A piece of the action

An experiment in investment - buying shares directly in a university's scientific portfolio - is under way at Imperial College London.

Susan Searle, CEO of Imperial Innovations

With its technology transfer office, the college had been helping get its own spin-off companies going for years - but without much cash flowing back to the university coffers. "We didn't make much money," says Susan Searle, CEO of the university's technology transfer arm, Imperial Innovations. "We got really diluted. The big VCs took all the value."

So the university decided to spin off the technology transfer office as a separate company, and then prepare to float it on the stock exchange. The first step was announced in June: a private placement with seven investors, which netted the university £10 million for research and other expenses, and the transfer office a further £10 million to re-invest in new spin-offs. The flotation, to the general public, will come later.

The Deal

The basics. Imperial College London sells a 29% stake in its technology transfer arm, Imperial Innovations, to a group of private investors. Raises more than £20 million: £10 million for use by the college, £10 million for reinvestment by Imperial Innovations, plus an undisclosed amount for transaction expenses.

The investors. Seven, of which three have been named publicly: Fleming Family & Partners, Nikko Principal Investors, and Partnerships UK.

The assets. The existing investment and licensing portfolio of Imperial Innovations, including 204 patent families, plus an exclusive 15-year pipeline agreement that allows the company to commercialise technology originating from Imperial's research activity.

The company. Innovations has generated cumulative revenues of £30m from spin-outs and licenses since 1997; annual revenues currently exceed £1.5 million. It has holdings in 54 spin-out companies and has completed 74 licence deals. Over 1,000 jobs have been created through its spin-out companies.

What's in the pipeline - examples of Imperial holdings.

It's a controversial move - and one never before attempted in quite this way. Critics say it pushes the commercialisation of science one step too far. It commits the fruits of much future research at Imperial to the new company and its investors. As for those investors, the decision to buy shares is straightforward diversification.

"Individually, these (start-up) situations are very risky," says David Hunter, head of Partnerships UK, which has invested £2 million in the Imperial move. "But one of the attractions here is a collection of opportunities - and a number of them might do rather well. You can actually limit your downside quite a lot."

To explore the issues further, Science|Business editor Richard L. Hudson interviewed Susan Searle and Dr. Tidu Maini, pro-rector for development and corporate affairs and a non-executive director of Imperial Innovations.

What prompted this?

Searle: We had been going on with our (technology transfer) business for years, but a dilemma was how to finance it. It wasn't really successful. We weren't making enough investment. It was a classic technology transfer model. To do all this work with a [spinout] company - and then to have to sit there and watch as our shareholding gets diluted out of sight?.And then with the change in administration [the arrival of former GlaxoSmithKline CEO Sir Richard Sykes as rector[, we wanted to push the idea of formin g companies more aggressively.

But why float the technology transfer office? There are other ways to raise money.

Maini: There are many different models. Some universities have [externally managed] investment funds. Then it's the people in the fund who make the money, but not the college. In the US, it's not a significant problem, partly because there are lots of VCs around [to fund start-ups independently]. For us, it's about the shape of the [growth] curve. We wanted to make a step change, rather than have gradual growth.

Searle: And it's not just about money. With this plan, a discipline comes into the [technology transfer] company. This is now a real company with external investors. The objective is to make a lot of money out of it. We have recruited more investment professionals - from Nomura, Close Brothers. We have a share scheme. All 30 in the team can earn shares in the business - of course, we don't get the shares until we get over a hurdle rate [of investment return].

But what are the benefits to the university?

Maini: The university gets more money, and it gets control over its own destiny. Also, it's attracting good staff. They see they can get first-class support [for technology transfer[. The company also will attract a lot of students for the university. It helps the (Tanaka) business school. We get great, young, bright people. It allows us to be different, to say: 'If you come to Imperial you will begin to work on real companies,' - comparable to MIT [Sloan School of Management[].

Searle: There is a real lack of early-stage funding in the UK. We've got to do something to get our start-up companies moving quicker. We always find it difficult in the UK and Europe - the VCs are farther away [in the US. This is a long-term, sustainable model. Building value in technology, in an integrated way in one (technology tranasfer) company, is better than picking them [spin-offs] off one by one.

Is this good or bad for companies that regularly do contract research at Imperial?

Maini: It's both. A company like GSK likes dealing with us. The fact that we know about intellectual property, as professionals, is a major plus. Big companies like to work with a university that has a clear idea, that can make a decision. Where it may be a bad thing is if a company wants to pick up something cheap, on its own.