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Universities are leading the way

23 October 2018

UK universities are world renowned and Mercia, which was has a network of 19 university partners, was recently identified as one of the most active investors in UK university spinouts* having completed 23 investments in 2017. Our network of partners receives £1.8billion in R&D funding which is actually larger than OxBridge at £1.3billion.

The University of Edinburgh, which alone has £0.5billion R&D funding per annum, is in the top 25 worldwide and is producing some ground-breaking technology. Mercia’s first EIS investment into an Edinburgh spinout was identified as Best Innovative Medtech at last month’s OBN Awards, narrowly beating another of Mercia’s university spinout, Medherant from the University of Warwick.

What is in a spinout?

A university spinout is a company that has been developed, often around IP, from the research undertaken at that university. The founders are likely to be academics, but if the company grows to scale, experienced business builders are often introduced to strengthen the board, with the academics often retaining a technical role. The university, its technology transfer office (TTO) or an investment group such as Mercia, will provide the company with start-up capital and in Mercia’s case, if the company hits the critical milestones there may be the opportunity for significant follow on funding.

The spinout process from OxBridge universities has been developed over a number of years, with some successes as shown in the table below. However, the UK regions have historically been underserved by the VC community with insufficient capital to support spinouts based outside the Golden Triangle of Oxford, Cambridge and London. For these regional Universities, world class research has generated innovative IP which is often failing to be commercialised. Mercia aims to invest wisely in the best of these regional opportunities, including the use of our EIS funds to realise latent commercial potential so often overlooked in the past. This strategy gives access to world class opportunities and good value investment for our investors.

In the UK market there have been a large number of university spinouts that have delivered significant commercial traction, and provided returns for investors. Within the Mercia EIS funds, we have invested in 22 spinout companies of which nine have received follow on funding from Mercia Technologies PLC. Most of these companies are still at an early-stage, with unrealised value (see below), but they have the potential to provide high multiple return on investment.

Table 1. Commercialisation of university intellectual property (IP), including recent large UK exits, and examples of Mercia’s portfolio.

Company

University

Exit price (year) or net asset value

Investment

Investor

Ziylo

Bristol

£623m (2018)

Angels

BioVex

UCL

$1b (2011)

$133m

Forbion Capital Partners

Astex

Cambridge

$886m (2013)

Oxford Nanopore

Oxford

£1.5b

£507m

Woodford, Touchstone

PsiOxus

Oxford

£171m

$73m

Mercia Fund Managers, Invesco, Woodford

Medherant

Warwick

£11m

£4.1m

Mercia EIS Funds, Mercia Technologies

Invizius

Edinburgh

£1.1m

Mercia EIS Funds

Mercia’s University team, headed up by Dr Nicola Broughton, works extensively with university partners and their respective TTOs and academics, but also sees a number of opportunities from other Universities in our regions; 169 opportunities from 31 Universities were reviewed during the last year. The Mercia group made 23 investments into current and new investee spinout companies during the last financial year; £15million from Mercia (EIS fund and Mercia Technologies) and £13million co-investment was brought into those businesses from a wide variety of sources, such as angels, other institutional investors and corporate investors.

Case study - Invizius

As an example of a young university spinout in the Mercia EIS Fund portfolio, Invizius, incorporated in 2017, provides a priming solution that aims to enable hemodialysis patients to live longer, feel better, and suffer fewer cardiovascular complications. It is the first spinout that we have invested in from the University of Edinburgh, and has already been recognised as one of the country’s leading medical innovations. Academic innovation is one thing, but having the skills to commercialise this opportunity is where Mercia’s help is so valuable. Over the next 6-12 months, if the company continues to progress, it is likely that future investors in Mercia EIS Funds will gain exposure to Invizius. In due course, Invizius may be considered as an investment from Mercia Technologies PLC, to support its long-term growth.

What is next?

Mercia expects to further expand its network of university partners and will continue to raise early stage capital to support the commercialisation of the IP generated from these spinouts. In this manner, there is a significant opportunity for EIS investors to help grow UK gross domestic product over the next few years.

*https://about.beauhurst.com/blog/uk-university-spinouts-investors/

** https://www.obn-awards.com/winners-2018/

*** data in the table from various resources, including www.merciatech.co.uk/portfolio, and www.crunchbase.com.

To give context to this universities blog, approximately a third of Mercia’s investment opportunities are sourced through our university partnerships, with the majority of the remaining opportunities being introduced directly to our 80-strong network of investment professionals, across our nine regional offices in the UK.

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