We talk to Uniseed CEO Peter Devine about Australia’s longest-running university venture fund that operates at the universities of Melbourne, Queensland, Sydney and New South Wales, as well as CSIRO.
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Transcript
Please note, the intro and outro have been omitted.
Well, Peter Devine, thank you very much for joining us on the podcast today.
Thank you, Thierry. I’m glad to be here.
To start with, maybe you can give us a bit of an overview of what Uniseed is, what it does.
Yeah, Uniseed has been around… we’re in our twentieth year now although we’ve morphed over the years. But we’re basically a partnership of five of the top research organisations in Australia, the universities of Queensland, Sydney, New South Wales, Melbourne and the CSIRO.
And probably the unusual thing about us is that the research organisations themselves are the limited partners in the fund. We have three funds now — we have a commercialisation fund which I guess is a proof-of-concept fund, we start there but invest all the way through. We do have a follow-on fund, so we can double down on those companies that are going really well in the later rounds. And we also now have a co-investment fund, which is actually private money. And so that comes alongside us every time we invest. We have the capacity to invest up to $5m, at least $5m over the life of a deal now, which is great and gives us a little bit more money to play with.
And our mandate is really to only invest in partner IP… I was going to say partner IP, but in fact it’s any startups that have some benefit back to the partner. And that then captures student IP as well as potentially companies that are spending a lot of money in research funding at our partners as well. So to help facilitate that IP obviously under the commercial discipline of fund.
Awesome. You said, almost, well, you are in your twentieth year now which makes Uniseed one of the oldest venture funds focused on universities. Certainly much, much longer ago than MIT or even Oxford dreamed up theirs. You said you’ve morphed a little bit over that time, but what have been the kind of the long-term lessons or the long-term impact you’ve seen?
Yeah, look, I think if I go back to the fund itself, initially it was for the first five years was a proof-of-concept fund. It really provided a little bit of money to a lot of technologies, the idea being to bridge that gap. You know, we all see that funding gap, and then get the technologies out there where someone else can pick them up.
And I think they learned, in some ways the hard way that, you know in doing that it’s not really a way to make money. Proof-of-concept funds are a very difficult way to make money. And so when I got involved in about 2006, we changed that model and really coined that term commercialisation fund, which I don’t think anyone else had used at the time but the idea being we still did those early investments, but we followed all the way through to the end. We stayed engaged with the company. We tried to keep a board seat, tried to retain influence so that we, you know, if you like, protected our early investment.
The other thing was, of course, we did a lot more thorough due diligence. We did less investments with the new fund, doing more due diligence. But that was a little more successful in that in the end we had a number of exits out of that second fund from 2006 to 2015. The high profile ones were Fibrotech, which was sold to Shire and Spinifex — were sold to Novartis. And we had Hatchtech, which is a headlice treatment that just got FDA approval last month.
On the back of that, we’ve been able to raise money now from other unis and broaden the membership of the fund, but also now bringing private money because a lot of particularly family offices and high-net-worth sophisticated investors are looking for someone follow and so someone that’s done it before with some success.
Yeah, I guess what we’ve learned, it’s just like anything: practice makes perfect. We’ve made mistakes and we’ve learned from them and I think now, where we’re sort of at, and this might sound almost oversimplified but you know, in terms of biotech, which is about a third of our, and drug development, which is about a third of our investments, you know, we’ve really learned you need to have a something that looks a bit like a lead drug.
Whereas in the old early days, we funded drug chemistry programmes which are really a, you know, how long’s a piece of string sort of. You know, there was a target but it was like, well maybe we can make a molecule. So now, we want to see a molecule, we want to see animal data in a relevant model. And that’s the sort of basic. If you’ve got a bit more than that, that’s great. With, I think you know the other technologies, it’s really about we’ve learned to do a lot more work on customer engagement and talking to not only the acquirers but customers and really making sure we understand the market. Because most of these things that have failed haven’t failed for technical reasons. And I guess if they do, we can accept that. But it’s often that market failure – you actually do develop a product and it just doesn’t get to the market or penetrate enough.
So, that’s probably what we’ve learned over the years and there’s probably a lot of other little learnings along the way as well.
