Experience overseas has proven universities can provide technological innovation that can be commercialised and have a positive impact on economies. One of the best examples of this is Oxford Sciences Innovation, a technology transfer company that was created to fund the university spinout companies.OSI is a major shareholder in Vaccitech, the Oxford University-AstraZeneca Covid-19 vaccine developer. The innovation has also catapulted the Oxford scientist, Prof Sarah Gilbert, who developed the Vaccitech vaccine into fame. This ability to monetise discoveries has been lagging in South Africa, but a University Technology Fund was launched at the beginning of this year and the UTF has managed to secure R230m to help commercialise technology and intellectual property originating from South African universities. The UTF has since its launch invested in five companies: BioCODE, Phagoflux and the Stellenbosch Nanofiber Company from Stellenbosch University, Cape Bio Pharms and Hydrogen Energy from the University of Cape Town and Hyrax Biosciences from the University of the Western Cape. One of the partners at the UTF, Wayne Stocks, told BizNews that the fund, a first in Africa, wants to awake the sleeping giant of intellectual property as an asset class in South Africa. – Linda van Tilburg
I absolutely think so. I think this has been an asset class and something which has just been a sleeping giant in South Africa
The mandate is to invest in technology, loosely termed anything from an intellectual property perspective, whether it’s biotech or digital platforms or energy or whatever comes out of the university technology space. So, our mandate is to commercialise that Loosely that means, we work with the technology transfer offices, and we apply our venture building skill, expertise and capital to develop and commercialise the tech projects and companies that come out of the universities.
Those could be started by scientists, researchers, professors that are employed at the university or through, students that are working within the faculties or with the faculties.
Because of the success of Oxford University with its research and the developing of a Covid-19 vaccine being so prominent, this seems to be a way forward for universities. Is South Africa lagging a bit in this space?
I don’t think we’re lagging from a point of research. I almost see it as a bucket. We’ve got the framework for this entire space. We’ve got the universities, all the researchers, the scientists – and we’ve got billions of rands that are going into the research. But there’s just a slow trickle, out of the bucket of anything commercial. So the amount of start-ups and the actual license commercial licenses that are being generated are just not enough.
We’ve coined the phrase ‘beneficiating our intellectual property’. We’re creating all this research, we are creating the patents, we are creating the IP and the technology, but we are not pushing it forward so it can see the light of day. I think that’s where we are lacking. That is a product of lack of funding from where the research stops and where development and commercialisation happen. The universities aren’t geared towards this. They need private, commercially focused individuals to drive the market’s focus.
You’ve had somebody from Oxford to help you set up the fund.
We have. Mr. Tom Hockaday has been an absolute blessing for us as fund managers. Over a decade, he took Oxford from a £4 million fund to almost £600 million. In that time he navigated the difficult waters of how you get people on board. How do you create trust within the faculties, because there’s a skepticism within academics that when you bring capital, that it corrupts. So, it is a journey of working with the actual technology transfer offices within universities and within academia. Tom has helped us navigate that very effectively.
So how is ownership going to work in the spinouts?
It does vary from university to university and also depends on the role of the university within the actual intellectual property that’s being created. So, in a space where let’s say, a professor creates some patent with the university and it’s a co-creation – and that patent and that technology is then exclusively licensed or seeded across to the startup – the university for the most part, we’ll get some form of equity slice. So will the inventor or scientists. Then obviously the funders who come on board will look to take some form of equity. A lot of the time, the scientists within the university that might have conceptualised and created the actual technology are not the right people to run the business. So, there you need a nice chunk of equity available for a strong management team to come in and run it.
One of the issues that some of the start-ups have raised is that South Africa is generally not intellectually property or IP friendly. Is that a valid argument?
The IP act has come in and has at least provided a lot of guidelines. The universities themselves, have come a long way. I think some of the initial policies within the universities were a little bit strict, but they have relaxed those and been working with the industry to really ensure that these things are made easier. I think within the universities we’re dealing with, I wouldn’t think that’s really true. From what we’ve seen, they’ve been very fair in the equity that they’ve taken and the agreements that they’ve put across to the startups.
They have also started to look away from just a pure royalty for technology because, investors don’t like royalties. They want the universities to be in the same boat and be aligned as owners. A lot of the universities are now starting to look at that and saying, well, we have become owners and let’s look longer term. When you are truly aligned, and it works.
So, there’s an initial investment, but are you looking at ultra-high-net worth offices or private equity funds overseas for additional funding? What are you looking for?
