Editor Thierry Heles sits down with David Grimm, manager of the UCL Technology Fund, to find out what makes the fund unique among its UK and international peers.

Headshot of David Grimm

The UCL Technology Fund, a £53m ($70m) university venture fund focused on University College London, is an interesting beast.

The fund was launched in early 2016 with commitments from the EU-owned European Investment Fund and Touchstone Innovations, the commercialisation firm spun out of Imperial College London and since acquired by its peer IP Group, as well as fund manager Albion Capital. The absence of any of the usual players in the space – such as Lansdowne Partners, Invesco and Woodford Investment Management – was notable, but it has done nothing to hold the fund back in making a quick and significant impact on the UK ecosystem.

The fund is managed in partnership with UCL’s tech transfer office, UCL Business (UCLB), by Albion investment directors David Grimm, who focuses on the physical sciences, and Simon Goldman, who looks after life sciences. Tanel Ozdemir was hired as an analyst earlier this year, with the team also made up of three partners at Albion who spend a portion of their time supporting the fund.

As interesting as the limited partners are, the fund’s story is just as intriguing. Grimm told Global University Venturing: “Our managing director, Patrick Reeve, was originally on the board of UCL Business as an external adviser. That relationship goes back 13 years, so the fund has been an idea that was a long time in the making and the timing was right. It was a true partnership in how the fund came together – it was not really about who approached who, but it came out of a lot of close relationships that had been built over a long period of time.”

He was keen to stress the importance of the partnership aspect, adding: “We are very careful that we are seen as a partnership rather than some sort of external body. That plays well. When you go to speak with an academic about their idea, it really matters to them that the university is on the same side and in line to get a benefit from the fund.

“If the fund does well, the university does well and that is important to the academics. That allows us to smooth a lot of otherwise complicated questions out of the way.”

The fund’s structure, too, is unique – rather than operating as a pure-play university venture fund that invests in spinouts, it contains a £5m proof-of-concept vehicle and is able to pursue licensing opportunities.

Grimm explained the proof-of-concept investments, saying: “We loan £100,000 to projects through the university to allow them to get data, understand the market or get people into place so that we can write a larger investment case and can bring together a seed or later-stage round for those technologies.”

The money is recouped through one of two different ways. If the technology is put into a spinout, the loan is treated as a convertible note and converts to equity, with a small discount, and if it is licensed to an established business it is repaid from the licence’s initial revenue.

The proof-of-concept funding worked, Grimm noted, because of Albion’s close relationship with UCLB, which meant the tech transfer office was able to help channel the loans into departments.

It also meant UCLB acted as a deal source for the fund and helped identify opportunities – though Grimm added that occasionally academics would approach the fund directly “because we have made enough noise about funding”. If that happened, the researcher was sent back to UCLB to ensure the university was on board with everything.

Not all research is suitable for shaping into a spinout, but the UCL Technology Fund is prepared for that eventuality. Grimm added: “We have a mechanism that allows us to keep putting money into projects within the university up to £1m, which can take a technology from a high-risk low-value opportunity through to a high-value lower-risk opportunity.

“That allows us to be very flexible in the way we approach technologies – we are not forced to put things inappropriately into spinouts or turn things down because they look like licensing opportunities. We can actually find ways to deal with pretty much anything that we find valuable within the university.”

The fund’s long-term play was, perhaps unsurprisingly, to raise more money and provide a great return for investors, Grimm said, but it was worth noting the enormous size of University College London and the wealth of intellectual property (IP) coming out of its labs.

“Our initial play is to prove that this model provides more value than other IP-funding models – the concept that the combination of a venture manager working hand in glove with a tech transfer office and spending the time and energy to build a functioning relationship can bring bigger returns for investors. That is what we are trying to prove.”

While the university had its strengths, the fund was not limited to a specific field. Grimm said: “If something is coming through UCL and we can see it has great value then we will always look at it.

“UCL has some very strong areas – gene therapy is one that is bringing us a lot of joy, as is artificial intelligence (AI). On the life sciences side, gene therapy is probably our strongest suit and on the physical sciences side it is AI, software and data analytics. These are also very strong plays for the university, so we see a lot of interesting opportunities on both sides.”

Asked whether these areas would continue to dominate or whether there was anything Grimm would predict to become the next big thing, he laughed and said whatever his answer, he “will probably be wrong. It is such a large university, it is difficult to predict what is going to happen”.

Nevertheless, he offered some areas that have the potential to produce fascinating technologies – whether or not they become influential as a sector. He said: “There is quite a lot of interesting medical technology coming through the university but investing in medtech is quite a difficult space. You have to work very hard to make sure it works with the fund.

“We are looking into investments into quantum computing at the moment, so that is quite cool.

“UCL recently developed a world-leading institute in blockchain. We have not yet made any investments in blockchain but we are working hard to build a relationship that will allow us to leverage that as it starts to get motoring. They brought someone in to lead the institute about two years ago and he has put together a well-established and large network in blockchain so there are opportunities there.”

The reality of university venturing did mean, however, that the fund was likely to focus on scientific fields. This was partly because of UCL’s strengths, but Grimm noted that generally “there are not many venture investments that you can make on the arts side that are easy – there are not a lot of arts VC funds in London”.