Amazing. You’ve mentioned Fibrotech, Spinifex and Hatchtech — you wrote a guest comment about that 20-year journey to FDA approval, which is quite stunning. I recommend to people that they go on GUV and check that out.
Perhaps in more general terms, what is the impression of researchers in Australia of commercialisation? Has that changed over the years? Are they keen to launch spinouts, startups?
I think yes, the short answer is yes. And look, I think in Australia, you know, we had the global financial crisis in 2008. And then there was a real dearth of money and also we had universities with a very different view at that time of IP and particularly student IP, they didn’t see any real value in it.
So after our exits and on the back of a couple of other big deals like Atlassian whichm you know, was a big success, as well. What happened was the whole mood… you could almost feel the whole mood in Australia change and commercialisation wasn’t a dirty word anymore and we had governments put a lot more money into commercialisation and set up programmes.
But we also had universities – pretty well every university — set up an incubator or an accelerator and they, I think, strategically recognised the value of student IP from a reputational and branding point of view, you know, to attract good students, you know, but also, you know, give them some kudos and reputation if a student spun something out and was successful. And traditionally they didn’t because they didn’t own the IP. So I think there was a real shift in mindset.
And the other thing that I think happened is after some of the successes, a lot of people started looking at universities in Australia. They kind of went, wow, you can make money out of universities. And I think, you know, so we had a lot of as I said, high-net-worths and family offices, but also funds like, you know, we had the IP Group in the UK have set up now in Australia in a similar space to us and there’s other funds as well.
And so the researchers themselves, I think, you know, one of our roles we see is to try to be change agents in the university. So I can’t say they all embrace it but more of them are embracing it. And I think the reason for that is that we now have role models that have been successful — academics that have spun things out and that’s great to put them up in front of people. We have seminars, but we always bring our academics in to talk, not us, because they’ll listen to an academic and they can relate to them.
And the other thing is, we’re quite flexible in the way we do it in that we’re not prescriptive and saying you must leave the university, you must join the startup. We find a way to keep the academics engaged. But some of them, if they want to stay in the uni, they can stay there and we’ll fund research there. Some want to leave and they can become a CTO. So I think that’s important for us, but there’s definitely been a real change.
I mean, now ironically, that focus on students is interesting because as a postscript in covid, a lot of the Australian unis and I think the universities overseas have lost a lot of international student revenue. So they’ve almost become over-reliant on that. And we’re sort of dealing with that a bit now in, you know, just being more aware of that and managing that cashflow. Helping them, you know trying to manage that sort of cashflow or drawdowns.
Yeah, I know, certainly. In the UK as well we have a lot of… a large Chinese student population, especially here in Cardiff where I am. And I can’t really see them coming… They’re talking about — the few universities here in the city — are talking about chartering some planes and flying students in, but I don’t know how realistic that proposition is to students. I wouldn’t want to travel if I was a student now.
No, well the universities I’m involved with are all really saying it’s a three-year process for them. They expect holes in their budgets, not only this year but in 2021 and 2022 as well. And a number of them are laying off staff.
Melbourne uni just laid off 450 staff. And there will be more from other unis. I think the impact will be felt for a long time because as you say, students aren’t going to start coming back until this current crisis is really resolved.
So I think it’s interesting, but it’d be interesting to see how they rebound off that. I think you’ll make them better. They’ll make them a bit leaner and a bit smarter.
Australia, I might be overstepping here, but Australia is not traditionally seen as a hotspot for innovation. People tend to think of Silicon Valley, maybe the UK, not even the rest of Europe, which is kind of unfair, I think, as you’ve given us everything from Wi-Fi to reusable contact lenses. And obviously, Australia used to be quite focused on mining, which might be part of the reason for that view.
Has that view changed over the years? Have you seen overseas investors becoming more interested? I know you mentioned IP Group setting up in Australia.
Yeah, look what we have, I mean, it’s interesting. Yes, look, no, Australia’s research is on par with all other groups in the world. You’d expect the outcome, the output to be as good. I mean, the things that we have suffered from, and we recognise it now that our translation hasn’t been great, we’re the first now to say it. It’s one of the big criticisms and it’s something that the government and a lot of the universities now focus a lot more on translation. Because we rank very low in translating outputs of research in a lot of the rankings like the OECD rankings.
