Uniseed: the first 20 years

Over that time, we have experienced first-hand the ebbs and flows of Australian innovation, including the dot.com crash, the global financial crisis, the covid crisis, the changes in governments and associated innovation policy changes, the reinvention of technology transfer office business models and the rise and decline of a numerous venture funds, with most venture fund managers in operation at the time Uniseed was formed no longer active.

The 20th anniversary is a good opportunity to reflect on Uniseed’s journey, not only considering how long the fund has been operating, but also factoring in the significant success Uniseed has had, and the ultimate impact of the fund on the Australian research and innovation ecosystem.

57 startups                   630+ people employed           A$760m raised            12 exits

Part 1 – Forming (2000-2005)

The environment leading up to the formation of Uniseed in late 2000
At the time the concept of a Uniseed fund was starting to be discussed, the Australian venture capital industry was very immature compared to that of the US. Despite early-stage investment in Australia totalling A$230m in 1999-2000, spread across 83 investments, very little capital (if any) was targeted at seed-stage technologies arising from Australia’s public sector research organisations.

The Australian government had policies to support venture capital, but there was a low pool of venture funds – particularly for early stage investment. Early stage VC represented only 1% of Australian GDP compared with 4% of GDP in the US. As a consequence, technology developed in Australian research institutes was not being funded to a significant extent – a problem that colloquially became known as “the valley of death”. Put simply, Australian VCs were not interested in university technology or seed-stage investment because it was too early and too risky, and publicly funded research inventions were not going anywhere. A good idea was not enough. Research-based ventures had historically been poorly organised, had intellectual property that was poorly defined and managed, had a high science and people risk, and needed intensive hands-on assistance. On top of these issues, at that time many considered the effort of negotiating a licence agreement with a university tech transfer office too difficult to be worth it. To be fair, there had been some high-profile commercialisation stories, such as University of Queensland TTO UniQuest’s magnetic resonance imaging scanning technology (Magnetica) and its licence of a cervical cancer vaccine technology to CSL, though neither had provided a significant commercial return at that time.

There was a need to produce a tradable asset by adding value to the research project, so it is seen as investible by the investment community, as few discoveries had leapt off the bench to become commercial successes. On the back of this need, the idea of Uniseed was born… a pool of funds to add value to a technology, along with hands-on management, and make it investible.

Uniseed’s early vision (Fund-1)

Uniseed was launched in September 2000 with an initial capitalisation of A$20m financed entirely from the commercial activities of University of Melbourne’s tech transfer arm Melbourne Enterprises International (MEI) and UniQuest. University of Melbourne’s contribution came from its A$70m proceeds from the float of domain name registry Melbourne IT in 1999.

David Evans, CEO and managing director of UniQuest, and Gareth Dando, MEI’s New Ventures division general manager, formed a bold vision for Uniseed, and Evans and Dando went on to become the inaugural CEO and Deputy CEO respectively.
In an article in Business Review Weekly on July 27, 2001 (pp.38-39, “Uniseed has been planted”), Evans said he expected to “quickly add more partners, including another university in Melbourne and universities in Queensland and New South Wales”. Serious discussions were held with two other major research organisations in the early years, but these did not translate into a new partnership at the time.

Evans also said he expected “to make about 50 investments in the first three years”. Despite the fund making 11 new investments in its first year, a reflection of the bottleneck of opportunities built up at the partner universities over time, the fund made just 24 investments over the first five years of operation to the end of 2005 – a respectful and probably realistic average of just under five per year from its two university partner catchments.

According to Evans, the early-stage venture management was contracted out (through the TTOs) to about 20 staff who worked at MEI and UniQuest. These staff also “roamed the corridors and hung out in tea rooms in Melbourne and Queensland universities, hunting for ideas and building relationships… unearthing discoveries and filtering out failures”.

Investment decisions were also effectively made by representatives of the TTOs, members of which made up the Uniseed Investment Committee. Once the investment was completed, UniQuest or MEI staff also managed the venture.

The plan was to provide seed investment of A$50,000 to A$500,000 per opportunity, with Uniseed “looking for the next round of funding, after which it would keep its equity stake in the venture, but leave management to the next group of investors”. Effectively, Uniseed’s first fund was established as a proof-of-concept fund.

Evans also planned to set up a second A$60m to A$100m follow-on fund with private and institutional capital, with no direct university involvement. The fund would make larger follow-on investments of up to A$3m into Uniseed portfolio companies. Evans subsequently resigned as CEO of Uniseed in 2002 to pursue the Follow-On Fund, and handed the reigns to Gareth Dando. However, despite working with a well-known advisory group, Evans was not able to secure the private capital for a follow-on fund.

Uniseed Fund-1 (2001-2005): Outcomes

Uniseed made 24 investments during its five years of operation from 2001 to 2005. Nearly half (11) of these investments were made in its first year of operation, followed by 3 investments in 2002 and 4 investments in 2003. There were no investments made in 2004, and 6 investments closed in 2005.

