When worlds collide – CVC interest in spinouts

Against a backdrop of annual rises in overall dealflow tracked by Global University Venturing since 2016, the proportion of rounds featuring corporate investors remained static at around 30% in 2017 and 2018.
While the numeric count hit a four-year high of 226 last year from 147 in 2017, in percentage terms neither year could match 2015 or 2016, when corporates participated in about 35% of transactions.
Such fine detail risks pedantry, as the overall picture shows corporate investment in spinouts is in rude health – unsurprisingly, given the dynamic benefits both parties. Corporations not only provide an important source of growth capital, but also offer expertise and distribution opportunities in specific areas, while investors admire academia as a pool of scientific innovation and entrepreneurial talent.
CVC investors often wait until growth or later-stage rounds, eschewing less mature proposals, including many early university projects, where the strategic value of an investment may be harder to justify.
Adam Workman, head of investments and new ventures at Oxford University Innovation, the university’s tech transfer office, said: “We do not see corporate investors making significant investment at the seed stage, but we see their exposure to this level through venture capital funds such as Oxford Science Innovation (OSI), Seraphim and Foresight Williams. Where we see corporates engage is after three years, when there is less technology risk and it is more about market adoption. It is easier for a corporate to make an investment case related to a business unit at this stage.”
The data for spinouts seeking seed rounds with corporate involvement, when contrasted with equivalents for growth-stage transactions, bears out Workman’s observation. While the percentage of seed rounds for spinouts with corporate involvement was up at 22% in 2018, from 14% in 2017 and 21% in 2015, this pales against the 59% of growth-level deals with corporate backing.
CVC-backed series A transactions accounted for 43% of the total conducted last year, down substantially from 60% in 2017 but roughly on-trend with the 41% recorded four years ago, while the equivalent for series B rounds was higher at 66% against 69% and 51% in 2017 and 2015 respectively.

While it seems many CVC units are reluctant to back pre-series B rounds, the year-on-year percentage rise in CVC-backed seed deals for spinouts provides a basis for aspiration. Keno Gutierrez, an investment director for healthcare at M Ventures, the corporate venturing subsidiary of the Germany-headquartered drug developer Merck Group, noted there had been an uptick in wider early-stage VC flows.
He said: “It is absolutely a trend we have seen for the last year that is tied, in a way, to the quantitative easing variety of macroeconomic policies central banks have taken to inject liquidity into the market. That has created the environment where there is a lot of capital to invest in earlier and earlier stages. As a result, in venture capital we are seeing investor groups conventionally focused on cross-over rounds and in public equities are now increasingly investing in the earliest stages to get their foot in the door.”
Biomedicine: strike early
If more fledgling spinouts are to bank corporate venture capital, much will depend on academia’s ability to drive embryonic research, while simultaneously fostering strategic ties and investment interest from potential corporate partners.
Among the most successful schemes in this regard are university venture funds (UVFs) with corporate involvement. Few have anything approaching OSI’s $800m corporate-backed war chest, but modestly-sized UVFs can offer some clout.
Take University of Zurich (UZH)’s targeted $20m Life Sciences Fund, which secured a $3m investment in 2017 from local drug maker Novartis’s corporate venturing unit, Novartis Venture Fund (NVF), to match the university’s own commitment. By taking a prime seat in the UZH innovation ecosystem, Novartis will hope to gain greater insight and confidence from the university’s intellectual property pipeline.
The early indications are promising. In March, UZH-founded cancer therapy developer Anaveon raised direct investment from NVF in its $35.1m series A round, less than a year after being incorporated.
Aside from UVFs, several life sciences-focused “bridges” have been established with the aim of nurturing lab projects until a formal framework for commercialisation is identified.
There is critical need here. Without access to resources and capital, it will be difficult for fundamental biological discoveries to reach the capital-intensive stages of drug design, where corporate cash is more prolific.
Oxford’s response could be regarded as one of the most successful. Providing a balance of funding and expertise, its Lab282 biomedical research bridge partnership with drug discovery company Evotec has funded at least 19 projects and three follow-on investments since launch in 2016.
The research driven by Lab282 is highly diverse, ranging from the validation of novel targets for a form of severe bone marrow disorder, to discovery programs for broad-spectrum antiviral medications and badly-needed antibiotics.
If imitation really is a sincere form of flattery, then Oxford will be pleased with the international appreciation for the concept. In Canada, Evotec operates a similar “Lab” setup with multi-university commercialisation unit Mars Innovation, while in France it partnered local pharmaceutical firm Sanofi. In the US, Evotec’s Lab has joined forces with the Fred Hutchinson Cancer Research Centre and with Arix Biosciences, a health-focused investment firm.