I think we suffer from that tyranny of distance, although Australians are traditionally, you know, happy to jump on planes and be traveling a lot. But by that also, I mean, we’ve got a very small population base, you know, say 30 million people. But we don’t have… The difference is that, if you’re in the US or UK, we don’t have the big head offices of the, you know, acquirers sitting right next to us. You know, we don’t have big pharmaceutical companies. They’re really sales offices of those companies and the same for all the other companies in the tech space. So I think that’s been a little bit part of the problem.
But I think people are now realising there’s a lot of value in Australia and a lot of opportunity from overseas. And so, first of all you know, valuations are probably a lot better because the Australian dollar relative to the pound or the US dollar is you know, you get more for your money when you invest here and the technology is the same.
And we tend to be able to do things, you know, we’ve learned over the years, to do things I say frugally, but I don’t mean with any sacrifice to what we’re doing. And we also have attractive programmes where for example, in Australia you know, you just get back 40% of every dollar you spend on R&D. So you’re leveraging your money for a start, so that’s a very attractive programme.
And so I think you’re right, there’s a lot of people now looking to Australia. We seem to be contacted more often by investors from overseas who are looking at opportunities that we have. You know, a lot of them though, the old story is that a lot of VCs like to invest in their own backyard, but we are certainly seeing a lot of fund interest from overseas. And you know, we’ve flipped a number of companies to the US. And we’ve invested in one in the UK in Cambridge called Exonate now which has some intellectual property from one of our unis.
And so, that’s our message. If people invest with us, we’re happy to at a certain point flip it up. And it makes more sense to do that anyway, because it’s closer to the action, so to speak. closer to the market, closer to the acquirers. So the short answer is yeah, I think our scorecard’s pretty bad.
I think, we’re aware of it now anyway. At least trying to rectify it. I don’t think we’re there yet.
I mean, recognising your problems is usually the first step to fixing them, so it’s quite interesting to hear you admit that you have that challenge.
Have startups or companies in general, have they traditionally focused on the domestic market then or have they looked overseas?
No, we’ve always been… I think Australians have always been very focused overseas because I think one thing we did realise is that we’re 1% of the world world market or most markets. The only time we would focus domestically is perhaps to do a test, pilot marketing of a product, to show that, you know, we’ve got to work out the marketing message, to work out the branding, to generate customers and revenue and really demonstrate. in an Australian context that we can do it, with a view then it can be rolled out in the US or the UK.
But traditionally, just because most of the market size is there and the acquirers are there. That’s where we concentrate. But we do have examples, such as PERKii, which is a probiotic drink, which were focused on Australia and we’ve got Cardihab which is a cardiac rehabilitation technology, an e-health company that’s focused on Australia. The view is that, you know, to establish cred through doing that and then roll it out overseas.
Do you… I like to ask people this question and the answer is usually all of them. Have there been any technologies that you’ve seen over the years where you, maybe in a personal capacity not as the CEO, thought: “this is really cool”?
Yeah, I’ve heard you ask other people that, mate.
I like seeing people a bit flustered.
It’s a tough one. I mean, sometimes People ask me, you know, from the unis, what are the companies that are going to be the successful ones that we’ve invested in, you know? And I say, well, they all can be successful or we wouldn’t be investing in them. You know, we should be winding them up. But look at the moment, there’s a lot of really interesting… you know, I just in our portfolio we’ve got some really interesting companies.
I mean, one in the biotech space that really excites me, is we invested in a company that had a drug for addiction. And that company’s, you know, from when we started, what we thought it was and where it is now, it’s really sort of blossomed. You know, that company as an example — we thought we had one class of drugs, we’ve now got two drugs with two different, novel targets. We got $4.6m from the National Institute of Drug Abuse in America to support the company. And also we’ve shown that you know, these drugs are useful in non-sedating aggression.
