Jacques Darcy Financing knowledge transfer in Europe Jacques DARCY is Head of Division at the EIB / European Investment Fund,
where he has spearheaded Venture Capital and Technology Transfer
investments throughout Europe. Previously he was with Lazard
(M&A). Diplôme (Sciences po Paris), M.A. McGill, MBA INSEAD.
Investing in Knowledge Transfer
Jacques DARCYGraphene 2020 22 March 2011
« If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea… He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine receives light without darkening me.”
Thomas Jefferson
EU 2020Agenda: a vision of Europe's social market economy for the 21st centuryObjectives
To come out stronger from the crisis and turn the EU into a smart, sustainable and inclusive economy delivering high levels of employment, productivity and social
cohesionMain Areas For Action
Smart growth : developing an
economy based on knowledge and
innovation
Sustainable growth: promoting a more resource efficient, greener and more
competitive economy
Inclusive growth: fostering a high-
employment economy delivering social and territorial
cohesion Encourage private-sector to do more…
Plan for Action
Main Obstacles to Innovation
Excessive risk
Lack of financial resources
Lack of qualified human resources
Remove obstacles to Knowledge Transfer by facilitating access to adequate financial structuring, financial resources, technology risk assessmen
Knowledge Transfer
EIB Group products
Risk Capital1 CIP Resources (SME)2 RSFF (SME / MidCap)3
Entrepreneur, friends, family
Business Angels
Seed/Early Stage VC Funds
Formal VC Funds
Bank Loans and Guarantees
Seed / Start-Up Phase Emerging Growth Phase Development Phase
Facility: High Growth Innovative SME Scheme (GIF), Ecotech
Purpose: IP financing, technology transfer, seed financing, investment readiness
Target Group: VC Funds, Business Angels
EIF Product: Fund-of-Funds
CIP Guarantee schemes
Growth financing for SMEs
Formal VC Funds, CLOs
SME guarantees (loans, microcredit, equity/mezzanine, securitisation
RSFF
RDI financing
SMEs/MidCaps, Banks, PE Investors (sub-investment grade)
Loans (incl. Mezzanine), Funded Risk Sharing Facilities with Banks (Investors)
Investment Loans4
Investment Loans
RDI financing
MidCaps/Large Corporates/Public Sector Entities (investment grade)
Loans, Guarantees
Later StageCounterparts
"Innovation Union" to improve framework conditions and access to finance for research and innovation so as to ensure that innovative ideas can be turned into products and services that create growth and jobs.”
Technology Transfer (TT) can be broadly defined as “the process of converting scientific findings from research organisations into useful products by the commercial sector through mainly three main different channels:
• the creation of new companies (spin-outs)• licensing collaboration between universities, research
organisations and industry notably via research/consulting contracts
The knowledge transfer challenge
Knowledge or Technology transfer takes different forms of transforming research into concrete products and services:
Technology Transfer includes proof of concept, prototypesContract research with industryCreation of start up and spin offNew financial instruments to accelerate / facilitate Knowledge Transfer are an increasingly important area: IP markets, IP funds are two key models
All of the above are important to building a healthy, sustainable European Knowledge Transfer ecosystem
IP / Knowledge transfer interlinked
Tech Transfer dissected – a continuum
Scientificdiscovery
Sta
ges
Sta
keho
lder
s
Evaluation ofinvention forIP protection
IP protectiondecision
Marketing oftechnology
to firms
Inventiondisclosure
Universityscientist/researcher
- Universityscientist/researcher
- TTO staff
- Universityscientist/researcher
- TTO staff
- Universityscientist/researcher
- TTO staff
- Universityscientist/researcher
-TTO staff- Firms/
entrepreneur
- Universityscientist/researcher
-TTO staff- Firms/
entrepreneur
- Universityscientist/researcher
-TTO staff- Firms/
entrepreneur
Act
iviti
es
Originationphase
Concept and opportunity testingphase
Exploitation and start-upphase
• Opportunity identification• Opportunity selection
• Proof-of-concept testing• IP protection testing• Business concept testing• Selection and market
confirmation
• Internal advising• Network support• Compensation schemes• Exploitation decision
Licensingagreement
IP transferto existing firms
Spin-offdecision
Creation ofthe spin-off
Cash Flow
Maturation
Know How intensive Standalone IP
Valorisation
IP Markets
European Innovation Scoreboard (EIS 2009)
Innovation Followers
Catching-up CountriesModerate Innovators
Source: European Innovation Scoreboard (EIS) 2009
Innovation Leaders
The view from the Rector’s office
Research budget
Contract Research for
industry
Licensing Exit proceeds spin offs
• < 1% patents expected to generate € 1 million +• 1 / 20 expected to generate € 10k +• 1 license usually generates > ½ of revenues
Typical orders of magnitude of university revenues (illustrative)
/ 10 / 3 - 5 / ?