He added: “We have done some edtech out of UCL, so we have strayed away from hardcore science, though even that has AI at the heart of it. I think it will always have some of the sciences involved.”

While it is difficult picking favourites – and Grimm insisted he had none – he selected a few from the fund’s portfolio to highlight, including Orchard Therapeutics, the gene therapy spinout that took home the Global University Venturing Deal of the Year award in March for a $110m series B round that featured the UCL Technology Fund.

Another one cited by Grimm was Hazy, an automated data anonymisation software developer that won a competition run by software giant Microsoft earlier this year to find the best AI startup in Europe. Grimm said: “Hazy won with some 250 companies in the line-up, which was nice. They are doing automated data anonymisation using AI, which is quite cool and a very hot topic with data security and privacy being at the forefront of most of the newspapers at the moment. They are doing really well. Microsoft and a few others have come in to invest in it.”

The aforementioned edtech business, Grimm explained, was Matr – formerly known as Third Space Learning – which has developed a platform to connect science graduates from the third world with pupils in the western world to teach maths. Grimm explained: “What they are trying to do ultimately is for anyone anywhere to be able to log on and qualify through an AI system in tutoring mathematics. This will provide a supply of affordable and flexible tuition to parents and schools that want to help their students learn maths.

“They have some 7,000 to 8,000 pupils in the UK using it already – they are doing quite well. They have been reaching out to schools so far, but they are launching a platform for parents who want to have tuition at home, which I think is a strong play.”

Despite the fact the fund is just over two and a half years old, it has already celebrated several exits. The first of these was Bloomsbury AI, a developer of natural language processing technology, that joined social media operator Facebook for an undisclosed sum in July this year.

And the dealflow remained strong, Grimm added. “We see a very strong healthy pipeline of stuff coming through UCL,” he said. “It is structured right and when you work closely with the tech transfer office, we see an optimisation of research coming through and the flow is, if anything, getting larger as we optimise our relationship with the university and become more deeply embedded.”

Unsurprisingly, Grimm was an advocate for the fund’s model, saying: “In terms of university venturing in the UK, where universities are struggling to get their research commercialised I would recommend a model like the one that we are using.”

The UCL Technology Fund was lucky to be working with a well-resourced tech transfer office that has accepted the quasi-external player. Grimm explained: “It is not always easy because tech transfer offices have had a rough run from venture capitalists over the years and there can be suspicion, but we have worked through that and have a great platform now to grow a lot of benefits and value.”

He added he was optimistic about UK institutions in general, but saw more work to be done. “In terms of research power, the UK is seen as unrivalled. Stacking up the research power of universities in the UK against Europe or economies of similar sizes, there is more that we can do to commercialise and bring value to UK plc by creating valuable companies and licences from it.”

A cause for optimism, too, was the increased willingness of researchers to commercialise their work. He said: “Having a fund around promotes the idea that they would want to form spinouts and springs that to their minds, which is helpful. The impact metric that each department is now being judged on is having an effect. And all of those things are working towards researchers looking to commercialise their ideas.”

Here, the fund’s flexibility in dealing with the various opportunities comes into play again, as Grimm added: “I am not sure it is always good to go down the spinout route. There are always technologies that are better licensed and the fund can support those, which makes our model very attractive to academics.”

When asked what attracted Grimm – who joined Albion Capital in August 2016 specifically to work on the UCL Technology Fund – to the job, he cited Albion’s record as an investor and its reputation for integrity in the marketplace. But since he had joined, the reasons to work for the fund had continued to grow beyond that and the usual perk of getting to work with exciting early-stage technologies.

Grimm said: “When I was at university, my master’s was in the quantum mechanics space, so it is really interesting to look at quantum computing technology now as a potential opportunity. But my degree was a long time ago, so I have forgotten bits and pieces of it.

“I asked one of the researchers on this project if he could give me a personalised lecture, so I could catch up. He genuinely went to one of the lecture rooms, took the whiteboard out and two hours later I had had a bespoke lecture.”

Grimm, with glee in his voice, continued: “It is rare to get that as part of your job. I am extraordinarily lucky to work with such bright people doing incredible things. Because I am holding the cheque book they are willing to spend time to educate me. Some of the people and the teams are just astonishing.”

Working for Albion, a firm that generally specialises in slightly later-stage deals, had also proven valuable for the fund, he added.

“I get the opportunity to see where businesses need to be in two years’ time to raise money at a certain valuation and how those teams grow. By keeping an eye on the rest of our business, I am able to take that knowledge and skillset and apply it to the earlier stage, when we are investing in things that are essentially three guys and a laptop starting out – which we have done. Hazy for instance was exactly that when we first invested.”

He added: “It is a really great combination of being able to work with early-stage technologies and being able to come back and look at the quality metrics that you need to see to make companies successful in the future. That adds an enormous amount to the fund. From my perspective, I have always liked doing early-stage deals but it is nice to have the rigour of a later-stage investor doing series A, B and beyond, and knowing what some of the journeys look like for companies.”

Grimm declared, understandably proud: “It is a great role.”

Thierry Heles

Thierry Heles is the editor of Global University Venturing, host of the Beyond the Breakthrough interview podcast and responsible for the monthly GUV Gazette (sign up here for free).