Oxford orchestrates successful portfolio

When Global University Venturing published its ground-breaking analysis of more than 60 years of spinouts at University of Oxford in April 2020, all the data we had collected was from a pre-pandemic world. By that point, the institution’s portfolio had collected more than £2.2bn and another $245m in equity financing overall.

Guest after guest on our Talking Tech Transfer podcast noted that the pandemic had led to an increase in activity, a reality subsequently reflected in annual reports. Having analysed Oxford’s longitudinal data just before the pandemic has given GUV a unique opportunity to evaluate how exactly these past 18 months have affected university venturing at a deep level by way of example of one of the world’s oldest and leading research institutions.

During the 2020 to 2021 fiscal year, the university’s tech transfer subsidiary Oxford University Innovation (OUI) added a record 23 spinouts, 4 startups and 6 social enterprises to its portfolio – with some crossover between these, this meant 31 new additions to OUI’s list of companies for a new total of 275 (including two that remain in stealth and details of which we are not at liberty do disclose).

Around 77.5% of companies remain active today, a slight drop on the 78.5% in our last analysis. A total of 15 companies achieved some form of exit – either an initial public offering, an acquisition or both – before being wound down, so may be reasonably counted as successes. Including these businesses, the survival rate jumps to around 82.8%, again a slight drop on the 83.9% previously.

Across the portfolio, total pre-exit equity capital now stands at more than £2.8bn, plus another $732m and €6.5m. Although it is difficult to account for currency fluctuations, at the current exchange rates this would be a total of more than £3.3bn or $4.6bn.

Notably, the median amount is only £3.3m and the average is £14.8m for the rounds in British pound sterling, which constitute the majority of transactions, or $49m and $72.3m for the rounds in US dollar amounts – of which there were only 10.

But beyond these numbers, Oxford achieved something far more remarkable during the pandemic: the technology of its spinout Vaccitech – which listed on Nasdaq in April 2021 following a $110m IPO – was the foundation for the covid vaccine in partnership with pharmaceutical firm AstraZeneca.

Alexis Dormandy, chief executive of the university’s investment company Oxford Science Enterprises (formerly known as Oxford Sciences Innovation) which had invested in Vaccitech, said: “The fact that 98% of Covax vaccines are the AstraZeneca vaccine is because it really took a university.

“The people at the university deserve huge credit for coming up with a deal with AstraZeneca to give them the technology for free, and also the people in Vaccitech who contributed to giving that for free, which then allowed non-western countries to get access to the vaccine.

“I do not think it would happen if it was not a university venturing arm, because in money versus the good, the money would win.” He added: “It is a reflection on the importance of university venturing and what it can do.”

Another covid-related company was Oxsed, a social venture that was working on a rapid test for the disease. Oxsed launched in June 2020 and only five months later was acquired by Prenetics’ DNAFit Life Sciences subsidiary.

This was not the only notable acquisition that occurred during the pre-vaccine days of the pandemic – epigenetics company Base Genomics, which had raised only $11m in equity funding, was bought by molecular diagnostics business Exact Sciences for $410m in October last year.

Matt Perkins, chief executive of OUI, wrote in the office’s annual report: “Our spinout portfolio not only continues to grow, but to rapidly mature.

“Oxford Nanopore’s £3.4bn IPO is stealing the headlines, while many continue to scale towards their own flotations. Meanwhile, Yasa Motors held a prominent exit of its own with its acquisition by Mercedes Benz.

“As these develop, the overall ecosystem is moving from the gold rush days of the Oxford Boom to a more established community of innovators looking to create a rising tide of impact that raises all boats.

“While OUI’s role in the process remains at that inflection point where research transfers into the wider world, we believe we have a part to play in sustaining the momentum of recent years and using our voice and convening power to help our community thrive.”

That listing of Oxford Nanopore was grabbing headlines for all the right reasons: it marked a phenomenal success for the university and it also became one of the largest initial public offerings of a spinout in the nearly nine years that GUV has been covering the sector.

Woodford proves his worth too late

There is an elephant in the room when it comes to Oxford Nanopore’s flotation: Neil Woodford and his since-collapsed Woodford Investment Management, which also managed the Woodford Patient Capital Trust (now called Schroders UK Public Private Trust).

The listing was so successful, it made commercialisation firm IP Group a whopping £84m on the spot.

Oxford Nanopore was a core holding in Woodford’s flagship Equity Income fund and it could have netted investors hundreds of millions of pounds. However, administrator Link Fund Solutions sold the shares to Acacia Research for a fraction of its IPO valuation a year ago.

The spinout was one of 18 holdings sold for a combined £224m in June 2020. Nanopore’s price was reportedly £98m. Overall, Link Fund Solutions had offered such a cutthroat price that Acacia flipped the majority of the package, some of it within hours, and immediately bagged a profit of £150m.

