Cambridge forms 'club' for seed investing
In a move to help local start-ups, the University of Cambridge has obtained pledges from a group of venture capitalists to provide more than £500,000 in early-stage funding through a new investment club, Cambridge Venture Partners.
The initiative will help two or three university spin-offs a year get seed funding that they might otherwise miss, according to Bill Matthews, director of the Cambridge University Challenge Fund, a government-backed funding body. The VCs pledge to match early-stage funding in startups selected by the Challenge Fund. The funds involved are 3i Group, Amadeus Capital Partners, Avlar BioVentures, IDG Ventures, Porton Capital and TTP Ventures.
For the VCs, the Cambridge initiative appears to have been an offer they couldn't refuse.
The funds involved don't normally bother with startups so small and young; but they do depend on the university's good will for some of their bigger, late-stage investments. Once in the new club, any of the funds that don't carry through and invest "without a jolly good reason are likely to be struck off," said Mr. Matthews. One fund manager confirmed that the university leaned on the funds to participate - but added that the funds do expect to profit from the arrangement, nevertheless.
The Cambridge initiative is the latest in a series of efforts in Britain to boost seed funding for university spin-offs. In June, the London Development Authority (www.lda.gov.uk) and the European Union announced the creation of a €22.5 million fund for technology spin-offs and start-ups in the London area. And Imperial Innovations, the technology-transfer arm of Imperial College London (www.imperial.ac.uk), recently raised more than £20 million for itself and the university through a private placement - part of the proceeds of which will go towards seed funding of its own spin-off companies.
Still, these European efforts lag far behind the wealth of seed funding commonly available to US university startups.
The links between US venture capitalists and universities are famous: one need only drive through California's Silicon Valley and Massachusetts' Route 128 corridor to see the results of seeding science and technology startups. At Massachusetts Institute of Technology, for instance, the school's Technology Licensing Office signed about 20 per cent of its 78 licences with start-up companies in fiscal 2005. And it actively introduces start-ups to venture capitalists and other investors.
Take MicroCHIPS Inc, Bedford, Mass., which makes microchips out of silicon or polymers for medical and consumer applications. Company co-founder John Santini was a student at MIT when he helped devise the technology, which was spun out of MIT; the company received backing from Polaris Venture Partners and others. And the MIT $50K Entrepreneurship Competition gives students an opportunity to present business plans to a panel of judges, including venture capitalists, and win money to help commercialise their ideas. Past winners include Akamai Technologies Inc, Cambridge, Mass.
And it's not just the top US universities that are actively commercialising science and technology. At some, the students are taking the initiative. The University of Utah Fund, for example, launched a $5-million venture capital fund targeted at seed investing and advised by students. It includes $1 million from Silicon Valley financier Tim Draper. The first investment was $100,000 in a Silicon Valley medical device start-up called BaroSense Inc, based in Menlo Park. So far, there are at least eight of these types of funds across the US run by students, including the University of Maryland's $25 million New Markets Growth Fund and the University of Michigan's $3.5 million Wolverine Venture Fund.
Under the Cambridge initiative, the university's Challenge Fund can pledge up to £250,000 in a single startup - and then the VCs would collectively match the investment, doubling the total capital available. The due diligence and valuation is handled by the Challenge Fund; and the VCs agree in principle to follow the Fund's lead. Matthews said the Challenge Fund has identified the first startup to receive financing under the scheme, and has negotiated the valuation with the company founders. He said discussions about the company, which he declined to identify, have begun with the VCs and will take a few months to complete.
Clearly, not all universities would have the bargaining power to force VCs into such an arrangement. Cambridge, Matthews says, "is a rather clubby place. Everybody knows everybody else. You meet people over dinners and over drinks parties on a regular basis." But he adds: "They wouldn't join it unless they felt there was a decent chance it would work."
