Public/Private Fund Aims To Boost Deep Tech Investment

Public/Private Fund Aims To Boost Deep Tech Investment

Here’s the problem. Collectively speaking, deep-science startups working in fields such as AI, quantum computing and biotech are seen as a vital cornerstone of future economic prosperity but they don’t always find it easy to secure early-stage investment. That’s partly because it can take a while for science-led companies to work out use cases for the technologies they are developing and, thus, present a credible route to market for prospective investors. It’s also the case that deep science ican be daunting for generalist VCs and angels. It’s difficult to assess the merits of something you don’t fully understand, even – or perhaps especially – if the concept is being outlined by PhD researchers steeped in the subject.

Arguably, angel investors face the biggest challenge. Traditionally, angels jump in at the Seed or Pre-Seed stages, providing relatively small amounts of capital before VCs with larger pockets arrive on the scene. That’s fine if the investment is in – for example – a franchising consumer business or a chain of restaurants – but putting money into, say, a science-led university spin-out represents a tougher call. angels may not have the expertise to weigh the opportunities and risks.

That’s a problem that Doctors Jonathan Matlock and Ben Miles – respectively, PhDs in chemistry and physics – have set out to solve.

Last week, they announced the launch of an £8 million fund to support early-stage deep-science businesses, with the capital provided by a combination of angel investors and the U.K. government-owned British Business Investments as part of its Regional Angels program. The aim the fund is to focus funding on solutions to pressing scientific problems.

So how will it all work? The first thing that has to be said is that the involvement of the Regional Angels program is part of a wider government effort to drive investment. The initiative was launched in 2018 by British Business Investments (a subsidiary of the British Business Bank) to level the U.K.’s investment playing field. According to the organization’s own research, most of Britain’s business angels were based in London and the south-east of England. The plan was – and is – to work with partners to channel equity finance to other parts of the country.

The arrangement with Empirical Ventures should see more money going into science startups, with the risks spread between angels and British Business Investments.

Due Diligence On Science

As Dr Matlock explains, Empirical Ventures supplies the necessary scientific expertise. He and co-founder. Dr Ben Miles met when they were part of the scientific team working for University of Bristol spin-out, Ziylo, a company that was later acquired by healthcare group Novo Nordisk. In 2021 they set up the Science Angel Syndicate with the aim of encouraging non-expert investors to back cutting-edge science.

“We did all the due diligence,” says Dr Matlock. “And then we shared with both the angels and the founders.”

The concept evolved into Empirical Ventures, not least, Dr Matlock says, because of demand from the investors. “Members of the syndicate were saying, why don’t you just set up a fund.”

Fast forward to the present day and the partnership with the Regional Angels Fund means more money is available. The Regional Angels Fund is putting up £5 million, which can be drawn down when required. In parallel, the Empirical Ventures S/EIS fund (which takes advantage of U.K. tax breaks) brings £3 million in private investment to the table.

While British Business Investments is 100% owned by the government, it is independently managed and its objective is to secure a return on its capital. In that respect, this variation on the public/private partnership theme operates under commercial disciplines. However, it is also helping to deliver on another key government goal – namely, to support the journey of British science from lab to marketplace. “The UK is keen to be a science superpower. This is putting patient capital into the ecosystem,” says Dr Matlock.

Cross-Discipline IP

There is a broad theme to the investment strategy. “The thesis is that we will invest in businesses where there has been a lot of research across disciplines,” says Dr Matlock. “This creates IP that can be protected.”

And while it’s not a requirement for companies to be revenue generating, Matlock says founders seeking investment should have moved beyond the blue-sky research phase. “There needs to be a proof of concept. We want companies with a clear forward-looking plan.”

He cites EnsiliTech as an example of what that looks like in practice. Spun out from the University of Bath in 2022, the company was established to solve the problem of transporting and storing biological materials such as vaccines that would normally require very low temperatures. The company’s approach is to coat the materials in silica “nanoshells.” This precludes the need for refrigeration.

“Our company is based on 12 years of research,” says CEO and co-founder, Asel Sartbaeva. “During the pandemic, it became clear that our technology needed to be taken to the marketplace.”

The technology was developed by a cross-disciplinary team and initially, the use case wasn’t apparent. However, as vaccines were developed to protect against COVID-19, it became clear that refrigeration requirements would prove restrictive in some circumstances. “We decided we should focus on antibodies,” says Sartbaeva. The concept is currently being proved through work on animal vaccines.

EnsilicaTech is a Science Angel Syndicate portfolio company that has also received support from innovation agency Innovate UK, the University of Bath and others. I was keen to get Sartbaeva’s overview of the funding landscape for early-stage science businesses.

“When I started I was a newbie as a CEO. People said I should prepare for a lot of rejections,” she says. “But what we found very rapidly was there were a lot of investors who cared about what we were doing and wanted to help us with our mission. There were also investors who – like Jonathan – are scientists. We had rejections but we had an oversubscribed investment round.”

You could argue, then, that funding needn’t be difficult to secure, but Sartbae’s experience does seem to point to two elements that will ease the flow of capital. The first is the presence of expert investors who can assess the science. The second is a company mission that aligns with the concerns of investors.

Dr Matlock also sees that as important. “I was interested in impact companies. Those whose commercial success would correlate with impact,” he says.

Empirical Ventures is by no means the only fund or angel syndicate committed to investing in deep science. There are many others. Some are generalist but, nonetheless, have science startups in their portfolio. Others specialize in certain sectors, such as Cambridge Angels (cleantech, biotech) and Angels in Medcity (medtech).

Given the U.K. government’s focus on science, any initiative to increase investment should be welcomed. For its part, Empirical plans to make 10-15 investments in the next year or so.

Source link

News Science