Nanopore was one of two companies that Acacia held on to and it is a bet that has massively paid off for the patent litigation company.

Indeed, Acacia offloaded £16.4m worth of shares as part of the initial public offering and retained a 4.4% stake worth £149m at the IPO price of £4.25 a share. At the time of writing, its stake is worth £193m.

Is this hindsight enough to claim that Woodford was right all along? The root of the firm’s collapse was an overreliance on illiquid holdings that Woodford was unable to sell on when investors wanted their money back in droves – around £10m per day. Reportedly once worth £10.2bn, the fund was worth just £3.7bn by the time it was suspended in 2019.

The drawn-out process since the collapse has meant that many investors are still waiting for their money today – Link Fund Solutions continues to wind down the fund and is unsure when exactly this will be complete.

Adding to the chaos is the fact that law firm Leigh Day launched legal proceedings against Link Fund Solutions in September 2021 claiming that Link Fund failed to carry out its regulatory duty, as authorised corporate director, to look after the best interests of investors. Crucially, that claim covers both its decision since the fund’s suspension and the run-up to that suspension.

In his first interview since the collapse, Woodford showed himself combative in February this year when he announced his ambition to launch a Jersey-based investment firm – plans that failed. Speaking to the Daily Telegraph, he apologised saying “I am very sorry for what I did wrong. What I was responsible for was two years of underperformance – I was the fund manager, the investment strategy was mine, I owned it and it delivered a period of underperformance.”

However, he stuck to his view that the fund would have been successful and declared that had investors stuck with him they could be “enjoying the fruits of that faith”.

He added: “I cannot be sorry for the things I did not do. I did not make the decision to suspend the fund, I did not make the decision to liquidate the fund. As history will now show, those decisions were incredibly damaging to investors and they were not mine.”

The example of Acacia’s win with Nanopore would agree with Woodford’s claim.

There is an argument to be made that investors may have misunderstood the “patient” part of patient capital (the firm survived only five years). It was never a get-rich-quick scheme. Tom Hockaday, former head of OUI, wrote about Woodford in his compendium on tech transfer, University Technology Transfer: What It Is and How to Do It, and in a subsequent interview with GUV revealed he maintained nothing but respect for him – admitting he had no real sense of what went wrong at the firm.

“I think what Woodford did with patient capital and what he did with supporting the opportunities that brilliant UK science presents to UK business and UK investors was really positive,” he said. “The role he played in getting [Oxford Science Enterprises (OSE)] going as one of the founding investors was really positive. I can talk about the genuine positives of what he did in promoting patient capital, but the wrangling and financial management is just not a world I know.”

Arguably, Woodford’s mistake was not investing in unquoted holdings. That is a model that Nanopore has proved works – and it is a model pursued by others, such as London Stock Exchange-listed IP Group.

Woodford’s mistake was his decision to call the firm’s lead product the Equity Income fund. It created the perception that the fund would invest conservatively in companies that typically pay dividends, but unquoted stocks do not do that.

It is impossible to know whether this was wilful dishonesty, negligence or Woodford genuinely believed he was doing right by his investors, because he so passionately believed in university research commercialisation – he was, after all, a strong supporter of IP Group and one of the people who made OSE happen. But the result remains the same – investors were exposed to a risk profile that the fund name hid from them.

Is Nanopore’s listing vindication for Woodford’s vision? Yes. It is just a shame for everyone that he went about it all the wrong way.

OSE’s journey has only just begun

Oxford Science Enterprises is going about it all the right way. To date, the investment firm has raised £613m and invested around £360m of that, bringing another £600m from external investors into the portfolio. OSE itself is now worth more than £1bn after its creation led to an explosion in the number of spinouts coming out of Oxford.

Steadfastly pursuing its mission of putting impact over money, OSE reinvests proceeds and as of this year even donates 2% of its shareholding from each successful company back to the originating university department. If there is anyone else out there who does this, they have not advertised it – which seems unlikely and so this almost definitely qualifies as a unique aspect.

Dormandy joined from venture capital firm Atomico in January this year, taking over from interim CEO Jim Wilkinson who returned to his original post as chief financial officer. Dormandy immediately went to work of putting his mark on the organisation and established a group looking into how well, or not, OSE was doing on diversity and inclusion.

He said: “The way I describe it is we need to be an organisation that we will be proud of in 10 years’ time, not one we could have got away with 10 years ago.”

Describing the initiative, he noted: “We did a survey internally, there were bits we were good at and others we were not so good at. We have done quite a lot of work and we still have a lot more to do, but one of the things I am most proud of is that, without trying at all and being totally meritocratic, five of my seven direct reports are women. There was no conscious effort to do that.