Another approach is to integrate university research into new ventures carved off with intellectual property from corporate partners – in a sense marrying academic advances with industry expertise from the outset.
Kyoto University Innovation Capital (KU-iCap), the venture firm of Kyoto University, is one of the most active. It recently featured in GUV’s news coverage for the founding of AlphaNavi Pharma, a spinout of drug maker Sumitomo Dainippon Pharma, in January this year.
AlphaNavi’s lead candidate, DSP-2230, a highly selective voltage-dependent sodium channel blocker for neuropathic pain, was licensed from its parent company. However, Kyoto’s expertise is essential to its plans for product development. DSP-2230 will initially target a condition – episodic infantile limb pain syndrome – first identified by researchers at Kyoto and Akita universities, and AlphaNavi expects to join Koizumi Akio, the emeritus professor who led Kyoto’s half of the project, to prove the drug’s efficacy.
AlphaNavi embarks on its mission with more than $8.1m of series A funding to draw on, supplied by investors including subsidiaries of financial services firms Sumitomo Mitsui Banking Corp, Shinsei Bank and Kyoto Chuo Shinkin Bank. Their respective venturing units – SMBC Venture Capital, Shinsei Capital Partners and Chushin Venture Capital – were joined by VC firm Nippon Venture Capital.
AlphaNavi is but one of several life sciences spinouts with Kyoto University involvement, according to Koji Murota, president and chief executive of KU-iCap. Others include ventures calved from drug developers Takeda Pharmaceuticals and Daiichi Sankyo, as well as one with industrial conglomerate General Electric. KU-iCap now aims to adjust the model to accommodate its research in other fields, for example in mechanical industries, mobility, and information and communications technology.
It is further proof that CVC aversion to early-stage rounds can be bridged with an appropriate approach to industry collaboration, to the benefit of commercialising university research. Hiroyuki Ueno, investment officer at KU-iCap, said: “In my opinion, Japanese academics have strong experiences and skills to identify phenomena and features of diseases or biological mechanisms. But they would not have enough function alone to generate a medical candidate.
“On the other hand, Japanese pharmaceutical companies have high skills to discover and create a medical candidate, but they have less experience in identifying unmet medical needs, compared with US or EU-based pharmaceutical companies.
“We believe partnerships of academia with industry would generate high value in Japan. The role of Japanese university VCs will be to contribute to accelerate generation of innovation via the creation of partnerships of academia with industry.”
Apollo Therapeutics
Anne Dobrée, head of seed funds at University of Cambridge’s tech transfer office, Cambridge Enterprise, said the nature of collaboration between corporates and university tech transfer offices had changed in recent years.
“It is still very sector-specific but there is earlier involvement of corporates, especially in biotech, where we have programs such as multi-university commercialisation fund Apollo Therapeutics and investment from corporate VCs such as Merck Ventures and Pfizer Ventures in companies like cancer therapy developer Storm Therapeutics. Other sectors are perhaps not so active, or corporates come in at later investment rounds, when the spinouts have matured away from the university.”
Apollo Therapeutics – though focused on licensing deals rather than spinouts – stands out as a success in pharmaceuticals-orientated industry engagement. The $57m vehicle funds programs from three universities – Imperial College London (ICL) and University College London (UCL) and University of Cambridge – with financial and technical input from the big pharma trio of AstraZeneca, GlaxoSmithKline and Johnson & Johnson, in exchange for early access to emergent technologies, though any eventual deal will be conducted at market prices.
Each corporate committed $14.3m to the vehicle over six years, adding to $4.7m from the tech transfer office for each participating university – Cambridge Enterprise, Imperial Innovations and UCL Business.
According to Iain Thomas, head of life sciences at Cambridge Enterprise, the fund’s biggest strength lay in providing impetus, expertise and cash to nascent projects. Moreover, Thomas stressed the importance of applying spending efficiency and understanding efficiency’s underlying mechanics. He said: “Having cash alone is far from sufficient. It is not pointless – but you can waste an awful lot if you do not deploy it in the right way.
“It is not just deploying the money on the right things, but doing it with the right people. You could characterise it as efficiency, but it is really about understanding why spending in a certain way is efficient, and how easy it is to be inefficient even though you are apparently doing a good job with the money. It is a subtle notion of efficiency.”
He said the role of Apollo’s corporate backers was more nuanced than one might expect – neither side was obliged to connect Apollo programs to the corporates’ resources, as doing so might compromise the ultimate goal of progressing the best science.