In 2005, most of the committed A$20m had been drawn down, and Fund-1 was in a negative capital position (as one would expect in an early-stage fund after just five years). Thirteen investments were still active, while 9 had failed and been written off.
However, the fund had secured one exit – Vintela (Wedgetail)’s acquisition by Quest Software for $75m in 2005.  Wedgetail Communications, a company that developed security software for enterprise systems, was formed in 2000 as a spinout from Cooperative Research Centre ­­– Distributed Systems Technology Centre at University of Queensland (UQ). Uniseed and venture firm Allen and Buckeridge (A&B) co-invested in Wedgetail in 2001, with over A$11.5m invested in the company over its life from these two funds, Microsoft and Canopy Ventures. In 2004, Wedgetail merged with Vintela, a US-based security company. In 2005, Vintela was acquired by Nasdaq-listed Quest Software, providing a positive return to shareholders. The deal was highly regarded in the venture community, winning the Australian Venture Capital Association (AVCAL)’s Best early-stage deal of 2005.

A significant outcome of the Vintela deal was that the VCs who participated in follow-on rounds received a higher return multiple of around six-times funds invested while Uniseed received a lower return as, per its investment thesis, it did not participate in the follow-on investment rounds.

Above left to right: John Kurek, investment manager for Melbourne; Peter Devine, chief executive;
Natasha Rawlings, investment manager for Sydney; Paul Butler, investment manager for Brisbane

Apart from Vintela, Fund-1 had also seeded four companies that went on to achieve various levels of success after receiving further funding from Uniseed’s next fund (Fund-2):

• Hatchtech, which ultimately gained US Food and Drug Administration (FDA) approval for its headlice treatment in July 2020;
• Spinifex, which did a record-breaking $200m deal with Novartis in 2015;
• QRxPharma, which completed a record-breaking listing on the Australian Stock Exchange in 2007, and subsequently completed phase 3 trials and submitted a new drug application (NDA) to the FDA, which was ultimately rejected; and
• Fultec, which was sold to Bourns, a leading semiconductor supplier, in 2008.

Despite the overall negative net capital position of the fund, significant other benefits to university shareholders were recognised at the time, such as the other investment capital and commercial grants secured by Uniseed companies through leverage of Uniseed’s investment (over 10-times leverage of Uniseed investment with other capital). In addition, much of this capital flowed through to university research laboratories, which attracted additional government top-up payments. In fact, the university partners had received far more in research funding than the funds they had contributed to Uniseed.

Uniseed’s investments had generated a steady and substantial flow of research income to university partners as a result of the proof-of-concept and development work undertaken by startups. This research income from investee companies was an effective return for research partners, even before considering any return from the investments, as Uniseed investees typically spent at least half of their budget on research at our partner organisations.

Apart from the research funding received, the research organisation from where the technology originated had also received equity for its original intellectual property contribution when the company was formed – typically worth more than invested by Uniseed – resulting in a write-up of the university’s intellectual property value that without the Uniseed funding would not have been realised.
Research funding also directly employed researchers in partner laboratories, generating scientific publications, presentations at conferences and new intellectual property. Ultimately, the companies developed products which impacted on society, increased engagement with industry and enhanced the reputation of the research partners.

These additional benefits were the icing on the cake in the decision of the two founding universities to continue supporting Uniseed. In addition, another top-tier Australian university (University of New South Wales; UNSW) and Western Australia’s largest non-government superannuation fund (Westscheme) had also shown a strong interest in becoming involved.

Part 2: Norming (2006-2010)

The Westscheme Superannuation Fund joined the Uniseed fund in the second half of 2005, with a A$10m commitment. Westscheme also purchased one-third of the Fund-1 portfolio from the two founding universities at book value. Later that year, UNSW joined Uniseed with a A$10m commitment. The founding universities allocated a further A$8m each on top of the A$2m unspent in Fund-1, and a A$40m second fund started in early 2006.

Westscheme’s decision to join Uniseed was based on “optionality through co-investments”. Westscheme would contribute to a quarter of Fund-2 investments and fees, but would have the option to provide additional and direct follow-on investments into later stage, de-risked Uniseed companies, effectively with very low fees on these direct investments. In this way, they would bias their overall exposure towards later stage investments and have a lower fee structure overall.

Interestingly, like Westscheme, some of the university partners in Uniseed would later also take advantage of the option to directly invest in follow-on rounds. University of Melbourne invested in Spinifex and Hatchtech, while UQ invested in Spinifex’s final round, resulting in significant additional returns to these universities.

In line with starting the second fund and the move to a professional management team, Uniseed applied for and was granted an Australian Financial Services Licence in August 2006.

Shortly after the new fund was closed, Uniseed CEO Gareth Dando left the organisation to join three other experienced venture managers as a partner in what became the technology fund manager Southern Cross Venture Partners (SXVP).  The fund completed its first close of A$130m later that year. I moved from investment director to acting CEO and was appointed as CEO later that year.

