Mercia EIS Funds

Looking at university spin-outs: University of Birmingham

Founded in a hot bed of fresh thinking and unique ideas, university spin-outs are becoming increasingly popular with both savvy investors, who can achieve a healthy return, and universities benefitting from funding channelled back into their R&D and facilities.

Working with eight Midlands’ universities, Mercia Fund Management has supported spin-outs from seed to successful exit through investment, sourcing the right people to manage the funded company, and providing strategic input. This article on the University of Birmingham is the first in a series that profile successful university spin-outs.

Mercia has worked with the University of Birmingham for 12 years by providing seed and early stage capital and support to spin-out businesses. The University has close but informal relationships with many investors both regionally and nationally and has its own tech transfer company called Alta Innovations which also provides IP protection, commercial development and an internal proof of concept fund.

We asked three University of Birmingham spin-out companies about their development, the benefits of working with an external venture capital fund and their top tips for companies seeking funding.

Native Antigen Company
Founded in 2010, The Native Antigen Company (NAC) specialises in the isolation and purification of native viral and bacterial antigens for use by both the in-vitro diagnostic (IVD) and pharmaceutical industries.

The company is already trading on a global basis with over 25 IVD firms and has recently secured a deal with one of the world’s largest pharmaceutical companies to develop antigens to support vaccine development programmes. Over 90% of NAC’s products are exported.

NAC chose to work with Mercia Fund Management due to its strong track record of helping businesses manage the challenges and opportunities within a start-up environment. As a specialist fund it offers a wealth of relevant industry knowledge and an awareness of the changing dynamics associated with a rapidly growing business. Key introductions to intermediaries and service providers have allowed the NAC team to concentrate on the continued growth. Furthermore, working with Mercia has helped to streamline many of the costs of starting a new venture.

Two key pieces of advice from Andrew Maxwell, CEO of NAC, for other spin-outs are:

“Always stay as close to your target market as you can. Don’t rely on other peoples’ market research, anyone can access that. Wherever feasible engage with your customers on a face-to-face basis and ask what you have to do to meet those unmet needs.

Keep focused and deliver what you say you will.”

PsiOxus Therapeutics
PsiOxus develops novel therapeutics for the treatment of serious diseases that result in significant associated global morbidity and mortality, with a particular focus upon cancer.

The company was founded in December 2010 following the merger of Hybrid Systems (a University of Birmingham spin-out) and Myotec Limited (an Imperial College spin-out). With £25 million of venture capital funding and £5 million of grant funding, PsiOxus has taken both Hybrid Systems and Myotec Limited technologies from academic laboratories into phase I/II clinical trials.

Alta Innovations introduced Mercia Fund Management to Hybrid Systems and the relationship continued after the foundation of PsiOxus. One of the major advantages of working with Mercia Fund Management was the ability to attract substantial follow-on investment, including grant income. Using the venture capital fund, PsiOxus was also able to build a contract service business to internally the fund the company developmentin its early days.

Key advice from CEO of PsiOxus, John Beadle, for other spin-outs is:
“Try to think like an investor and get to know what they will need to see; find investors who can add something more than money to your business; bring in experienced management and/or people with company backgrounds as well as other academics at an early stage and get as much help and guidance as you can.”

Irresistible Materials
Irresistible Materials is developing the next generation of ‘photo-resist materials’ for the semiconductor industry, based on patented fullerene technology developed at the University of Birmingham.

Following an investigation into the demand for certain fullerene materials developed at the University, David Ure founded a new company, Irresistible Materials, and together with Alta Innovations and the academic team at the University developed a business plan, set up a strategic partnership (with a raw material supplier) and a network of advisors.

Working with Alta Innovations, funding was raised (a combination of seed investment from Mercia Fund Management and grant support). Using these funds, Irresistible Materials and the University of Birmingham are working closely to develop photo resist materials for the semiconductor industry.

The company is rapidly moving from developing its technology to providing potential customers with evaluation samples. It has also attracted an excellent body of advisors, development partners and Stuart McIntosh as Executive chairman who all bring in-depth industry experience and expertise to the business.

Mercia Fund Management helps keep the company focussed on its commercial targets and is raising additional funding for the business from new investors.

David Coleman, Head of Spin-Out Portfolio at the University of Birmingham offers his tips for developing successful technology spin-outs:
“It is very tempting, particularly in technology development companies, to blindly go on developing and optimising the technology until you’ve hit your pre-established targets. However, the needs of customers and industries can change and it is important to keep track of these changes through an active and on-going dialogue with your customers. We have found this can also open up unexpected opportunities.”

First published by Bdaily Business Network on 31 July 2012