Thomas added: “That is really driven by the Apollo team, but of course we sit around the table with our partners, we know them very well and sit down with them very frequently. The reason there is no obligation is related to the way we operate. Obligation gives you games and false outcomes. We are just trying to put the best stuff together with the resources we have – and it may be that a pharma company has something that would help with a project.
“But we all know we cannot maximise every project, because it all comes back to the portfolio we are running internally and externally. So it is all about bringing the right thing to the table.”
Apollo Therapeutics started with a slate of four medical research projects – two from Cambridge and one each from UCL and ICL – but has since expanded rapidly. While Thomas was unwilling to provide an official figure, there were 22 projects listed on the Apollo website at the time of writing, ranging from small molecule inhibitors for pulmonary arterial hypertension to gene therapies for neurodegenerative diseases.
Thomas said: “Projects have progressed incredibly effectively, sometimes better than expected with very good decision-making, hitting milestones, no-go decisions and licensing points very effectively and cheaply compared with industry timelines and expenses. There are no publicly announced deals at this time, but we have lots of commercial excitement, and there are going to be some really cool things happening very soon.”

Apollo is a modality-agnostic initiative, meaning the milestones en route to commercialisation differ from project to project. Small molecule programs, for instance, are inherently lengthier than gene therapy equivalents because of the period of refinement preceding small molecule discoveries.
Broadly, however, some common themes exist. Thomas said: “Partners are looking for clearly-validated biology where there is a good clinical hypothesis that says intervention in that biology is possible and has a good opportunity of serving a significant unmet medical need. ‘Significant’ in our lexicon does not necessarily mean large market. It could be some significant orphan disease or something that is genuinely challenging to treat.
“They are also looking for our ability to generate entities that would be therapeutic or, in the case of small molecules, very good leads for optimisation. They want to know the biology is sound and whether the entities we generate have the kind of profile realistically to be made into drugs.”
Intel’s collaborative pedigree
Away from medicine, semiconductor manufacturer Intel is one of the most active seed and series A investors from the IT space, having built numerous bridges to academia. Through its collaborative innovation arm, Intel Labs, the corporate awards competitive research grants on a global basis to programs including university initiatives to help shape its investment outlook.
Intel has formed a number of so-called science and technology centres, each established on a thematic basis for a term of three to five years, in conjunction with universities such as Massachusetts Institute of Technology (MIT), whose collaboration focuses on big data, and Carnegie Mellon University, where Intel collaborates in a visual cloud computing centre.
Two of Intel’s innovation units, Intel Labs and corporate venturing arm Intel Capital, work together in the Startup Pathfinding program, which gives grant-funded researchers assistance with a view to forming a startup based on their concepts. Mike Witteman, director for strategy, planning and collaboration at Intel Labs, said: “For the past decade I found many professors we funded wanted to launch a startup, but we did not really have a mechanism in place to invest at a very early stage.
“We created Startup Pathfinding Program so when funded researchers decide they want to create a startup, we go in and work with them at seed stage – before you have a priced round – and invest in those companies. We are able to get insight early, because we have some technologists working with the professors. We have been helping them for years and we have an early view into these companies.”
Intel’s recent spinout investment activity includes two businesses aligned with its strategic objectives, according to Witteman – University of California San Diego’s imaging technology developer spinout Gojoya and in University of Michigan’s system-on-a-chip design tools spinout Movellus.
Both had sought Intel’s assistance previously. Gojoya received grant funding from the corporate before securing a round of undisclosed size backed by Intel Capital earlier this year, while Movellus raised angel funding from Intel Capital prior to a $6m series A last month in which Intel Capital also participated.
Movellus’s system-on-a-chip (SOC) design tools aim to solve problems in producing the analogue circuit components of SOCs, as manufacturers look to introduce chipsets to fulfil next-generation computing applications. As these analogue components often have to be hand-crafted, producers face a time-lag by comparison to digitalised SOC processes.
Meanwhile, Gojoya has devised an imaging system that takes footage through a monocentric lens. Shaped like a marble, the lens has sensors positioned at its rear, giving it excellent optics within a 180-degree field of view, while avoiding distortion at the image’s fringes produced when using long-lens cameras because of refraction.
Witteman said: “With Gojoya there is lots of uses for this camera. Intel has a drone business, for example, and commercial drones today have a pretty large camera and lens, so using a spherical lens would result in higher-quality imagery and give you a wider field of view and lower the weight of the drone, which is a huge deal. You might even be able to get away with not having the heavy gimbal on commercial drones that takes care of moving it around.
“It also opens up all sorts of usages in higher-quality image capture for studio cameras. Intel has Intel Studios in Los Angeles where we are doing many innovative things for filmmakers. There is even talk about being able to take a camera with a lens like this, put it in the middle of, say, a wedding, and then pick out the images and scenes you really want after recording the whole thing.”