So you imagine people in nursing homes get frustrated with Alzheimer’s and they get aggressive. So they usually dope them up with something and put them to sleep. So that one to me… and the reason I’m excited about it is when we did that, a lot of people, including pharma people, said, “ah, you know, addiction is just too hard”. But we did that and the markets kind of caught up with us because the opioid crisis has gone crazy. And that money from the US from NIH validates that. So that kind of excites me because I believe that, and most of our biotechs are the same, but I really see that could have a massive impact you know, socially on the world. And so that excites me.
Look, in the non-bio space, we’ve got all sorts of you know, really exciting technologies. We’ve just approved an investment in carbon capture technology, which we think is really exciting because it can do it, you know, very cost effectively. Can’t say too much about it yet, we’re in the legals for that.
You know, we have some really, really cool tech in terms of agricultural robotics and agriculture, you know, looking at, you know. Wi-Fi chips. We’ve got a company, Morse Micro, with a Wi-Fi chip just demonstrated Wi-Fi across Sydney Harbour, which is one or two kilometres. So we’ve got some really exciting stuff.
Yeah, so I think we’re quite excited about the next five years. Covid’s kind of you know, kicked us a little bit, but I think we’ll, you know, we should have some really exciting things happening then, you know.
So it’s very hard and I’m going to sit in the fence and say, I’ve given you some examples, but I can’t really pick one, you know. Because as we know, I could pick one, one of those ones I just mentioned could fall over. You know, that’s the nature of what we do.
That’s interesting, though. I also usually ask people what got them to join an organisation, and if you want to comment on that, do, but you’ve been around for 17, just over 17 years now, so maybe the question should be, what made you stick around?
Yeah, no, look, it’s interesting. I mean, I can answer both questions. I think there’s a lot of luck in this. For me, it’s sort of being in the right place at the right time. I didn’t intentionally say I want to be a venture capitalist. I’d worked for four Australian biotech companies and I started off in research but ended up in the business development side of things.
And so I happened to leave one of those and was working as a consultant, but Uniseed were just looking for someone — because remember it was a proof-of-concept fund — and they’re looking for someone to come along and have a look at that, but look at the biotech, particularly the biotech portfolio.
So I just happened to be there, initially joined as a consultant, you know, I wasn’t in an employed position and ended up being turned into an employed position. But why I’ve stuck around, it’s interesting you go through this sort of journey, you know, we started the new, the last fund, And so by inference with that, you want to stick around for the 10 year cycle. And you want to show, you know, you do it and you think well… you’ve come up with this new model and you think, well, I believe in this, so you want to show how it works.
So then you show how it works and then you say, well, I’d like to now raise another, you know, you want to raise another one, I want to keep it going. So, you know, we’re about five years into that next, the most recent fund, but then there’s other things that get your interest like organising a follow-on fund or a co-investment fund or developing… You know, 10 years ago, if I knocked on the door of some of these top 100 wealthiest people in Australia, they wouldn’t have opened the door. Now, they’re talking to me, so there’s a lot of interest.
And also, you’ve just got to love, I love technology. I love meeting the scientists. They’re really smart people and when you get a good relationship, it has kept me interested because it’s not a job that’s going and doing the same thing every day. It gives you different challenges every day. But look, I don’t know if I’ll be after this 10 year cycle. I don’t know if I’ll be going again, but I could say I won’t be, I’m sure. But it was more just to really cement, and, you know, because in that second fund, it was really interesting. We went through the GFC and it was a real struggle. And so to get to the end of that and have success was a great thing and then to raise that next fund, it was a logical.
Perhaps as a follow on to that: what’s next for Uniseed? What are the plans for the next few years?
Yeah, look, I think at this stage… You know, we don’t, unlike a lot of VCs, we don’t have aspirations to take over the world like some do. Because I think the difference is that we’re a fund that’s run, we say it’s run by universities for the benefit of universities, you know, so we’re not private money. We did have some superannuation fund money in the last fund and we found that a bit problematic because there’s different needs, different shareholders.
You know, we have explored other universities joining us, growing the fund over time. a logical time to do that would be when the next fund is raised, set up. I think there’s opportunities for us to build more relationships with private capital. And so the way we’ve done it is to have a co-investment fund which sits alongside us, which works well. And we do that in a very particular way in that the university fund pays the management fees, but we don’t charge fees to the co-investment fund, intentionally.
