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The Covid-19 pandemic is now responsible for more than 1.1million deaths, according to data from the Center for Systems Science and Engineering at Johns Hopkins University. There are a raft of vaccines in various stages of testing, with estimates ranging from late 2020 through mid-2021 as to when western countries will have an approved candidate for distribution to the population (Russia has already approved two vaccines for its own use).
Until a vaccine becomes available, testing – and isolating those infected – is considered the key to mitigating the spread of the virus. UK-based Attomarker – a spin-out from the University of Exeter – has been developing a handheld device that can give an indication of the presence of a disease or virus within just 7 minutes with a single pin prick of blood. That development work pre-dates Covid-19, but the firm’s leadership has been to Porton Down, where the U.K Government’s Ministry of Defence has a science laboratory, to work on a saliva-based test, which is Covid-19 specific. The firm is a portfolio company of the British Innovation Fund (BIF), a venture capital fund which invests in UK-based university spinouts.
The BIF launched in 2016 and its first investment was in Roslin Technologies, a spinout from the University of Edinburgh. Griff Williams, CIO at Milltrust Agricultural Investments, the investment manager of the British Innovation Fund, says that the university spinout ecosystem in the U.K. offers many attractive opportunities.
“It’s still an emerging industry,” he said. “There is Oxford Sciences Innovation and Cambridge Innovation Capital, but those firms work mainly with their affiliated universities. The rest of the U.K.’s Universities don’t have that kind of support.”
Milltrust has secured commitments from pension funds and university endowments for the British Innovation Fund but part of the reason that the U.K.’s university spinout ecosystem has been slow moving is because not all asset owners can access these opportunities. The way that institutional investors like pension funds allocate their capital is part of the challenge, according to Williams.
“Pension funds’ in-house team tends to be quite small and so they focus their efforts on mainstream asset classes. When it comes to venture, they rely heavily on the fund managers they allocate capital to, and if those managers aren’t investing in spinouts then they won’t get exposure to them,” he said.
The BIF likes to be the cornerstone investor when it makes a commitment because it makes more sense for them from a valuation perspective. As the investment team aren’t trained scientists, they engage outside experts at every stage of the deal process, from initial screening of the idea to see if it has a commercial future to second opinions on the actual science of the opportunity. Since the launch in 2016, the BIF has become more focused in terms of the industries that it looks for opportunities in.
“We launched as more of a generalist university spinout seeder. We took a look at opportunities in many different industries. But it became apparent that our skill lies in animal science, animal health and human health. We do have legacy exposure to some investments not directly related to those three industries, but we’ve been and will continue to focus on these main areas going forward,” said Williams.
BIF naturally has high hopes for Attomarker, particularly if it gets a rapid Covid-19 detection testing product to market. The fund also has exposure to Vaccitech, the manufacturer of the ChAdOx1 Covid-19 vaccination candidate, which AstraZeneca is supporting, through an investment in Oxford Sciences Innovation, of which Vaccitech is a portfolio company. If both of these products hit a ‘home run’, then, unlike other venture capital funds, the BIF won’t be touting an IRR-busting vintage year; the fund is open-ended, unlike the majority of venture capital funds which use a closed-ended fund structure. The genesis of the decision to use the ICAV structure is rooted in Williams’ agricultural background, where a typical closed-end fund is too short in duration. The structure also enables the BIF to avoid the need to be a forced seller.
Williams doesn’t want a broad portfolio of companies in the BIF – “every allocation in the fund needs to be a significant contributor to the performance of the fund,” he said – so he expects to do approximately 10-15 investments in the next 2-3 years. Those investments will be done in the U.K – the title of the fund gives the focus away.
“We’ve done lots of groundwork in the past few years and now deals are starting to come to us from Universities that aren’t as high profile as, say, Oxford or Cambridge. These deals have some great ideas, and the prices are lower as well. There is ample opportunity for the BIF to grow and produce strong returns in the medium to long term.”