last black swan event. That we would, that the government would try to rebalance the economy here. We had to sort of get away from just services and our view was that they were probably going to try and do that through tech. And what we thought that would lead to would be sort of perhaps, you know, government encouragement for tech companies to develop and thrive here.
And that might include both the tax breaks that our investors benefit from but also improve grant funding and increased spend on R&D and all these other good things, which does appear to be happening. And again, the current government does appear to be becoming a science superpower as they call it. It’s sort of pretty key to their agenda for rebuilding the UK after covid and Brexit — nice double whammy that’s come in.
Well, get to… We’ll start with a pandemic. How has the pandemic affected your work?
So Parkwalk itself has been pretty much fine, like like many companies, so we’ve been able to work from home, you know, the disaster recovery that the FCA makes us practice every year, luckily works perfectly. So it’s all been absolutely okay from our point of view.
Of course, more importantly, really, it’s the portfolio, which has had some ups and some downs. The ones that have had problems — I suppose obviously in hindsight it is relatively obvious — companies that working in certain sectors have been pretty adversely affected.
So, I’d say one of the things that we have had some problems with was clinical trials being cancelled at hospitals, because all the hospitals obviously pretty much closed down everything and focused on covid. So. you might have been in the middle of a clinical trial that’s cost you £10m or £13m, for example, and that’s halted so you have to refund that. And it’s not just the money, but it’s the time as well. So that was, you know, a pretty negative effect on a small handful of companies.
Other things such as companies that are in aerospace, for example, you know, obviously the airline industry has been decimated so that if you’re doing anything with airlines or the aerospace manufacturers that’s been pretty much put on hold.
But I mean, we’re obviously not exposed really at all to things like hospitality or travel per se. So, I mean, we’ve probably had a small handful of… in fact, I think we’ve written down about seven of our portfolio companies, roughly 50% on what it is about — those delays I just referred to.
But then, you know some of the companies have benefited. For example, you know, quite a lot of the AI utilisation companies have seen upticks in their use across multiple fields, not just in medicine, but in people trying to access and utilise the data that they have and ingesting data and all these other good things.
We’ve also had… We’ve got several companies that are doing some pretty important work in medicine, you know, reading genetic data to help work out what why some people would be perhaps more susceptible to covid than others and all these other things. Brainomix, for example, which is a brain scanning company that helps recommend what you should do, the treatment you should have after you’ve had a stroke. Because that’s sort of remote software. going out to the consultants wherever they are based, not just in hospitals. I think they’ll see sort of perhaps a little bit of a faster uptick than we perhaps might have expected, knowing how, generally, how slow the NHS is to take on new technologies.
So it’s definitely mixed. But I think we’ve had nine of our companies have closed funding rounds with uplift in valuation from the previous prices since covid hit. So, seven down, nine up. That’s, yeah, definitely a mixed bag.
On average, still up.
Yeah, yeah, exactly.
It’s never fun writing down any investment.
While we are on bad news: what about Brexit? Are you concerned at all about the impending finalised withdrawal?
Yeah, I mean, I don’t want to go into the politics per se of Brexit, because I don’t want to sound like a sore loser. So you can guess which side I was on. But, you know, again. you know, one of the government’s policies, this science superpower commitment is very interesting. And I think it could help really transformed the UK over the years.
They’re doubling the R&D spend to £22bn a year by 2024, which I think will continue to lead to some massive innovation and discoveries. I think the key issue is how do we make the most of that. And what we really need to do is try and build a sort of self-sustaining financial ecosystem that can support these companies through to maturity. You know, yeah, we need come like Arm and DeepMind that will create growth, jobs and pay taxes. And to achieve that, we need more later stage investors who can support these companies through to scaleup.
There’s not, in my opinion, a massive point in doubling the R&D spend unless we’re going to get to benefit from the successes of that labour and that investment. I mean, as it happens, we are trying to raise a scaleup fund at the moment, which will sort of invest in the best of the best of our portfolio and help them through to self-sustainability by investing alongside aligned investors, who are looking to support the growth of UK plc as well as the individual companies.
