Mark Payton, managing director of Mercia Fund Management, talks university spin- outs and looks at successful companies from the University of Warwick.
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 Warwick is the second in a series that profiles successful university spin-outs.
Mercia Fund Management has worked with the University of Warwick for over a decade by providing investment capital and support to spin-out businesses. The University of Warwick has close but informal relationships with many private investors and institutions both regionally and nationally and has its own tech transfer company called Warwick Ventures.
The University of Warwick’s technology commercialisation arm, Warwick Ventures identifies research with the potential to generate economic and social impact and feeds these opportunities into the Mercia Fund Management deal pipeline. As well as investing in IP protection and commercial development, Mercia Fund Management has its own internal proof of concept fund which helps translate raw research into seed-stage investment propositions
We asked three Warwick University spin-out companies about their development, the benefits of working with an external venture capital fund and their top tips for companies seeking funding.
Molecular Solar was founded in December 2008. It develops organic solar cells and flexible transparent conductive electrodes.
The company was formed to exploit complementary expertise in the university from three separate research groups in Materials Science, Surface Science and Organic Chemistry. Over the last few years the University of Warwick has received multi-million pound research and equipment grants which has built up the scientific base. More recently, the company has benefitted from further grants to help exploit this research. The intellectual property in the field has been made available to the company and the company also enjoys a pipeline agreement with the University of Warwick to ensure all future IP in the field can be exploited by the company.
Warwick Ventures, the University Technology Transfer Organisation has very close links to Mercia Fund Management since they have invested in other university businesses.
Molecular Solar chose to work with Mercia Fund Management as they found they are a rare combination of early stage technology investors with an institutional disciplined commercial approach. Their people are experienced both in the technologies and markets of relevance and understand the growing pains of forming a high technology university technology business. They are truly hands-on investors which is highly welcome.
Since it was founded, Molecular Solar has shown how it is possible to radically overhaul the cost structures in the solar industry by exploiting existing manufacturing assets and has demonstrated the world beating nature of the technology by building the world’s highest voltage organic solar cell.
The university has unique materials characterisation facilities which are on hand to provide that quick insight to accelerate the product development process. The company has been founded on the back of interdisciplinary science, there is nowhere better than a university department to reap the benefits of this approach. The University of Warwick also provides an impressive range of business facilities which are important as the company grows the commercial activities alongside the technical.
Mercia Fund Management has helped in a very practical sense with business development (securing early customer interest), fundraising (leading the business plan compilation and external investor marketing), and recruitment (assembling a CEO, CTO and NEDs).
Molecular Solar advises other spin-outs that it is never too early to think about commercial products; engaging with customers helps to define that. And to not underestimate how much time fundraising will take in this climate. Having an early stage investor like Mercia Fund Management on the team is really helpful as they are full of lots of other salient advice.
Founded in 2009, Allinea provides software development tools (debugging and optimisation) for parallel processing applications such as High Performance Computing (HPC) and multi- core applications. Incidentally Allinea holds the record for debugging code simultaneously across a 220,000 processor core.
The creation of Allinea was unusual and not a traditional university venture. Mercia Fund Management had a long standing investment in another HPC company. Over its history, that company invested heavily in R&D; one of the projects was software development tools. Things came to a crunch point when the cash burn needed to fund the tools development and commercialisation exceeded the working capital capability of the original company.
So the Board was faced with two options; seek new investment or shut-down the tools project. A key institutional investor wasn’t prepared to take-on additional investment and pushed for shutting -down the project. Mercia Fund Management believed the tools business had significant potential but that it also needed a different business model and management team. It offered to fund the creation of a new entity, Allinea, with a mirrored shareholding to the parent, in which Mercia Fund Management (alongside a number of existing investors in the parent) invested the start-up capital necessary to take the business to its next logical level.
Allinea chose to work with Mercia Fund Management as the fund is a good option for hands on seed investment that is prepared to follow its investment. Without Mercia Fund Management, the strategy to hive down Allinea and build a company focused on commercialising the software development tools would not have happen.
Since Allinea was founded, the two biggest achievements have been splitting Allinea from its parent company and building a management team to take it forward. The parent company had a very different business model which didn’t fit with a software tools business; forcing Allinea to operate under the constraint of a traditional hardware systems supplier model.
Separating the two businesses allowed a new investment to be made without diluting investors who wanted to maintain their interest in the parent company, whilst also enabling Allinea to focus on executing a traditional software sales model and building a management team fit for purpose.
The management challenge was selecting the right individuals to transfer into Allinea and recruit new members to the team, taking sales of the software into a very competitive US market.
Allinea advises other spin-outs to take time to understand your customers (what are you selling to whom and how) and then make sure your business model (how you operate, price and deliver) fits their buying decision process.
Warwick Audio Technologies
Warwick Audio Technologies (WAT) was set up as an independent company in 2002. It develops flat and flexible loudspeakers for implementation into OEM products.
The company was formed as spin-out from the engineering department of Warwick University when funding was required to further develop the flexible flat speaker technology developed by Dr Duncan Billson into prototype speakers. Mercia Fund Management teamed up with Synergis to provide the initial development capital.
Since it was founded, WAT has established a commercial manufacturing process for the loudspeaker panels and created significant customer traction in the target marketplace.
The company started working with Mercia Fund Management as they found there were few options for hands on, seed investment that is prepared to follow their investment. And Mercia Fund Management were already working closely with the university technology transfer office and had been involved in backing an earlier spin out based on unrelated technology developed by Dr Billson.
Mercia Fund Management has proved to be a supportive and understanding investor that has stayed with Warwick Audio Technologies from the initial investments and assured the continued existence of the Company.
Derek Mottershead, WAT Chairman advises other spin-outs to select investors very carefully. Whilst it is easy to jump at the first offer of funding, it is important to select an investor who is capable of following their investment and who will take a long term view of the business. In the case of a technical spin-out, it is imperative to bring in a commercial team as soon as possible as there can be a significant void between technology development and market development.
Originally published on 5 September 2012 on BDaily Business Network: http://bdaily.co.uk/news/business/05-09-2012/talking-university-spin-outs-university-of-warwick