Source: TTA interviews, AUTM (212 US institutions)
US (2002): US$ 37bn US$ 3bn US$ 1.3bn4,673 licenses
?450 start-ups
Tech. transfer
Tuition revenues
Research budget
Contract Research for
industry
Licensing Exit proceeds spin offs
• < 1% patents expected to generate € 1 million +• 1 / 20 expected to generate € 10k +• 1 license usually generates > ½ of revenues
Typical orders of magnitude of university revenues (illustrative)
/ 10 / 3 - 5 / ?
Source: TTA interviews, AUTM (212 US institutions)
US (2002): US$ 37bn US$ 3bn US$ 1.3bn4,673 licenses
?450 start-ups
Tech. transfer
Tuition revenues
The view from the Rector’s office
Typical orders of magnitude of university revenues
Research budget
+..30..50% from Tech Transfer!
Tech Transfer philosophies / traditions
“Cluster model” or indirect returns, positive externalities: MIT, Cambridge The combative model : Weizmann, Imperial, OxfordThe difficult balance of corporate collaboration: the UC Berkeley problematic
Pharma shake-out
Pharma under pressure – ever increasing need for new drugs Pharma R&D productivity is decreasing: current average of 15 years and USD800m to win FDA approval – and increasing (PhRMA)Patent expiry / generic competition on the riseDrug patent expiries in the US 2008-2012 Top Ten Pharmaceutical Product Sales ($bn)
Patent expirations x 3 per year by 2010 Patent expirations will result in major loss of revenues
Source: Business Insights: The Pharmaceutical Market Outlook to 2018: Key threats and opportunities for Big Pharma (2008)
Business Monitor International: The Patent Cliff: Strategies And Tactics For Survival (March 2009)
Many free market models emerging
Licensing & Advisory
Auctions
Portfolio assertion companies
Investment companies
Strategic acquisition companies
Invention capital companies
(e.g. Thinkfire, IPvalue, IPotential)
(e.g. ICAP OT, PL-X)
(e.g. Acacia, Mosaid)
(e.g. Rembrandt IP, Altitude Capital)
(e.g. RPX, Allied Securities Trust)
(e.g. Intellectual Ventures)
• Help companies commercialise intellectual property
• Organise several auctions per year• Sellers include individuals, large
companies
• Assert individual portfolios
• Private investment companies• Finance later stage development or
litigation
• Agregate for SMEs• « Catch and release » acquisition• Licenses for investors
• Capital+expertise+business models• Build, buy + partner to develop
inventions
The IP market is evolving before our eyes
Invention consumers
Invention suppliers
Invention consumers
Invention suppliers
Efficient IP Market
CURRENT FUTURE
Learnings from EIF Tech Transfer experience
IP venture fund UK• GBP 31m fund • Signed September 2006• Fund invests 25% of all
financing rounds of IP group spinouts, originating from more than 10 UK universities
IP venture fund UK• GBP 31m fund • Signed September 2006• Fund invests 25% of all
financing rounds of IP group spinouts, originating from more than 10 UK universities
UMIP Premier Fund• GBP 32m fund• Signed April 2008• Fund, managed by MTI,
invests in university spin-outs originating from the University of Manchester
UMIP Premier Fund• GBP 32m fund• Signed April 2008• Fund, managed by MTI,
invests in university spin-outs originating from the University of Manchester
Chalmers Innovation • SEK 170 m• Signed July 2008• Investing in start-up
companies originating from Chalmers University and incubated by the Chalmers Innovation incubator in Gothenburg
Chalmers Innovation • SEK 170 m• Signed July 2008• Investing in start-up
companies originating from Chalmers University and incubated by the Chalmers Innovation incubator in Gothenburg
Leuven CD3 (Centre for Drug Design and Discovery)• EUR 8m fund• Signed Mid 2006• Financing early stage drug
development projects originating from Leuven and elsewhere in EU
Leuven CD3 (Centre for Drug Design and Discovery)• EUR 8m fund• Signed Mid 2006• Financing early stage drug
development projects originating from Leuven and elsewhere in EU
EIF Tech Transfer transactions
Imprimatur (JEREMIE: development objective)
- ongoing transaction -• EUR 20,4m• Expected Signature 2010• Seed & Start-Ups / Tech
Transfer in Latvia• Fund to be managed by the
local Imprimatur team in Riga
Imprimatur (JEREMIE: development objective)
- ongoing transaction -• EUR 20,4m• Expected Signature 2010• Seed & Start-Ups / Tech
Transfer in Latvia• Fund to be managed by the
local Imprimatur team in Riga
Back-up
Karolinska Development• EUR 26.7 m• Signed Nov 2009• Co-investment fund, investing
alongside Karolinksa Development in life science spin-outs throughout Scandinavia
Karolinska Development• EUR 26.7 m• Signed Nov 2009• Co-investment fund, investing
alongside Karolinksa Development in life science spin-outs throughout Scandinavia
Lessons learnt
This is not VCSpin-outs are not the entire story -- the importance of licensingIP management required to achieve optimal allocation across IP lifecycleLong-term partnerships with research centres: build trust, no individual entry valuations, ex ante agreements, no dilution -- Privileged access to deal flow and “Bears’hug”Increasing interest from private co-investorsBusiness development and lead-time Longer time-horizonClear funding gap