So, you know, I mean… and again, post-Brexit, the government might have more freedom on state aid, which could be sort of beneficial to our companies. It’s also, currently, state aid does limit the amount of money that a company can receive through the enterprise investment scheme, the tax relief that our funds utilise. If that were to increase, that would hopefully be good news for all companies.
Again, mixed bag. I mean, you know, I’m an EU migrant, so I’m definitely one of the sore losers. But I like hearing that, you know, it’s not all doom and gloom, there are still opportunities.
Yeah, I hope so. Let’s end on a positive note. What’s your favourite spinout that you’ve invested in so far? Who’s your favourite child, Moray?
You can’t ask me that. I can’t have a favourite child. Oh, dear. I don’t know. I’m very excited about some of the companies that are really going to improve people’s quality of life. And that’s some of the life science companies that we’ve invested in, perhaps Mogrify in cell therapy, which is starting to be able to transform cells from one cell type to another which could have huge implications for people’s well-being and longevity. Phoremost, which is a drug discovery platform, very exciting.
Then in cleantech we’ve got Oxford Photovoltaics which is going into commercialisation next year. That was our first investment, would you believe, sort of back in 2010, and just started to commercialise now. It’s been a long journey, but they theoretically are going to be producing some solar cells that are double-digit percentage, better performing than the current best solar cells available in the world, which theoretically could change literally this sort of global energy system, really. I mean, it’s a sea changer of improvement in performance.
Yasa, which is our electric engine company out of Oxford, which is helping to make net-zero generally achievable, because they are also putting electric engines into automotive but also aerospace. And they just done a trial, I think relatively recently with Rolls Royce to make, which I believe a world speed record from an electric plane. Pretty impressive.
And then, Congenica is another one which is using genomic data to diagnose rare diseases. And that is, you know. really helping change people’s lives for the better. In the West, it currently takes on average, six to seven years to be correctly diagnosed with a rare disease. Using Congenica’s algorithms, they can theoretically diagnose all rare disease, I believe, within a week, which means that people start getting treated correctly. And yeah, it’s a huge social impact as well as savings to the health providers in treating people incorrectly.
So, and then, you know, we’ve got the quantum companies, I mean, gosh, which I think the UK is pretty well considered to be the second in the quantum race in the world behind the US and ahead of our other international rivals. And I think there are seven quantum spinouts so far in the UK and I think we’ve invested in four of them. And they could change the world in many ways, you know. I mean, obviously the one that’s often cited is that Haber-Bosch process, which is how we create fertilizer. It uses 1.4% of the world’s energy, theoretically if we could save that energy that would be a pretty meaningful impact on the world. A
And I have to have a special mention, I guess, to Diosynvax, which is one of our early stage… It’s in one of our Cambridge funds, it’s a recent spinout from the university. It has just done into phase one trial for a potential covid vaccine, which obviously if that works would very good news for mankind. Yeah, and I think that they’re sort of going at it from a slightly different approach to some of the other vaccines and potentially hoping for a permanent vaccine rather than perhaps an annual one like some of the other trials that are looking at. I think the whole vaccine thing is very interesting and we’re going to end up with some that work partially and some that wor. for a time and some that work for some people and not others and stuff. But, you know, at least, that’s one area where the world does seem to be generally pulling together and working cohesively which is nice to see.
I mean, the vaccine specifically, I think, is phenomenal, how we can see industry and academia kind of pulling together at the moment and collaborating. I hadn’t come across this one yet.
Not having to go back like the flu job, getting a new one would be nice.
Yeah, well, I mean, that’s very interesting, because actually, originally they were set up. to try and look for a universal flu jab. So that’s what the research of the company is based on, is a universal jab rather than these one-shot ones.
Seasonal ones, exactly.
Amazing. Well, despite the fact that you didn’t choose one favourite spinout still…
Yeah, sorry about that. And apologies to any I omitted, sorry. Yeah.
Thank you very much for taking time out of your busy day to join us on the podcast today, Moray. It’s been a pleasure to have you.
Really nice to talk to you. Thanks for your time and see you soon.