VC funds
VC funds also have a role to play, by expanding the opportunity for young spinouts to interact with corporate investors enticed to their vehicles with incentives such as a strategic fund structure.
One forthcoming example is the $113m inaugural vehicle of Finland-based independent VC firm Nordic Ninja. Focused on deep tech and backed by carmaker Honda along with electronics companies Panasonic and Omron, Nordic Ninja aims to bring innovation clusters in the Nordic and Baltic states to the attention of its Japan-based investors.
The fund will typically invest between $2m and $5m, connecting its portfolio companies to corporate resources in Asia and elsewhere. While Nordic Ninja has yet to announce its first investment, university ecosystems including that of KTH Royal Institute of Technology are known to be in the frame.
Shinichi Nikkuni, managing partner of Nordic Ninja, confirmed university-linked businesses were among those under discussion for investment. He said: “Our general idea is to help the portfolio companies to develop customers in Japan, especially among large enterprises, and via them the startup can tap not only the Japanese market, but the global market, as we have strong networks with Japanese global companies.
“Universities are simply the important source of two key resources – technology with a science basis and entrepreneurs who are young and motivated to make the world a bit more interesting. Those are very important to deep-tech investors like our VC.”
The heart of innovation
The payoff for all this activity should mean more university research is incubated until more corporate venturing investment is available. GUV’s data indicates much of this interest will cluster in the health space, particularly pharmaceuticals.
UCL-founded gene therapy developer Orchard Therapeutics landed the largest CVC-backed pharmaceutical deal in 2018 of any company spun out of university research, raising $150m in a series C transaction featuring Medison Ventures, a unit of medical marketing group Medison. The spinout’s other corporate shareholders include GlaxoSmithKline and F-Prime Capital, a branch of financial services group Fidelity International.
Health CVCs backed a number of sizeable rounds for spinouts last year – including an outsized $100m series A round for University of Pennsylvania-founded Tmunity Therapeutics, and a $90m series C for Lund and Edinburgh university-founded drug developer Galecto Biotech that featured pharmaceutical firm Bristol Myers-Squibb, Novo’s Seeds unit and M Ventures.
M Ventures also joined Novartis Venture Fund and AbbVie in a $84m series B for Masaryk University and Cancer Research UK-licensed oncology company Artios Pharma.

Gutierrez said M Ventures’ work alongside universities was set to continue, through a number of collaborations with strong potential. He said: “Given we look at very early-stage and cutting-edge science, we love speaking with universities and tech transfer offices and identifying projects where we could collaborate. At M Ventures we love company formation and are very good at it as we have done it before multiple times. We have the experience to get the company started, working with the academics, for instance, to build the development plan and identify what needs to be validated outside the academic setting and also to strengthen the team with professional management. We also like syndicating our deals with venture groups that have complementary skills.”
Strong life sciences projects are noted for their ability to pique interest beyond big pharma, and CVCs from outside the industry also made significant bets on the space during 2018. Among these was diversified technology conglomerate Alphabet’s GV subsidiary, which backed a smattering of series B through D rounds for university-linked businesses.
GV’s interest makes sense. It is one of a clutch of big non-pharmaceutical names – others include telecoms firm SoftBank and its SoftBank Vision Fund – accruing equity in drug developers to broaden the scope of its portfolio. GV’s activity included two health-orientated series C investments in August 2018 – in a $72m round for MIT-founded cell-based therapy developer SQZ Biotechnology, where it was joined by insurer Orient Life, and in a $30m transaction for life sciences analytics platform Verana Health, which extends Stanford University research.
For the latter, GV was joined by GE Ventures, the corporate venturing vehicle for industrial product maker General Electric, again illustrating the overlap potential for health and life sciences businesses seeking CVC investment.
Meanwhile, car manufacturer Volkswagen’s electric vehicle strategy has seemingly benefited from academic innovation in the form of a joint venture with Stanford-founded advanced battery spinout QuantumScape, which drew $100m in funding from Volkswagen in June 2018 and, working alongside Volkswagen, has scored an industry-first in the field by testing sample solid-state cells at automotive levels of power.
Solid-state batteries are a potential panacea for manufacturers looking to increase the range of their electric vehicles to compete with those running on petrol, and others appear to have taken note of Volkswagen’s success. As reported by GUV, US government-owned research lab Argonne National Laboratory (ANL) has agreed to supply technical resources in support of a $180m battery technology fund formed by energy companies Equinor and Exelon alongside speciality chemicals supplier Albemarle.