And last… no “one size fits all approach” possible
Dimension
Independent teams Involvement of University / RO University initiatives
Small universities Qualitiy of University / RO Leading research powerhouses
Desert Quality of entrepreneurial ecosystem “Bay area/Cambridge/Karolinska”
Small, non dedicated team Scope and quality of team TT/investment professionals
SME’s (spin-outs) Type of commercialisation IP assets / licensing
… … …
First concept Maturity of proposal Investment memorandum
TT operations differ widely
Illustration (optional)
European Innovation Scoreboard (EIS 2009)
Innovation Followers
Catching-up CountriesModerate Innovators
Source: European Innovation Scoreboard (EIS) 2009
Innovation Leaders
IP groupDraft-net fishing at 10 universities - 74 spin-outs in 3 years
Liquidity vs Listing
■ Co-investment fund (seed, post-seed financing
■ Critical mass reached through a network of universities
Deal flow and critical mass
Illustration (optional)
UP
CD3 PHARMA/BIOTECH COMPANIESUNIVERSITIES
CD3 (K.U.Leuven) - next generation licensing Empowering universities
Drug development process steps
CD3 portfolio•Chemical
libraries•Structural
biology•…
•Bench synthesis
•Parallel synthesis
•Early toxicology
•…
CD3 addresses a demand from both ends of the chain• from Universities: be able to offer more finished drug candidates to the industry• from the Industry: enrich their pipeline with more proven candidates
■ Partnership with university■ Managed by TTO■ Invests in drug development
projects■ …
Illustration (optional)
Target ID Target validation
ScreeningLead ID
Optimisation Pre-clinicaldevelopment
Clinical I Clinical II Clinical III
Chalmers InnovationSecondaries or how to reduce J-curve
Co-investorsEIF
Pre-Incubation Incubation Alumni companies
“Fund”•Investments at commercial terms•Investments in existing TTO start-ups and new start-ups (both university IP based spin-outs as well as start-ups attracted and grown by the incubator)
Indicative amounts
EUR ~50k EUR 200-500k EUR 1-3m
“Pre-seed funding” “Seed funding” “Post-seed funding”
Seed Investors
Federal fundsRegional funds
Other public/private fundsBAs, VCs, …
Tech Transfer process
Management team•Professionals from the incubator
•Investment professionals•Maximum autonomy
* Due Diligence analysis identified 15 high growth companies suited for future fund investments
Illustration (optional)
■ 10 year Limited Partnership. ■ Managed by VC firm: MTI partners■ GBP 32 m raised. 18 months
between first pitch to EIF and first closing in 4/2008
Manchesterthe largest UK university research budget
Manchester University / UMIP Premier Fund
Illustration (optional)
non-SMEs
final beneficiary
Scal
e
Corporate venturing & other types of large
commercial transactions
3
Extend current activities1
Licensing operations
IP funds
…
Large royalty funds
2
Licensing operationsCD3 II (Leuven)
Development focus Commercial focus
EIF Tech Transfer : where to next?
+
-
JEREMIE5
SMEs
Current TTA activitiescommercial operations with leading research institutions
University seed fundsSupport larger number of
university seed funds (development objective)
4
Scale is key
Area # potential transaction
s
Average EIF investment
EURm
Total EIF Investment
EURm
Extending EIFs current activities 15 15 225
Licensing operations 10 30 300
Corporate venturing and larger TT operations
15 35 525
University seed funds 50 7 350
Total 90 1 400
Source: model calculation based on extrapolations and estimations, timeframe for realisation 3-5 years
Market which EIF could address with adequate resources (Jeremie not included)
Knowledge Transfer Strategic Partnership
Signed in Rome - 16 June 2010Creation of joint Working Group between EIF/EIB, Caisse des Dépôts et Consignations (CDC – France), Cassa depositi et Prestiti (CDP – Italy), Centro para el Desarrollo Tecnológico e Industrial (CDTI - Spain), Innovationsbron (Sweden), KfW-Bankengruppe (Germany) & Veraventures (Finland) Aim of like-minded Partners is to:
Support the emergence of European and national Knowledge Transfer InfrastructuresAccelerate transfer of European research and technology to the marketFacilitate a well functioning Knowledge Transfer and Intellectual Property economyEncourage more open and transparent marketplaces for Intellectual PropertyExchange best practices and potentially to analyse investment opportunities jointly
Partners
MARKET MECHANISM
A EUROPEAN IP FUND
"Creating a financial market for IPR" Professor Dr. Oliver Gassmann
Institute of Technology Management (ITEM-HSG), University of St. GallenProfessor Dr. Thorsten Posselt
FrauenhoferZentrumfürMittel-und Osteuropa(MOEZ)EU-Tender No 3/PP/ENT/CIP/10/A/NO2S003
EIF awaits results by end-2011 of study on IP financial markets