After being involved with the latter half of Fund-1, as the new CEO, I recommended a number of changes to the fund structure and operations to ensure the longer-term financial viability of Uniseed. These changes were implemented in early 2007 and moved Uniseed from being a Proof-of-Concept Fund to a Commercialisation Fund – a term not used then but widely accepted today. The main changes approved were:

1. Investment limit increased to A$2m across seed and follow-on investment rounds

The lessons of the Vintela exit had shown the need for Uniseed to participate in all rounds of an investment, as opposed to the original vision of providing A$50,000 to A$500,000 and then letting follow-on investors take the reign. Not only did this reduce overall risk as the investment was then spread across seed rounds and later de-risked rounds, but it also kept Uniseed at the table, ensuring punitive terms were not imposed on the originating university’s shares and the seed investor’s shares.

1. Dedicated management team employed to improve financial discipline

The TTO staff found balancing the needs of their employer with the management of Uniseed investees an increasing burden as investment numbers increased, and there was a desire to outsource some of these functions.  Furthermore, these staff did not have the time to perform detailed due diligence on potential investment opportunities.

In addition, investment decisions in Fund-1 had primarily been made by the TTOs who made up the majority of the cnvestment committee, which was an unavoidable conflict of interest given they were also managing the intellectual property for the university that was being considered for investment.

As a consequence, a management team was hired consisting of the CEO and three investment managers (one each in Queensland, New South Wales and Victoria) so that more extensive due diligence could be performed.  The three investment managers all came with operational domain expertise in their respective fields (biotech, engineering and ICT), which allowed more commercial rigour to be applied to the due diligence process when assessing opportunities. To cater for this, fees were no longer paid to the TTOs, resulting in an overall decrease in management fees for the fund.

3. More specialised and balanced investment committees

Due to the diversity of technologies that Uniseed saw from its partner catchments, a more focused approach to investments was needed. About half of the disclosures were biotechnology related, so a dedicated biotechnology committee and technology committee were established with one representative nominated from each of the partner research organisations along with the Uniseed management team and independent experts.

The combination of Uniseed staff, TTO staff and independent experts in focused committees provided better input into opportunities presented to the respective committees. Retention of the TTO staff on the committee was critical in maintaining a close working relationship between Uniseed and the TTO. TTO members provided valuable input and the more balanced committee structure ensured less conflict in investment decisions. Working together as part of Uniseed also allowed different TTOs to benchmark technologies and deals, ultimately leading to upskilling of the TTO staff.

The Uniseed Commercialisation Fund was the first fund of its type in Australia, and one of the first university funds in the world.  As the name suggests, it is different to a venture fund in a number of ways:

1. Usually invests before other VCs will to bridge the gap

Commercialisation funds usually provide the first investment rounds to move the technology out of the research organisation and to a stage where other more traditional investors will be interested, and then follow-on alongside these other investors. In doing so, the commercialisation fund generally retains a right to a board seat on the company.

1. Open fund structure

As part of the commercialisation fund’s mandate is to facilitate commercialisation of partner IP, the fund will continuously invest in early-stage technologies throughout the entire life of the fund. That is, the fund has a constant risk profile. This is in contrast to VC funds that usually only do new investments in the first half of the fund’s life, and then focus on exiting all investments before the end of the fund’s life. As a consequence, even though there is a defined review date (10 years in the case of Uniseed), the fund operates as an evergreen fund, acknowledging at the end of 10 years there will be a portfolio of investments. These investments that have not exited at the end of fund life become follow-on opportunities for the next fund, which should shorten time to exit and profitability for the next fund. It is anticipated that by the 10-year review date, at least the invested funds would have been returned, allowing a commitment to the next fund with the returned capital.

1. More investments made but lower exposure per investment

As a commercialisation fund’s purpose is to not only provide an investment return but also facilitate commercialisation of partner IP, and as new investments are made throughout the entire life of the fund, commercialisation funds will generally do more investments than a traditional venture fund (two to three times as many investments). The trade-off is that the amount invested into each technology by a commercialisation fund is lower. It is of interest to note that the commercialisation fund model should provide a diversification benefit due to the exposure to a wider range of technologies, which should increase the probably of financial success.

1. Unique shareholder needs

Uniseed only invests in technologies which provide benefit to the research partners who provide the investment capital. Uniseed has a contractual first look right to see all technologies arising from these partners. In the case of research partners, their return is judged by a balance of investment returns and the other benefits outlined previously (for example, leverage and research funding). Consequently, the return expectations of research organisations are unlikely to be as high as a dedicated venture capital fund investor such as a superannuation fund. Given commercialisation funds also invest at an earlier, riskier stage in the development cycle, it is logical that return expectations should be lower.

1. Technology agnostic

As part of a commercialisation funds mandate is to facilitate commercialisation of partner IP, Uniseed invests in all technology sectors. This is different to a VC that generally focuses on specific technologies or domains due to the experience of its managers (such as biotechnology, deep tech or ICT).

