The storm is up and all is on the hazard

Ten years ago, Gordon Brown was prime minister of the UK and Barack Obama was sworn in as the first Afro-American president of the US. Bitcoin was released. Swine flu was a global pandemic. The world was still reeling from the financial crisis.
In other words – a decade is a really long time in human history.
University venturing has been left notably unphased by any of the events over the past few years. Looming threats of a recession, economic tensions between the US and China and the never-ending absurdity that is the UK’s attempt to leave the European Union have had little to no impact on the rate at which spinouts have emerged and raised funding.
If anything, spinouts and university venture funds have been doing remarkably well. You can find our quarterly analysis in this magazine, but here is a key figure: during the first six months of 2019, a total of $7.6bn was invested across 387 deals – a massive increase over the $6bn for the same period last year, though deal count stood at 432 by the end of June 2018.
But trouble is brewing. Woodford Investment Management, the UK-based investment firm launched by erstwhile star fund manager Neil Woodford, had to suspend trading in its Equity Income Fund last month after coming under increasing pressure to manage liquidity due to significant outflows, struggling to keep the Equity Income fund’s unquoted exposure under the regulatory threshold of 10%.
This has had ripple effects on both sides of the pond. In the UK, Woodford first sold its entire shareholding in Oxford Sciences Innovation, the university venture fund of University of Oxford, before reducing its stake in commercialisation firm IP Group. In the US, Woodford similarly reduced its shareholding in commercialisation firm Allied Minds.
Susan Searle meanwhile stepped down from her position as chairwoman of UK-based investment firm Mercia Technologies, officially to “focus on other commitments”. Presumably, handling the unfolding crisis at Woodford, where she is chairwoman of the Patient Capital Trust, which focuses on early-stage, unlisted companies, is that other commitment. Her move came as the Patient Capital Trust announced plans to cut its level of debt and enlarge its board.
At the same time, Woodford suffered from a devaluation of 50% of Immunocore, an immunotherapy developer with University of Oxford roots, and sought to exit Oxford Nanopore Technologies, a genetic sequencing technology spinout of University of Oxford.
Amid the chaos, Crystal Amber, an activist investor in Allied Minds, jumped on the opportunity to oust the latter’s president and chief executive Jill Smith to have her replaced by Michael Turner and Joseph Pignato, previously general counsel and chief financial officer respectively, as co-CEOs. A few days later, Jeff Rohr was appointed chairman to replace Peter Dolan.
Richard Bernstein, director and a principal shareholder of Crystal Amber, has even openly called for the entire board of directors to be removed and replaced with a single executive.
All of this happened as the Stanford-StartX Fund wound down at the end of June, with its legal battle against portfolio company MedWhat ongoing. There is potentially more to come here, with MedWhat alleging that the fund was a front for Stanford University to illegally make direct investments.
Investing in early-stage companies is a risk, whether they are spinouts or traditional startups. It was always inevitable that problems would show up.
There is an argument to be made against floating commercialisation firms, as it exposes patient capital to the short-term interests of investors on the public market who may not fully appreciate the inherent risks.
There is also an argument to be made for more investors to join the university venturing ecosystem. It should worry everyone that with Woodford, one single player is a substantial backer of several university-focused firms and its collapse could prove calamitous.
On the upside, the first week of July included two $250m funds – the inaugural vehicle of Ahren Innovation Capital, formed by eight scientists from the Cambridge, UK ecosystem, and a fund by charity Cancer Research UK, which has partnered SV Health Investors to primarily invest in the oncology sector. So maybe don’t worry too much. u