“As it happens, the whole of the life sciences team are women, again by accident. But clearly it is a much bigger issue than just women, we probably have further work to do on the Black, Asian and minority ethnic demographic – I would not say we are bad, we are probably market average but I am not sure that is a benchmark to aim for.”

OSE has now rolled out a survey to its 55 largest companies to get the big picture and start benchmarking. Dormandy added: “We will pay for and support initiatives to try and push that all in the right direction. So, we take it extremely seriously and, like anybody, if they say they are winning that battle they are deluding themselves. Everyone is at an early stage, but we are definitely on it and take it seriously.”

Dormandy already has a noteworthy take on fostering diversity. He continued: “The question for me is not: do I encourage [spinouts] to have diverse leadership? If I ever see a longlist of people I am interviewing and it is not diverse, I ask: what are we doing? I do not think it is so much about encouraging people, I regard it as a moral minimum and a commercial minimum.

“And as I say, the fact that we have a lot of women work in our company has nothing to do with actively trying to reach people. When we look at a list we say, does that list look like a representation of the population – if it does not, then it is the wrong list.”

OSE’s success leads to an obvious question: should there be more university venturing funds? “In general, it is a good idea,” Dormandy explained. “The biggest issue is the people. This is a professional industry and if they can be done well with good people, there is a huge opportunity there. If it is done as a slight afterthought – thinking we should be a bit more entrepreneurial, how do we spin a few things up – it is not that they will do any damage, except that it might set things back by them not working out. Better to do it well early.

“If you asked me what it would be like in five years’ time, yes, they will be spinning up in other places. And if you ask me in 10 years’ time, there will be an industry that is probably literally 20 times the size it is now.”

Dormandy is not shy about doubling down on that vision. Joking that he had never read anywhere that an American accent was needed to build a Microsoft or Intel, he added: “There are three things that need to happen. We need to have the capability to build these businesses, not just spin them out.

“We need to have billions in cash, not tens of millions, to build these industries around them. And the last bit we need is the attitude to go after it, because there is a mindset about: what does success look like?”

It will not necessarily be a software company. It may be something as unusual as Refeyn, which Dormandy highlighted as a portfolio success he was particularly proud of. Refeyn has developed mass photometry technology – essentially, it uses light to measure the weight of molecules.

“I first met them before I joined Oxford Science Enterprises – I was introduced to the founder four years ago,” Dormandy recalled. “I trained as a doctor, but when a professor who is using light to measure the weight of things is talking to you about the detail… I was definitely struggling to keep up.”

“I had absolutely no idea what the commercial model was going to be,” he admitted. “What they do is essentially the same as a mass spectrometer, but they do it for $50,000 – a fifth of the price of others.”

The technology is so transformative, Refeyn is struggling to keep up with orders and is beating every milestone they could have. But that is not the amazing part – researchers have been writing to say the throughput of their labs had gone up fivefold since installing Refeyn’s benchtop machines, because people no longer had to queue to get access to one big machine.

“The democratisation of that technology is a massively important thing,” Dormandy declared. “The reason I love it is it has very strong, unique science that nobody else has and it appeals to me that I did not see it when I first met them, which is a lesson to all of us. You need to try harder and have a bit more imagination because that is part of the job here.”

The fact that Dormandy missed the opportunity initially was emblematic of the system, he pondered: “It would not have been funded by VCs, because the work of getting that science out into a business, there is probably two years of just doing that and there was not an investible business.”

The importance of OSE therefore can hardly be overstated. If the UK is to emerge as a powerhouse for innovation following the tumultuous years of a post-Brexit, post-pandemic world still ahead of us, university venturing will be a crucial component. It is important the government understands this – not just this leadership but all subsequent ones.

Some notes about this data:

• The date formed refers to the date provided by University of Oxford as the date on which the company was spun out, not when it was incorporated with Companies House. The incorporation dates are usually a few months before the completion of the spinout process, but in some cases differ by several years.
• The total funding has been rounded. It includes the equity declared by the companies in their most recent annual accounts, by University of Oxford to GUV and press releases by the spinouts themselves. They are correct, to the best of our knowledge, as of September 2021. The figures do not include any non-dilutive grants, debt financing or bank loans. Some companies have disclosed they raised money, but not yet how much – in these cases we elected to either leave the field blank or display the confirmed funding only.
• Defunct companies have not filed any accounts for their most recent financial year or have an active notice in place by Companies House to be struck off and thereby be dissolved.
• PharmaDM is the only company whose status could not be ascertained, although there are no records in Belgium’s official register and its software is now distributed directly by KU Leuven. It seems safe to assume the company has been wound down.
• Startups are companies that have gone through OUI’s incubator only, they do not include startups from the wider university community.
• At the request of OUI, the following list does not include spinouts in stealth mode.