Uniseed Fund-2 progress and outcomes (2006-2010)

In the midst of a boom cycle, the second fund got off to a great start in its first two years, with eight new investments including Hydrexia in 2006, supported solely by a A$600,000 Uniseed investment, and BT-Imaging in 2007, which closed a A$3m co-investment round supported by Uniseed and A&B. A number of follow-on investments were also completed into companies seeded by Uniseed’s first fund.

Uniseed’s second fund provided further investment into Fund-1 investee QRxPharma, which supported a listing on the Australian Stock Exchange in 2007 at a pre-investment valuation of A$100m. At that time, the A$50m raised was the largest raising by a biotechnology company on the ASX. Due to oversubscription of the offer, Uniseed was able to sell down a small proportion of its shares and return funds invested, while still holding over 2 million shares in the listed entity.

In 2007, Fund-1 companies Colocare and Adipogen completed mergers with Continence Control Systems and Autogen Research respectively to form Continara and Verva Pharmaceuticals, and the companies closed funding rounds of A$2m and A$3.4m respectively as part of the transactions. In addition, Fultec raised $10m, Xerocoat raised $6.8m and Hydrexia raised A$4.8 million follow-on rounds.

Things continued to go well in the first half of 2008, with Spinifex closing a A$12m series C round supported by existing investors Uniseed and GBS Venture Partners, and new investor Brandon Capital ­– manager of the MRCF – also participating. In addition, three new investments were completed, including University of Melbourne’s Fibrotech, which would go on the complete a major exit transaction with Shire in 2015.

Things took a major turn for the worse with the impact of the global financial crisis (GFC) after the collapse of Lehman Brothers in September 2008. Investment funding availability dried up considerably as funds moved away from riskier alternate assets such as VC, and this impact lasted for many years. In addition, the GFC had a significant impact on Uniseed’s partner universities who relied heavily on overseas student revenue.

The GFC had a direct influence on the loss of two Uniseed companies (Continara and Xerocoat) who were unable to raise the required funding needed to take them forward, and negatively impacted on the structure of a pending exit deal for Fultec.

Designed to protect sensitive electronic circuits, Fultec Semiconductor developed the world-first transient blocking unit (TBU) technology specifically designed to protect telecommunication and data communication systems from over-voltage and over-current surges. The Fultec technology was invented by Richard Harris at UQ. Uniseed originally invested in Fultec in 2001 – being the sole investor in the technology.  Subsequently, A&B supported the series B round, with Uniseed also participating. This funding allowed the technology to develop to a stage where it attracted top-tier US venture funds. Mayfield and Comventures invested alongside A&B and Westscheme in the subsequent series C round in 2006 to support the transition of the company to Silicon Valley, and Crescendo Ventures and Uniseed joined the series D round to support development of the TBU to market, with first sales generated in 2008. Uniseed invested just over A$1.4m in Fultec, with total investment of nearly A$36m received through co-investment from other funds.

Consequently, in 2008 Fultec sold its TBU technology to Bourns, a supplier of circuit protection solutions with more than 30 years of experience. The sale provided access to Bourns’ extensive distribution channels, technical support network and strong financial base, enabling Fultec’s technology to be manufactured and distributed worldwide.  The sale was structured as an upfront payment plus an earn-out based on subsequent year sales. The GFC negatively impacted on sales and the complete value of the deal was not realised, though Bourns continue to sell the TBU today.

Continara had positioned itself for a listing on the ASX to develop its medical device to assist colostomy bag wearers in managing their waste. It had an experienced CEO and board in place including past and present executives of ASX-listed Resmed and Cochlear, and had completed its prospectus for a broker-backed listing, when the GFC effectively shut down the public market and closed the opportunity for ASX listings. Subsequent efforts to complete a back-door listing were not successful and the company eventually folded.

Xerocoat was an anti-reflective coating technology for solar panels based on the work of Prof Paul Meredith and Michael Harvey from UQ. The company had raised seed capital from Uniseed and other investors in 2007, and in 2009 the company moved to Silicon Valley with the backing of SXVP, Uniseed and cleantech fund Nth Power. The company secured initial customers and took on venture debt funding to support working capital, but the GFC led to the debt provider calling the capital, and the company ultimately shut down. With the support of SXVP, the company was restarted as Brisbane Materials some years later with a focus on reflective coating on LEDs to improve power output.

Apart from the follow-on investments into a number of companies seeded by Fund-1, 15 new investments were made by Fund-2 in the first half of its operation from 2006 to 2010, including the 2008 investment in Fibrotech Therapeutics, which went on to do a major deal with Shire in 2014. Despite Fund-2 getting off to a very good start, at the halfway point in its 10-year funding cycle, the GFC had led to a number of unexpected write downs in the portfolio, many being residual Fund-1 investments. The impact of the GFC was still being felt at the end of 2010, but the most difficult period in Uniseed’s history was about to come.

