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ASTP – Site Visit Oxford14th September 2007 Oxford CatalystsDr Mairi Gibbs, Isis Innovation
Academic background • Prof Malcolm Green • Joined Department of Chemistry at Oxford in 1963 • 1975 First catalysis paper published • 1987 Fundamental advances on partial oxidation catalysis (published in Nature 1990) • Dr Tiancun Xiao • Visiting professor Beijing University of Chemical Engineering • Joined Oxford Chemistry’s Wolfson Catalysis Centre 1999 • Royal Society BP Aramco Research Fellow • First patent filed 2001
The role of technology transfer • Isis Innovation • First disclosure 15 February 2001 • Project manager • Two project managers since inception • Dr Mairi Gibbs has managed since June 2002 • Additional support from business development fellows and other project managers • Decision to file patents • Four filed to date, all costs initially met by Isis • Seed funding • Management of the spin-out process
Seed / Proof of Concept Funding • The funding gap • Research grants are for non-commercial work • Typically long lead times • Publication / commercialisation trade-off • External investors want ‘belt and braces’ • Operation of the University Challenge Seed Fund • £4m from DTI, Gatsby Foundation, Wellcome Trust, OU • Launched in 2000, used in three years • 68 projects from £2,500 to £250,000 • Four Universities proof of Concept Fund • Cambridge, Imperial, UCL, Oxford £1.9m POC fund • Awarded under Higher Education Innovation Fund 2 • Projects up to £25,000 or £50,000, no return to Fund
Seed / Proof of Concept Funding • Xiao and Green awarded £124,500 in June 2001 • Led to equity in Oxford Catalysts Ltd in Dec 2005 • Patent 2 • Significant value back to fund • Business Development Fellowship • Funded Dr Xiao 2003-2004 • Patent 3 • Without it – no Dr Xiao and no spin-out! • Proof of concept award September 2004 • £24,500 for building a prototype H2 generator • “Invaluable for showing to potential investors” • Patent 4
Where to now? • The commercial options • To license or to spin-out? That is the question. • Ultimate customers for half the technology are major petrochems • Significant investment needed, long time lines • Entrepreneurial approach needed to develop H2 reformers for fuel cells • Potential loss of value by splitting IP, but • Potential loss of focus by keeping it together • Wishes of the academic founders • Dr Xiao needed a job • Technology launched by Isis in December 2003 • Significant interest but no deals
Putting the package together • CEO selection • Numerous candidates approached, none perfect • Dr Will Barton joins project Dec 2004 • Contingent on successful fund-raising • Very good at operations, reluctant salesman • The business plan • Marketing to investors • Isis Angels Network
Investment briefing sent to ca. 100 business angels • Many venture capitalists contacted • Isis Angels Network investor presentation • Presented at Libraries House/Carbon Trust event • Presented at Venturefest • won the elevator pitch competition, the first £1000 for the company
The Proposal • Targets for the business • Capital required • £500,000 to £1.5m sought • More => too much dilution • Less => insufficient funds to get off the ground • Offer to investors: Investment of £1.3m at a valuation of £2.7m • Some background before we tell you what happened next
(i) A few words about valuation • Very difficult to put a value on a brand new company • No sales, assets, track record… • Net present value calculations need so many assumptions they are meaningless • At seed round, you can view valuation as a result of % shareholding: • The company needs £1.3M • The investors agree to provide £1.3M in exchange for 32.5% of the company shareholding • Therefore, ‘post-money’ the company is worth £1.3M/0.325= £4M • ‘Pre-money’, the value of technology, founders, management, plan and potential is £4M - £1.3M = £2.7M. • NB this is ‘fully diluted’ – take care, terminology affects % • Before investment this is not a real number, but it is still important! Post-money value£4M 32.5% 67.5%
(ii) Who has shares in this proposal? • Founding academics + University 67.5% • Investors 32.5% • Small share pool for managers – everyone contributes Post-money value£4M 32.5% 67.5%
(iii) Timing - When to raise external investment? • Valuation is a function of development • To get a good valuation you need • A good commercial plan, customers, well developed technology, a good team, a strong patent portfolio, and a vision of the pot of gold at the end of the rainbow (and luck) • Any gaps reduce valuation because they increase investor risk • Achieving all these things costs time and money • It may be possible to raise money earlier • But then the valuation will be much lower 100% Shareholding required by investors £Valuation Chart shows play-off between value and investor shareholding for a fixed £cash requirement Technical, commercial and team development
Full Amount (Exclusive) Leader but < £1M and non-exclusive Follower (£150 – 250K) East Hill Conduit Tennants CIX (Cross + Laing) OCP Isis College Fund (Quester) Seven Spires Seven Spires TTP IP2IPO (but £750K max.) East Hill OCP IP2IPO (?) IP2IPO (?) TTP Carbon Trust Nesta Valfells Other Angels Back to the story - Response from investors:(April 2005)
Unblocking the deal • Management, management, management • Corporate finance or ‘deal-doing’ skills • A flexible approach • Maintaining trust • Managing • Investors • Founders • Customers • Spin-out management • Lawyers, patent attorneys, etc
The new terms • Optimising the deal • Trading valuation v simplicity • Meeting the investors needs • The value of a good relationship • Maintaining the momentum • Managing the investors • Keeping control of the situation • Completing the spin-out • Finalising the licence • Popping the cork
Picking up the pace • Within 2 months of seed investment, decision to go for IPO • Cost of £120,000 to abort • Very favourable market conditions • Development of Board, new members • Much work in a short timeframe • The pros and cons of flotation • Rapid route to significant finance, avoids tyranny of annual investment rounds • Puts a very young company in the public eye • Further negotiations • Pressure on terms of the Isis licence
The Road Show! April 2006 • 32 presentations in 10 days • Excellent response from investors
Success! - £15m raised at a valuation of £50m • Value has drifted down, value today £49m • Investors are long term and prepared to be patient
Lessons • Patience and belief • Invest seed money carefully but don’t be afraid • Problems will arise – look flexibly for solutions • Academics must provide the driving force • Technology transfer can keep the project on track
Oxford Catalysts Timeline • 1963 Malcolm Green joins University of Oxford • 1999 Dr Tiancun Xiao joins Chemistry Department, Wolfson Catalysis Centre • 2001 Researchers approach Isis Innovation – First patent filed • University Challenge Seed Fund award £124,500 to finance Dr Xiao • 2003 Commercial discussions begun with major petro-chemical companies • 2004 June Oxford Catalysts wins Elevator Pitch - Venturefest Business Plan competition • Sept Proof of Concept award (£25k) for bench top demonstrator • December Dr Will Barton retained as potential CEO of NewCo • 2005 January Investment presentations begin • March Isis Angels Network investor presentations • May Investment syndicate forming • September Reversion to IP Group offer • November Introduction of Roy Lipski to team • December Investment of £500,000 and launch of spin-out • 2006 February Decision to float on AIM stock market • April AIM float: £15m raised at total post-money valuation of £65m • October market cap £52m, 14 employees, new offices and laboratory • 2007 July £4m new investment through new shares placing