You know, we get benefit from having a greater pool of capital, but if they’re successful, on a deal-by-deal basis, then they pay us a percentage. So, it’s quite a good model for us, you know, we’re not in it for the fees, which a lot of VC managers are but if we’re successful, they’ll end up probably paying more than what the normal fees would be. But so they only pay if they make money and people don’t mind giving you money if they make money.
So, I think they’re the things we’d sort of explore. You know, as I said, we don’t have this desire to go and you know, go and join universities in Asia or manage a whole lot of universities. And that’s kind of, you know, as I said, we’ve got five of the top research organisations which make up 50% of all the commercial output in Australia in terms of new patents and startups. So, you know it’s pretty good model like with a low-touch we get half of what’s coming out.
I do think there’s an opportunity there to broaden that. But our model’s a bit different in that getting universities to pay — some just have an aversion to putting money up there, but I think as time goes on, they see more of a strategic value because it’s not just about money for them. It’s about, it’s all the other activity — it’s about upskilling and the club and the benchmarking of the tech transfer offices against each other. And it’s about ultimately their reputation and impact and engagement and all those buzzwords that we hear now, it’s all part of that commercialisation sort of structure and system that they all have.
The ones that get it and see commercialisation strategically, they’re our members. You know, whereas a lot of the others, it’s a cost-center to them and they’re looking for a revenue generation, which I think is the wrong way to look at it. You’ll get your revenue in the long run if you do it but it shouldn’t be your driver.
If there is anything else that we haven’t covered that you would like to talk about.
Yeah, I mean, I don’t necessarily have anything in particular but I guess I’d just say that you know, one of the things going forward now, the challenges with covid, it’s going to be interesting for us. Look, we… our portfolio’s done very well. We still have our money to invest. And we found that people are still investing, a lot of those private people. But we’ve had some impact on the portfolio by, you know, clinical trials being postponed.
You know, things being delayed — components that were made in China we couldn’t get to make products. All the portfolio has been impacted, but they’ve all got through it. I think, one of the challenges I can see is we’ve got a number of companies that are getting to a point where we want to look at doing some sort of commercial transaction, ultimately selling the company and I think business development is going to be tough in this current environment.
You can do stuff on Zoom, but you can’t form new relationships as easily on Zoom. The ones we’ve got are easy to maintain. And often it’s about getting over there and meeting people. We had one company in the, you know, that did a collaborative research deal with a company which was worth multi-million dollars. But they sent 26 people to do due diligence at the company before they committed finance. So, I don’t know how that’s going to happen now.
You know, that’s the sort of thing that I think probably concerns me a little bit now. How do we get those deals? Can we still do business development as effectively? Yeah, and that’s probably the challenge for us going forward because obviously we’re into the second half of our fund and it’s the time we’re really looking at doing some exits. You know and getting onto the bike, so to speak. That’s probably the only thing on my mind, main thing on my mind, off the top of my mind at the moment that’s worrying me, you know?
No, that makes sense. That… Yeah, that seems very reasonable and perfectly understandable. But, I mean from everything else you’ve said you seem to be in a fairly good position which is good to hear and I’m sure Uniseed has made it through the global financial crisis, so I’m sure it’ll make it through this one as well.
Yeah, I think this will be just as tough, if not tougher, but because the universities suffered in the much the same way after the GFC — people stopped coming from overseas because they just couldn’t afford it — but I do think that this will be a deeper and sort of longer impact on them.
But fortunately, as I said, our universities are, you know, strategically, they see that they don’t want to throw the baby out with the bath water. And in some ways, the ones that will survive, and the same with companies. you know, the ones that you know, stay committed and keep investing in commercialisation through this time will be the ones that come out at the end in a much better position, I think. So they realise that, which is great.
I like to finish on a positive note.
I haven’t been that down, have I?
No, no, no, no, no. Well, Peter, thank you very much for joining us today.
No worries, Thierry. It’s been great talking to you. Thanks a lot. Bye bye.
Thank you, bye.