Part 3: Storming and performing (2011-2015)

In 2011, there was a major change in the Uniseed fund membership that created some challenges.  Uniseed’s superannuation fund partner Westscheme was taken over by the much larger super fund AustralianSuper (AusSuper). Westscheme had been a supportive and patient partner over the five years it had been in Uniseed and as a superannuation fund saw alternative assets such as venture capital as a strategic differentiator, taking a long-term view to this asset class. However, the GFC had ultimately created some issues for superannuation funds as publicly listed asset values (for example share prices of ASX-listed companies) dropped significantly after the GFC, while valuation of private companies based on the last round investment value remained static. This led to a significant over-weighting of alternate assets in Westscheme’s portfolio.

AusSuper took on Westscheme’s venture portfolio after the acquisition. It made sense for AusSuper to rationalise this portfolio as a number of their venture managers held shares in the same investments. Westscheme had joined Uniseed based on optionality, but

AusSuper declined to make any further direct follow-on investments into Uniseed companies.

The period from 2011 to 2014 was probably the most difficult period in Uniseed’s history. Uniseed had been operating for 10 years without a blockbuster exit, though it was arguable that a seed fund may take longer than 10 years to reach this milestone. It had great companies in its portfolio, but some shareholders were beginning to question the long-term viability of the fund, and as a consequence had a preference to limit new investment activity. This had an impact on new investments during the period, and the focus shifted towards exits and returning funds to shareholders. Uniseed only made four investments from 2011 to 2015 relative to 15 investments made in the first five years of Fund-2’s operation. As a consequence, over A$6m of the A$40m commitment to Fund-2 remained undrawn at the end of the fund’s 10-year review period in 2015.

In June 2012, a major disappointment was the FDA issuing of a complete response letter (CRL) to QRxPharma, rejecting the company’s NDA. It was highly anticipated that the lower dose morphine-oxycontin combination product, which had been shown to reduce side effects, would be approved, and that on approval the ASX share price would respond positively, allowing Uniseed to exit the investment. In response to the CRL, the share price fell from around A$2 to A$0.50. QRxPharma resubmitted an amended NDA in 2013, but on April 22, 2014, the FDA’s Anesthetic and Analgesic Drug Products Advisory Committee voted 14-0 that the morphine-oxycodone combination should not be approved for the management of moderate to severe pain, with another CRL subsequently issued. This news drove the share price down to around A$0.05, and ultimately led to delisting of the company from the ASX in 2018, given that it did not make commercial sense to do more clinical trials due to the remaining patent life. There have been number of contributing factors proposed, such as the combination product which was new territory for the FDA; the increasing political pressure on the FDA regarding opioid drugs; and the differences of opinion over what had been agreed between the FDA and the cmpany in terms of the trials and data needed. Ultimately, this led to a class action against the QRxPharma board of directors and certain advisers to the company, with a proposed settlement pending in the Federal Court of Australia.  The QRx story demonstrates the inherent risk in investing in drug development and startups in general, as well as the importance of transparent reporting by publicly listed companies.

The tide finally turned in May 2014, when Uniseed achieved its first blockbuster exit in the ninth year since Fund-2 was started. Fibrotech – led by Prof Darren Kelly from University of Melbourne’s Department of Medicine at St Vincent’s Hospital – was sold to Shire for $75m upfront and over $480m in contingent milestone payments. Fibrotech was developing a new class of drugs to prevent a massive health burden associated with fibrosis and had completed a phase 1 safety trial in healthy volunteers and patients with diabetic nephropathy (kidney disease). The upfront payment provided a significant capital return to Uniseed shareholders and on top of this, significant funds were returned to University of Melbourne for its founder equity related to the IP.

A year later, in June 2015, Uniseed achieved its second blockbuster exit, with Spinifex Pharmaceuticals sold to multinational pharmaceutical company Novartis for $200m upfront and $500m in contingent milestone payments (collectively an A$1bn deal). Significant cash was returned to Uniseed shareholders from the deal, with University of Melbourne and UQ also receiving a significant return from their direct investment and founder equity in Queensland’s case.

Spinifex was led by CEO Tom McCarthy, while the technology was invented by Prof Maree Smith, who was executive director, Centre for Integrated Preclinical Drug Development (also known under the brand name TetraQ) at UQ, with the assistance of Bruce Wise from UQ, where they identified AT2 receptor antagonists as inhibitors of neuropathic pain in preclinical animal models. Phase 2 development of Spinifex’s lead drug candidate, EMA401, achieved a clinically meaningful and statistically significant reduction in pain caused by shingles (post herpetic neuralgia) with the results published in The Lancet. Uniseed had supported the company through every round. In 2019, Prof Smith was named a Companion of the Order of Australia.

