Conference Report 2015: Funding – beyond grants, competitions and bootstrapping

Neil Hayes RTTP, Commercial Manager, Research & Knowledge Transfer, University of Exeter, and member of PraxisUnico Advocacy Committee reports on a this session featuring speakers Brian McCaul, Director of Innovation, Queens University Belfast; Goncalo de Vasconcelos, Co-founder and CEO, SyndicateRoom and Dr Nicola Broughton, Investment Director, Mercia Technologies

The audience heard three perspectives on funding mechanisms for early stage companies. Brian McCaul was first up and gave the Technology Transfer Office’s (TTO) perspective on Equity Crowdfunding for Tech Transfer, speaking from personal experience of running 3 successful equity crowd campaigns. Brian set out to address the questions why universities should embrace crowdfunding for commercialisation and why it need not hinder later stage rounds.

Using data [Beauhurst] indicating that crowdfunding was now starting to dominate seed investment, making up approximately 30% of early market deals by quantity and suggesting that crowdfunding was already moving into venture and growth stage investments, Brian posed the question why TTOs are the laggards when entrepreneurs, Plcs and even VCs are now embracing crowdfunding. Brian went on to highlight some of the potential benefits; both investor and founder friendly, results in lower dilution, and helps balance by achieving a greater regional spread of investment. He finished with a view that crowd funding will continue to grow and migrate to later stages and it is time for TTOs to get on board.

Next up was Goncalo de Vasconcelos with a perspective on crowdfunding for IP based companies, opening his presentation with an overview of how SyndicateRoom was born from a desire to be able to invest alongside Angels on the same terms and how this led to the creation of investor led (first 25%) models for equity crowd funding. Goncalo revealed that of SyndicateRoom investments 1/3 are in life science companies and 1/4 in engineering with the majority of investments occurring in later stage £250k-£3m opportunities at late stage research or early revenue generation. Goncalo finished by quoting the impressive statistics of 39 companies funded to the tune of £25m, and 80% of deals successfully funded and 100% of invested companies still actively trading.

The final presenter was Nicola Broughton with a presentation on Mercia Technologies model for funding early stage opportunities, following the successful listing on AIM in December 2014 raising £70m. Nicola described the current portfolio of 38 companies and explained how Mercia is looking to expand its University relationships beyond its 9 current partners in the Midlands particularly in the North of England and Scotland. Explaining how deal flow comes from a variety of sources, not just University partners, Nicola described the variety of funds available for different stage companies, the “fail fast” policy Mercia operates and the support provided to their “emerging stars”. Nicola finished with an example of one of their early investments, Science Warehouse. The chair Richard Brooks then opened the session to questions from the floor. Some of the key issues discussed included:

  1. How is it possible to minimise complications of crowdfunding in later rounds?

There are 3 models - preference shares, managed investment (single shareholder acting on behalf of the crowd) and all shareholders with same rights. Each has their own mechanism for managing complexity. Goncalo stated that he had experienced no problems for the SyndicateRoom model investing alongside VC’s and it can also be a useful lever in pushing back on VC requests for preference shares.

  1. What is stopping TTOs using equity crowdfunding / why aren’t TTOs engaging?

A lack of knowledge about what is happening in the sector and much of what they have read or heard about crowdfunding tends to reinforce the negatives rather than highlight the positives. TTOs are engaging but on an ad-hoc basis looking at the deal flow and pipeline. University TTOs tend to be much more concerned about reputational issues particularly where alumni or other University supporters are involved.

  1. What is your opinion of crowdfunding early stage medical / healthcare opportunities?

This can work really well as it can have a link to personal experience and can tap into social investment motivations. It may muddy the waters between philanthropy and equity but extends the potential to get funding into projects.

  1. What about tensions between alumni development office and TTO?

There is a feeling that attitudes are changing and that equity based models can sit alongside philanthropy without cannibalising one to feed the other, but there is still a degree of protectionism particularly due to concerns over reputational risk and the consequences of one bad investment. [Chair asked the audience in how many Universities the alumni development team and TTO were under the same office – no one in the room raised their hand]

  1. Are there any technologies or models that don’t lend themselves to crowdfunding?

Anything that takes a really long time e.g. drug discovery, but even this can work if the focus is changed from financial return to personal interest. Closing remarks from the chair were to conclude that equity based crowdfunding is clearly a rapidly moving area and will continue to be a big opportunity for commercialisation and TTOs in the future.