Rather than target spinout ventures, the vehicle – christened Volta Energy Technologies – channels ANL’s expertise into its portfolio companies, which include propositions related to the chemistry, materials and manufacturing of batteries, as well as associated technologies. Volta also claims to have access to research from all US national labs and major universities, in addition to institutions in the UK, Germany, Japan and China.
Intel is also well represented in growth-stage rounds for university-linked businesses. In 2018, Intel Capital’s activity included contributions to a series C round of undisclosed size for Hosei University audio technology spinout Trigence Semiconductor and a series B investment in Humboldt University of Berlin-founded data accelerator developer Swarm64.
Witteman said that by providing the foundations for embryonic businesses to develop, the corporate’s connected approach stimulated their progress into later rounds. University entrepreneurs working with Intel Labs had opportunities to meet potential clients through events such as the tech days at Intel Capital’s summit, the most recent of which took place last month.
He said: “We can help guide them through, and that is a valuable thing at seed-stage. It depends on the company, but many of them have a CEO who was maybe a postdoc and more on the technology path in their career. Now they have to think about bringing their product to market, how to get it manufactured and target customers. And we really try to help them through all those efforts.
“Universities are a wonderful bastion of new ideas. Universities are thinking on the edge – we get a lot of great ideas at Intel working with universities. We find we can help advise them on what works in the real world so their research is better and more targeted. And sometimes we can use the technology in our products, which the researchers love to see.
“All invention does not happen at Intel – we do not have all the great ideas in the world. So collaborating with the universities around the world helps us tap into some of the great ideas and many of them come from the best universities. Being able to tap into that talent allows Intel to have more cutting-edge technology, keeps us sharp and keeps us successful.”
Exit strategy
Corporates offer much to mature businesses, and the evidence in CVC-backed spinouts abounds, not least through a string of exits. Gutierrez said: “M Ventures has various examples of companies we have seen maturing all the way to public market, such as metabolic disease drug developer Poxel, women’s reproductive health-focused biopharmaceutical developer Obseva or more recently messenger RNA drug developer Translate Bio.”
Exits covered by GUV in recent months include plans for a targeted $100m IPO at Duke University genomic medicine spinout Precision BioSciences, whose investors include CVC vehicles for drug makers Baxter, Amgen and financial services group Fidelity, as well as the $165m acquisition of Nationwide Children’s Hospital-founded gene therapy developer Myonexus Therapeutics by its R&D partner Sarepta Therapeutics in March this year.
An IPO for the aforementioned Orchard Therapeutics generated at least $200m at a reported $1.3bn valuation last November, before medical device manufacturer Boston Scientific purchased the rest of the equity in its University of Michigan-founded portfolio company Millipede Medical for $325m the following month, taking ownership of Millipede’s mitral regurgitation treatment technology.
In IT, there were reports consumer electronics producer Samsung was on the verge of buying smartphone camera technology company Corephotonics after backing the Tel Aviv University research-orientated business’s series B and C rounds through its Samsung Ventures unit.
Standing on a funding tally of $50m, Corephotonics has assembled an array of strategic investors. In addition to Samsung, these include telecoms firms SK Telecom and CK Telecom, Western Digital Capital and SanDisk Ventures, respective corporate venturing subsidiaries of memory storage suppliers Western Digital and SanDisk, and CE Ventures, a VC fund strategically affiliated to online lending platform CreditEase.
Though not an equity spinout, US-based daily fantasy sports platform FanDuel represents success for academic-corporate collaboration in media.
Launched with the help of co-founders based at University of Edinburgh in 2011, betting firm Paddy Power Betfair bought a majority stake in the company last year, vindicating strategic backers including Time Warner Investments and Turner Sports, both part of entertainment and media group Time Warner, as well as NBC Sports Ventures and Comcast Ventures, two branches of mass media group Comcast.
Owners of unnamed National Basketball Association and National Football League teams had also backed FanDuel, together with CapitalG, a late-stage investment arm of Alphabet, and a collection of profit-led investment units.
Conclusion
It is heartening to see so many corporates formalising their links to academic ecosystems, with a view to gleaning insights and partnerships from research. With the gamut of early-stage industry-academia partnerships now in operation, the outlook for spinouts seeking corporate investment has never looked so promising. Many more university inventors and entrepreneurs will have featured on the radar of CVCs thanks to the proliferation of these initiatives.
As is often the case, much of the activity stems from the life sciences. However, attractive collaborations have emerged in other spaces, such as IT, and these are likely to multiply as the success of existing models becomes clear. With the help of its corporate partners, it seems academic tech transfer has made strides towards insulating its best research, at a time when venture capital flows are evolving.