Spinifex was followed by a third blockbuster exit in September 2015, with Hatchtech’s human head lice technology sold to Dr Reddy’s Laboratories in a $200m deal which provided further cash returns to Uniseed shareholders and separately to University of Melbourne through its founding equity and direct investment in the company. Particular credit needs to go to the founder, inventor and chief technology officer, associate professor Vern Bowles at University of Melbourne, and Hatchtech’s CEO Hugh Alsop.

Also in September 2015, Uniseed investee ProGel signed a licence deal with Bega Bionutrients around the encapsulation of beta lactoferrin (trademarked as Inferrin) which protects the protein from digestive enzymes. Lactoferrin facilitates a healthy immune and digestive system. At the time, ProGel received an upfront payment and would also receive royalties on future Inferrin sales.  Earlier that year, ProGel had signed a licence agreement relating to a novel probiotic drink, which was spun out as Perkii, with initial funding secured in 2016. ProGel is based on technology developed by Prof Bhesh Bhandari and Lai Tran at UQ, who developed a process for the encapsulation of high value additives small enough to remain undetectable by the consumer (improved stability, delivery and taste masking), while still being cost effective to the manufacturer of the ingredients.

Coinciding with the 10-year anniversary of Fund-2, the mood in the innovation and investment sector changed for the better, with the Uniseed exits playing a major role in influencing this change. The Fibrotech, Spinifex and Hatchtech deals were awarded the Best Early Stage Deal of 2014, 2015 and 2016 respectively by AVCAL. These exits showed that university-generated startups could deliver significant returns and validated Australian research in this regard.

On top of the Uniseed exit deals, other Australian companies and research organisations subsequently reported large deals, such as ASX-listed nanotech drug-delivery company Starpharma’s licensing deal with AstraZeneca worth more than A$650m in September 2015; Atlassian’s IPO on Nasdaq in December 2015 – the largest float from an Australian company on US markets; and UQ’s Protagonist Therapeutics raising $90m in a Nasdaq listing in August 2016.

As a result, there was a groundswell of interest in university technology, innovation and entrepreneurship, and the mood of the Australian economy shifted positively. Entrepreneurship become fashionable, and some superannuation funds returned to support and make allocations to venture capital. Numerous large superannuation-backed venture funds were raised, with Hostplus Super being a major supporter. On top of this, new research organisation-focused funds were set up in Australia, such as CSIRO’s Main Sequence Ventures, backed initially by the federal government, and IP Group Australia, backed by UK investors. The Australian government also introduced a number of specific programs to support the innovation and investment sector.

Research organisations have also shown a greater focus on innovation, not only through support of their research staff but also by putting in place incubators, accelerators and other schemes to support students, alumni and staff, such as University of Sydney (USyd)’s Incubate, University of Melbourne’s Tram, CSIRO-On, UNSW’s 10X, UQ’s iLab, and Cicada Innovations supported by UNSW, USyd, University of Technology Sydney and Australian National University. The returns to UQ from Spinifex also helped justify the development of a fully integrated small molecule drug discovery capability based at that university – the Queensland Emory Drug Discovery Initiative (Qeddi).

Most importantly, Uniseed had survived the toughest period in its history, and on the back of the blockbuster exits, Uniseed would raise its third and largest fund, extending the membership to five of Australia’s leading research organisations.

Part 4: Expanding and consolidating (2016-2020)

In 2016, Uniseed started its third and largest commercialisation fund (Fund-3) with A$50m. Alongside the existing partners, Universities of Melbourne, UNSW and UQ, the addition of USyd and CSIRO as contributors to this new fund further validated the innovative approach and success which Uniseed had achieved in commercialising Australian research. Each partner committed A$10m over 10 years to the new fund, which operated on the same principles as Fund-2, with the investment limit increased from A$2m to A$2.5m over the life of each investment.

Members of Uniseed’s new fund are five of the top six Australian research organisations, with combined annual research expenditure of around A$4bn, representing over 40% of all research expenditure by Australian research organisations. Furthermore, over 50% of all patents and startups have been created at these five research organisations.

Since starting operations in 2016, Fund-3 has made 15 new investments and eight follow-on investments into companies seeded by Fund-2. This takes the total to 57 startups supported by Uniseed, with these companies collectively employing over 630 staff and raising over A$730m.

Modelling of Fund-2 showed that if Uniseed had the capacity to invest more funds in later stage, de-risked rounds, it would have improved returns to shareholders even further. As a consequence, in March 2017, the universities of Melbourne, New South Wales, Sydney and Queensland also committed an additional A$20m (split evenly with A$5m each over 10 years) to establish a Follow-On Fund.

The Follow-on Fund is focused on lower risk, later stage investment rounds in Uniseed investee companies, taking up pro-rata investment rights of Fund-3. It provides up to A$2m of additional capital per Fund-3 portfolio company, increasing the potential for better returns through greater access to capital for investee companies – further strengthening Uniseed’s long-term deal alignment and improving the investment to fee ratio for its members. To date, the Follow-on Fund has made investments into Certa Therapeutics, Que Oncology, Morse Micro, Perkii and Ena Therapeutics.

