Meeting of minds: Mark Pritchard

Starting over a decade ago, commercialisation firm and early-stage investor Allied Minds has grown to offer its services to US universities from coast to coast. Partnering leading institutions such as Harvard, New York University, Penn State, the University of California system, and others, the company has imported the UK-based IP Group’s model and made it work on the other side of the Atlantic. We spoke to Allied Minds founder Mark Pritchard.

What is the history behind Allied Minds?

Having become somewhat disenchanted with the financial services industry, I went into investing myself and set the company up in 2004. During that period, I was looking at a technology coming out of Purdue University. I became intrigued at how much technology was being created at Purdue and yet how little commercial activity there was stemming from the university.

I took some technology from Purdue, put it into a company called FuturaGene, raised some money, and took it public in London. That experience exposed me to tech transfer in the US. From the perspective of early-stage investment, it seemed to me like an underserved market. There are obviously huge amounts of money going into the sector, phenomenal universities, great faculty, but not enough focus being put on startup creation at those institutions.

At that time, IP Group was beginning to do well, so I thought about doing something similar in the US. I flew back to the Midwest, spoke to a few universities, and said: “If I were to turn up regularly on campus to help and assist the tech transfer office with startup creation, would you be interested?” to which they all said yes.

Originally, I thought the lack of early-stage capital was a geographic issue because I was in the Midwest, and so all the first dozen or so universities we signed were based there. But gradually, I was being introduced to other universities with the same problem. Fairly quickly, we spread to both coasts, and currently we serve 34 university partners.

How did the US focus come about, and would you expand internationally?

We want to maintain and retain a US focus. There is interest in the UK and Europe, but the UK is well ahead of the US in terms of providing capital to startups, so we still see the US as a very rich market for us. In terms of finding technology, you need to put a lot of money in the top to get those good ideas. Clearly in the US, there is a lot of money going into its institutions, close to $50bn a year.

That is what attracted Allied Minds to the US. Having discovered what seemed to be a gap in the market in West Lafayette (Purdue), you then stand back and look at the whole market and think: “This is a huge opportunity.”

At what stage are you joining with startups, and how are you derisking your investments?

The niche for us is to go very early. Quite often, we are the only guys at these institutions operating at that stage. There is the well-established venture capital (VC) industry in the US, but at the level we play at, there is really no competition. We do not go on to campuses looking for companies because I am not sure you would find any and, even if you do, they might not be worth investing in. Instead, we go looking for technologies.

We partner tech transfer offices, and if we like a piece of technology, we will form the company, we will do the licence agreement, we will bring in the management, and we will put the capital in. That is our sweet spot – very, very early. Clearly, if you are going to go that early, it is high risk. So in our processes, we have a fair degree of risk mitigation. Typically, we will not take the technology out on day one. Instead, we will enter into a sponsored research agreement with commercial milestones. We will put in a relatively small amount of money, which is seen as a barrier to entry for traditional VC funds because they do not want to deploy $250,000 or thereabouts at the early stages. That investment allows us to leverage people and facilities at the university, and we can try to derisk the technology.

Since inception, we have created 33 companies in this manner, and killed 11 of those in the incubation phase. If it gets past that phase, we will put more money in. If it does not, we will kill it as we do not want to get drawn into a lengthy research development phase. We want to identify a piece of technology, see if it works, see if it can scale, and if so, take it out. That is essentially our model on early-stage investment.

What do you typically look to invest?

We come in at the seed stage and will look to invest around $1m. We will then do the series A, which can be anywhere up to $5m or $10m and we will look to do that ourselves. We will then facilitate a series B, and in that case, we will probably reinvest but co-invest. Our philosophy is that on day one, we want majority control and we want to try to follow our money as far as we can within the confines of not wanting undue focus on any one company or technology.

On the university side, we will see a larger percentage of deals being in life sciences, although we are now also working with the government and are seeing much more internet and communications technology software out of that. The data for sector breakdown in Global University Venturing’s quarterly data generally reflects what we are seeing in our portfolio, but our experience is that we see more life sciences on the university side.

Are university venturing funds a help or a hindrance to that process?

I think they are a help. Five years ago, we saw one or two – now we are seeing quite a few of them. Some of them are in the form of competitions to inspire faculty to think about the commercial applications of their technology. But in our experience, they are normally pretty small, typically between $50,000 and a $100,000. And I think that is a positive for us, as we can get involved in judging these competitions along with the tech transfer office.

We have not seen many US universities with funds anywhere near the size of Oxford Sciences Innovation, and I am intrigued to see whether that is a trend that is going to be followed in the US. We have spoken to endowments, and they see investing in research coming out of their particular schools as a conflict of interest, so they generally stay away from it. But seeing an Ivy League school follow in the footsteps of Oxford or Cambridge would be a particularly interesting development, and I will be intrigued to see if that happens in the next two or three years.

You raised $140m in your initial public offering (IPO) last year, but why did you choose to float in the UK?

I am a Brit and have been in the UK capital markets. All the shareholders at that point were UK-based. As I said, the UK is a leader in this space, such as with Dave Norwood and the IP Group. In terms of what we do, our model is well understood in London markets. They are not well understood in the US capital markets.

There is a company on Nasdaq called Harris and Harris, which does something similar. It has good management and good IP, and yet its share price has struggled. But you look at Imperial Innovations and IP Group in the UK, and you see the opposite. And you can look at PureTech. It is another Allied Minds or IP Group-type company based in Boston and with a US focus, but that also came to London to raise money.

Companies come from around the world to London for this reason, and coupled with our UK-based investors, it drove our decision to float in the UK.

Where is Allied Minds planning to go following its IPO?

The IPO is to accelerate the existing portfolio and to do follow on rounds in our existing companies. However, we also have a phenomena
l pipeline – we are seeing up to 3,000 ideas a year. We want to increase the number of companies we can generate from that, and want to do around five to 10 new startups a year.