Last month saw the official launch of the British Innovation Fund, an evergreen vehicle focused on the commercialisation of UK university innovation, sub-advised by Future Planet Capital and Milltrust Group. Nick Greenwood, Chair of BIF's Investment Committee and Pension Fund Manager of its seed investor, sat down with FP to explain why the Royal County of Berkshire Pension Fund sees serious investment potential in British research...and how BIF plans to exploit it.
" The development of BIF was really the result of several different forces that came together at the right moment.
At Berkshire, we recently conducted a broader overhaul of our private equity portfolio, seeking to improve performance and diversification. It has now been redesigned to focus on three core themes, one of which is technology. We did a great deal of research around that area and considered a range of investment possibilities in the U.S., Singapore, South East Asia and elsewhere. Yet when we presented it to the pension fund's Investment Working Group, they came back with the question: why are we not looking at the UK? We're British, so why are we not looking to support British technology?
In other words our councillors - first gave us the impetus to examine opportunities in the local market more closely.
It is true that as soon as people begin speaking about technology they immediately gravitate towards Silicon Valley. Yet if we were to invest there we would be one of three or four thousand LPs, with no particular edge, and frankly we'd be unlikely to see the best opportunities. It's also a very expensive market. Yes the British sector also has its challenges. Access is quite limited but the valuations are much more attractive in the UK than they would be in Silicon Valley. The investment industry around university research, however, is less well developed - the market is dominated by small VC funds and angel investors. We had done one UK venture capital investment but I was not keen on the idea of making a whole series of little £3 - 4 million allocations.
The more we explored it, the more obvious it became that the UK university sector represents a massive un-tapped opportunity. The Global Innovation Index (globalinnovationindex.org) ranks Britain third in the world, ahead of the U.S. at number four. There are a handful of companies like Cambridge Innovation Capital and Oxford Sciences Innovation which have proven very successful, and BIF has actually invested in OSI's recent funding round, but many of the country's leading universities don't have well developed patented IP commercialisation capabilities. In fact, nearly 20 out of the 23 'Russell Group' universities do not even have a tech transfer office. That's the size of the potential here.
Around this time, Milltrust - a firm which we already worked with on agricultural investments - approached us regarding a possible opportunity linked to a UK university. Then, we heard about the possibility of accessing two other UK university-related entities thanks to Future Planet. Rather than conducting due diligence on three separate private equity investments and investing in them independently, we speculated that bringing all such stakes into a single fund could prove to be a more efficient and scaleable model.
A collaboration was initiated and the British Innovation Fund was born.
The concept is that BIF will invest in IP companies - such as Oxford Sciences Innovation - which themselves hold stakes in a range of underlying firms. Then, as those underlying start-ups develop and spin out, we may provide additional capital for their further funding rounds and indeed BIF has already made one such commitment. Initially, the majority of investments will be in the IP companies but in five years' time I'd envisage that more than half of the BIF will be invested directly in those spin-outs.
The BIF is structured as an ICAV. We could have considered a traditional limited partnership with a finite life but, personally, I believe the evergreen structure is a better fit for this type of investment than the venture capital model. A standard VC fund has a fixed lifespan, forcing inefficient exits and liquidation of stakes in companies that are still being developed. VC opportunities can take longer than ten or twelve years to develop! An ICAV structure gives us the opportunity to nurture investments appropriately.
It is my hope that the BIF will be a conduit to bring long-term pension fund capital together with UK universities. It is certainly new territory; I'm not aware of other UK local authority schemes that are active in this sector. For us, this £15m investment is a very meaningful stake. We're a £1.9 billion pension fund so this investment represent a 0.8% allocation. It is an opportunity we genuinely believe in. "