As a consequence of the multiple funds now under management, Uniseed is able to invest up to A$4.5m per startup directly. In addition, the successful exits have opened the door to a new pool of co-investors, with Uniseed now having a network of high-net worth individuals (HNWIs) and family offices which invest directly alongside the Uniseed funds, with Uniseed appointed as manager of many of these investments. Given Uniseed’s track record and increased funding ability, it is now able to routinely lead large seed-stage investments and attract significant funding from co-investors.

As examples of investments supported by sophisticated investors, family offices or angel groups, Uniseed has led funding rounds in Kinoxis Therapeutics (more than A$5m over two rounds in 2018 and 2019) and Perkii (A$8m raised in three rounds over 2016 to 2020). As examples of Uniseed-led investments supported by venture firms, in 2019 Uniseed led an investment in agricultural robotics technology Agerris, with two prominent venture funds (Carthona Capital and BridgeLane Group) investing A$5.4m alongside Uniseed. In 2020, Uniseed led a A$3.5m round in Ferronova supported by PAN Group and venture funds managed by Artesian Capital, as well as HNWIs.

Since inception, Uniseed has co-invested with 33 Australian and 20 international venture firms, as well as over 100 HNWIs, family offices or angel groups.

In 2018, Uniseed signed a memorandum of understanding with Atlas Advisors Australia to establish the Uniseed Co-Investment Fund. This provides companies with additional capital and reduces funding risk going forward. The Atlas relationship was initially borne out of the federal government’s Significant Investor Visa (SIV) programme which in 2015 mandated that A$500,000 of the A$5m investment application fee needed to be invested into alternate assets such as venture capital. The scheme was designed to bring investment into the Australian economy in exchange for a fast-tracked visa, and the mandatory allocation to VC was hoped to help prime innovation and the VC industry. Since then, Atlas has subsequently grown funds under management significantly, and the Uniseed relationship is less reliant on the SIV scheme. The co-investment fund was re-named Stoic VC in 2020.

Fund-3 outcomes (2016-2020)

Being around midway through its 10-year funding cycle, Fund-3 has already achieved a number of significant outcomes despite some early disappointment.

In 2016, Shire advised that they were discontinuing the Fibrotech programme following the $32bn acquisition of Baxalta by Shire in June that year, as Shire expected to carry out more than $500m in cost-cutting within the first three years after the deal closing, including optimising the combined R&D portfolio. Shire discontinued over 100 early-stage programmes and Fibrotech was a casualty of this restructure. Shire subsequently confirmed their willingness to return the compounds, including new drugs and data they had developed, to former Fibrotech shareholders and allow the development programme to continue in a new company supported by the Fibrotech shareholders, whereby the latter received a shareholding reflecting their relative equity at the time of the original Shire transaction. Following negotiations and legal contracts, Fibrotech was restarted as Certa Therapeutics in 2018, led by Darren Kelly, with A$25m raised to support phase 2 studies. Both Fund-3 and Follow-On Fund participated in the round alongside Brandon Capital-managed venture funds.

In November 2018, I was named number five in the Global University Venturing Powerlist which ranked the impact of nearly 320 university venture funds worldwide, with Uniseed being the only Australian fund in the top 20. In the same year, the Fibrotech, Spinifex and Hatchtech deals were highlighted in Nature as game changers in the Australian biotechnology industry.

Above: Peter Devine collects the GUV Powerlist certificate from editor Thierry Heles

A major disappointment came in March 2019, with Novartis discontinuing development of EMA401 after it had previously started two phase 2b clinical trials, with over 100 patients enrolled in each. As reported on clinicaltrials.gov, “the study was terminated early due to pre-clinical toxicity data that became available after start of trial”. This decision and the reasons behind it were unforeseen based on the work Spinifex had done in developing the drug. Despite this disappointing result which could not have been predicted, Spinifex was a seminal investment in the Australian biotech industry, resulting in a return of capital to the sector and influencing increased government support such as the Biomedical Translation Fund programme.

In September 2019, ProGel signed a licence with a US agricultural biotechnology company for use of its patented microencapsulation technology in seed germination to improve yields – the third licence agreement executed by the company. An upfront payment was received, with future milestone and royalty payments anticipated. With revenue from this deal and the previous Bega and Perkii deals, ProGel paid its first dividend to shareholders in 2020.

In September 2019, USyd spinout Kinoxis Therapeutics, a pre-clinical stage biotechnology company developing novel therapies for substance use disorders and other central nervous system disorders, was awarded a major grant from the US National Institutes of Health, National Institute on Drug Abuse. The award has been made under The Helping to End Addiction Longterm (also known as NIH HEAL) Initiative, with up to $4.6m of funding to support the pre-clinical and clinical development of Kinoxis’s lead compound, KNX100, for the treatment of opioid withdrawal.

