‘TenU Hosts International Investment’: main takeaways
On our third event, TenU Hosts International Investment, a panel of experts debated emerging trends in international investment. In the context of the rapid digitisation of international communication brought about by the pandemic, TenU convened this event to find out about the pros and cons of global cooperation in early-stage technology investment.
The event was chaired by TenU member Paul Van Dun (Director of KU Leuven R&D), who was joined by TenU members Karin Immergluck (Executive Director, Stanford OTL) and Matt Perkins (CEO, Oxford University Innovation); by the representatives of two international venture capital firms, Ellie McGuire (Partner, Polaris Innovation Fund) and Christina Takke (Managing Partner, V-Bio Ventures), and by Lisa Shu, the Executive Director of the Newton Venture Program, an exciting new training programme that is seeking to introduce more diversity into the venture capital landscape.
Below we reproduce a few of the broad range of insights offered by the speakers on the topic.
US international investment: a win-win situation
Perkins stressed the importance of US investment to the UK and, in particular, to Oxford’s spin-outs, which received from the US over £1bn of investment last year alone. He also noted that investment from continental Europe to the UK needed to be encouraged further. According to McGuire, interest of US venture capital firms in UK and European spin-outs was based not only on the spin-outs’ research excellence but also on their better value, even after considering that valuations have been increasing over the past year.
The advantages of international investment: validation, connections and translation
A key element that venture capital firms bring to a new spin-out is knowledge of the market. So why chose an international firm over a local one? McGuire and Takke agreed that international firms offer long-term advantages: they provide knowledge of other markets and connections to international investors for further funding rounds. They also offer short term advantages: as spin-outs are growing their teams, venture capital firms can offer a wider talent pool and their investment signals international validation. There is also a more subtle advantage, as Takke pointed out: part of a firm’s job is to serve as a translator between academic inventors and industry. International investors, through working in different markets, have additional cultural sensitivity which may add an extra edge to a spin-out’s communications.
The key factor to attracting international investment: personal relationships
So how can spin-outs attract international investment? For Takke, this came down to personal relationships, so her advice to entrepreneurs was to go out and talk to as many people as possible. Agreeing with Takke, McGuire pointed out that US-based firms have long been aware that there is exceptional science outside of the US, and so there is real interest. The challenge lies in building an infrastructure to facilitate these links and this needs to come from both sides, hence the focus on personal relationships to lay the ground. Personal relationships can be between entrepreneurs and international firms but also with local firms, who might introduce them to international ones and vice versa. On whether some universities had greater traction than others, Takke and McGuire agreed that it was the strength of the business plan and the work of entrepreneurs to build those links that mattered most.
Equity received by universities for their spin-outs (again!)
This much-visited topic came up at this event again, sparked by Perkins’s comment that Oxford University Innovation had identified an unhelpful myth about the high amount of equity the University would take in all of its spin-outs. The panel went on to question not just this myth but also unhelpful data, such as that published earlier this year on the average equity received by universities in the UK. ‘At what stage?’, was Immergluck’s sharp retort. This is important, as the shareholdings of an early-stage company change rapidly at seed stage and series A round. ‘Are non-dilution provisions considered?’, was her next question. As Immergluck explained, Stanford happens to license in exchange for lower one-digit equity stakes, but with non-dilution provisions through the series A round or similar amount of investment. This is likely to be met with resistance by investors outside Silicon Valley, who argue that these provisions introduce inflexibility into the shareholding structure. In addition, as debated at the inaugural TenU Hosts event, how much equity universities receive varies depending on the relative time investment of a university in a spin-out, which in turn depends on the circumstances of each university, that of each invention and on the preference and relative experience of individual entrepreneurs. Indeed, Takke and McGuire agreed that each spin-out needed to be considered on a case-by-case basis and that the details of the financial agreement had to be considered not in isolation, but as part of a package considering the specific conditions of each party. As Shu explained, educating future investors on these details and debunking unhelpful myths about university spin-outs is one of the goals of the Newton Venture Program.
University-owned funds and entrepreneurial mindset key to increasing flow of spin-outs
To the question of what had been the single most important development in university tech transfer in securing a steady flow of spin-outs, Perkins’s answer was clear: since the foundation in 2015 of the University-linked fund, Oxford Sciences Innovation, the number of spin-outs rocketed overnight. In Addition to investment, OSI offers support to the academic community through resident entrepreneurs, which in turn has attracted entrepreneurially-minded academics to Oxford. Immergluck drew on her previous experience at the University of California at San Francisco, where she saw the number of spin-outs taking off after sustained investment in coaching and educating students, postdocs and faculty in how to build a business plan and talk to investors: instead of getting into the technical details of the research, they learned to communicate what unmet needs they would meet, what the downstream product would look like, what investment would be needed to get it to the next inflection point and so on. Once the ecosystem started to build, the pitch events, where upcoming entrepreneurs could see the confidence, passion and excitement of those coming before them, helped to build momentum.
Direct vs indirect government investment
Commenting on the latest government funds announced by the UK government (UAE-UK Sovereign Investment Partnership worth £1bn) and the EU Commission (European Innovation Council worth €10.1bn), in addition to calls by 33 European unicorn CEOs to create a EU Sovereignty Fund worth €100bn, Takke and McGuire agreed that direct government investment was likely to distort the venture capital market. This is because, as highlighted above, one of the roles of venture capital firms is to validate spin-outs. By investing directly in spin-outs without the recognised industry know-how enjoyed by the dominant players in the venture capital sector, government risked creating a notion that local start-ups were not worthy of private investment. In contrast, government investment in already existing private funds was very much welcomed and, indeed, Takke’s V-Bio Ventures, is a fortunate recipient of such investment.
The TenU Hosts event series offers opportunities for US and UK policymakers, thought leaders and leading practitioners in research commercialisation to hold conversations on topical issues. The next event, TenU Hosts Regional Opportunities, will be held in the summer, so feel free to contact us if you would like to join our mailing list.
TenU is a transatlantic collaboration formed to capture effective practices in research commercialisation and share these with UK and US governments and higher education communities, in order to increase the societal impact of research. TenU’s members are the technology transfer offices of the University of Cambridge, Columbia University, University of Edinburgh, Imperial College London, KU Leuven, University of Manchester, MIT, University of Oxford, Stanford University, and UCL.