We’ve got some investment from obviously the SME Fund and ourselves as fund managers. Now we’ve got the likes of the Technology Innovation Agency. We’re looking for qualified investors that understand the space and the risk associated with it, but also strategic investors. We can invest up to series A and that’s post-revenue, of course. But we know that more capital is going to be needed and we know we have to exit at some point, and we know that networks are extremely important.
So as fund managers, we’re only looking to invest where we think we can add value or where we can add networks and understand the markets. But also, we’d love to get investors coming on board who potentially may have a look-see and say, ‘well, now we’ve got front row seats – not only to help develop these types of technology strategically coming out of these universities – but we’ve got first pick, when these companies come through and they fit our bigger mandates as an organisation’. So, definitely strategics, high-net worth individuals and of course, in South Africa we do have some great networks and it would be very attractive for us.
In terms of funding rounds, where are you?
We actually breached quite a bit. If we look at universities, it’s called TRL levels – technology readiness levels – we almost breached from late three to nine and three is really where it goes from research into development.
So, we breached the development side all the way up to nine, which is where our product has been tested in the market and is ready to actually be sold at mass. That’s where your later stage bridge capital in South Africa actually comes in. They’re very risk averse, and they’re only really coming on board for the most part, when things are proven, that product market fit is there and if it has some track record and revenue behind it.
We are essentially saying, we’re going to apply capital even before a company is formed. During lab testing and then slowly ramp up funding to the point where we actually going to commercialise it, i.e going into the market.
So, how much funds do you actually want to raise?
That’s a good question, but we only want to raise as much as we can obviously apply and we’ve only been really focused on the core projects and getting a tangible track record up to date. So, the first eight months of the fund, we said, we’re not going to go out and look for funding. We’re going to prove this as an asset class. We’re going to prove to others and make it tangible for them. So, we’ve invested in five opportunities to date. We’re closing a sixth very soon and we’ll have a seventh close by the end of the year as well. We have engaged with many universities and we’ve received about 80 projects from 10 universities.
We think we can deploy a whole lot of capital, but the fund is a 10-year fund. We’ve got a huge responsibility – as a first in Africa – to really prove this successful and prove this as a viable asset class. If we can raise between R350 and 500 million, we think we can certainly find a home for it. We certainly want to continue backing our winners. That’s one of the things which would love to do – have the ability to apply more to certain of our current investment portfolio actually.
What are your focus areas because everybody seems to be in health sciences at the moment?
There’s a lot in the health sciences and I think South Africa is very strong in it. I think, over the Covid period, we’ve just excelled. We’ve got investments in the biotech space, a digital platform – which is also more geared towards the medical health industry. We’ve got a medical diagnostic device technology, we’re investing in a nanotech business and we’ve currently got an energy technology business as well. We are seeing different pools of excellence in different universities as well, which is quite interesting. There’s different opportunities and problems in the universities. They have moved towards that and you have one strong professor who has made a massive impact in that area. So, we are seeing different things but certainly, I think – in the medical biotech spaces – some exciting stuff happening.
So, can we expect any rock stars like Sarah Gilbert from Oxford University to pop out of South African universities?
I absolutely think so. I think this has been an asset class and something which has just been a sleeping giant in South Africa. I mean, how can you think that you don’t apply tens of billions of rand a year with brilliant people we have in this country – and there’s institutional knowledge and incredible labs and we don’t produce something incredible. Then you just add that to what we have in the continents. Africa is growing, we’ve got such a genetic diversity on the continent. When you’re testing drugs and things like that, it makes it quite applicable. We have unique challenges and opportunities and South Africa can spearhead this. I absolutely think we can and I think we’ve got a few in our stable and a few that we talking to. So pretty exciting.
Are all the universities involved because I see the funding initially just came from UCT and from Stellenbosch?
So UCT and Stellenbosch were fundamental in setting it up. We needed some core strategic partners and there are called special limited partners – UCT and Stellenbosch – and our normal funders are just limited partners. They are committed also to invest R20 million each alongside in their own projects as well. That’s how we started.
We have a smaller a chunk of our committed capital that is available to other universities. One of our first investments was to a company out of the University of the Western Cape. We’ve now received more funding, which opens up the pool and our ability to invest in other universities.
We are looking at a whole bunch from other universities and that’s is also a strong reason why we want to increase the fund size. We can really go out and shout it from the mountains and actually start aggressively looking at a lot more opportunities stemming from even the previously disadvantaged universities – which is a major objective and mandate for us.