Although the impact of covid-19 has made 2020 a difficult year, 2020 has also provided significant highlights, with the announcements of Smart Sparrow’s sale to
Pearson and Exonate’s deal with Janssen, as well as FDA approval of Hatchtech’s headlice treatment. Recently, Tenasitech has sold its nanotechnology for improved thermoplastics to multinational RTP, and Hydrexia is completing a merger with an overseas company.

Uniseed identified the Smart Sparrow technology developed at UNSW by PhD student and founder Dror Ben Naim, and invested A$500,000 alongside A$1.5m from OneVentures in a series A round in late 2011. Subsequently, further investment was secured from Yellow Brick Capital, Moelis & Co Australia and American College Testing, with Fund-3 participating in a number of these investment rounds. Pearson acquired Smart Sparrow’s technology in late 2019. The deal valued Smart Sparrow’s assets at $25m and provided a positive return on the investment made by Fund-3.

Exonate, based on IP developed at by Prof Jonathan Morris at UNSW and Prof David Bates at University of Nottingham in the UK, announced entering into a strategic collaboration agreement in 2020 with Janssen Pharmaceuticals, one of the Janssen Pharmaceutical Companies of Johnson & Johnson. Through the collaboration, Exonate will work with Janssen Research & Development scientists to develop an eye drop treatment for retinal vascular diseases such as wet age-related macular degeneration (AMD) and diabetic macular oedema (DMO) by using mRNA targeted therapies. Uniseed first invested in Exonate in November 2016 – one of the first investments from Fund-3 – and then participated in a follow-on round in 2018, with just over A$800,000 invested by Uniseed over both rounds. Uniseed was the only Australian investor in Exonate alongside a number of UK-based investors. The programme has also received additional support with £4.9m funding from the Wellcome Trust through their Seeding Drug Discovery Initiative.

A major highlight this year was Hatchtech receiving U.S. Food and Drug Administration (FDA) approval for its novel human head lice treatment, the topical lotion Xeglyze (formerly DeOvo), nearly 20 years after Uniseed provided the initial seed investment. To give context to the significance of this achievement: the number of drugs approved by the FDA that have been developed, or substantially developed, by Australian companies is 12, and of these, there are only five other new molecular entities such as Hatchtech’s. The approval triggers further milestone payments from acquirer Dr Reddys Laboratories, with additional future milestone payments to come.

Despite these significant highlights in 2020, covid-19 has been a major disappointment, and has impacted significantly on Uniseed’s research partners due to the loss of international student revenue.  With the companies brought forward from Fund-2 and the new investments made from Fund-3, Uniseed has an attractive portfolio of companies which need support through these difficult times. Fortunately, the portfolio is in good shape, though our companies have been impacted to varying degrees by the pandemic, examples being clinical trials postponed or put on hold, international sales (such as to China) being impacted, some research programmes at partner laboratories delayed or put on hold, delays in supply of components from overseas for products and delays in progress of commercial discussions. Somewhat ironically, a few startups have benefited from the situation. For example, there has been increased customer interest in Cardihab’s remote cardiac rehabilitation program due to reimbursement codes for telehealth being opened by the federal government and clinicians now unable to perform cardiac rehab face to face as the patient group is very vulnerable to covid.

Since 2000, more than 390 scientific journal articles have been published on research projects funded by Uniseed’s portfolio companies (over 7500 citations), and over 260 patent families have been supported by these startups. Given the strength of Uniseed’s portfolio, we are looking forward to the next five years as we believe this will generate numerous successes including a number of commercial transactions.

For example, the companies in Uniseed’s biotechnology portfolio are now at or near the clinic, having received seed investment at preclinical stage. Que Oncology is completing a phase 2 trial in breast cancer patients on tamoxifen who are experiencing hot flushes; Certa Therapeutics and OccuRx have completed phase 1 studies and are gearing up to start respective phase 2 trials in kidney and eye diseases; Ferronova started a phase 1 trial with its cancer imaging agent earlier this year; and Ena Therapeutics, Exonate and Kinoxis are preparing to start phase 1 trials in respiratory, ocular and addictive diseases.

In Uniseed’s deep tech portfolio, most companies have products on the market or are at a market-ready stage.  For example, Perkii’s sales of its probiotic drink have grown consistently every year since inception, with the product available in supermarket chains Woolworths and Coles as well as other outlets. BT-Imaging, a leader in material and device inspection solutions used to design and produce virtually every solar module in the world, has sold over 150 tools and modules. Wildlife Drones’ innovative drone radio-tracking technology is setting a new standard for wildlife research, while Forcite has created the first smart helmet for motorcycling, designed to deliver visual and audio turn by turn navigation and automatically record dashcam footage without distracting the rider, with the 1,000-unit pilot product run sold out. Aurtra is transforming power asset management through online monitoring and analytics, enabling power companies to monitor assets in real time and Agerris is revolutionising agriculture and transforming on-farm operations with robotics, AI and intelligent systems, with early customer engagement.