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updated 10:55 PM BST, Apr 23, 2015
Technology and life sciences news from the Cambridge cluster

Cambridge University plans £30m VC fund and opens door to non-uni investment

Arm Spinnaker circuitryCambridge University is drawing up plans for a major technology venture fund, capable of late-stage investment into both university and non-university inspired firms.

Tony Raven, the new CEO of the university's technology transfer company Cambridge Enterprise, wants to help bring through the next generation of Arm and Autonomys with a fund of at least £20m-£30m that can invest from the seed stage right through to VC.

Raven had previously stated that a late-stage fund from the university would be useful, helping protect angels and other early investors as well as bridge the funding gap, but there was no actual plan in place for one, nor was there any indication that non-university companies would potentially be a target like there is now.

Speaking to Cabume, Raven said the relationships between many of the university's researchers and local technology firms are so strong that the fact a company has not spun out of the university should not impede Cambridge Enterprise from offering them financial support.

"We do want to look beyond university companies," said Raven, speaking about the new fund. "There are companies out there like Arm who undertake research with Cambridge University and have good links. Autonomy too. Because of the very porous boundaries of the academic community it's very difficult to say this is a non university company."

These and many of Cambridge's largest companies such as Aveva, CSR and Domino, which have gone on to become billion dollar entities, were not necessarily spun directly out of the university, but their founder members or key staff are drenched in university training and research.

Autonomy's founder and CEO, Mike Lynch, was a Cambridge PhD, as were Steve Furber and Sophie Wilson, creators of the Acorn processor that became the Advanced RISC Machine, i.e., Arm.

It's difficult to think of any of the big hitters from the newest wave of Cambridge startups that haven't spun directly out of the university that are not linked to it in some way either, such as Richard Ord of Amantys, Robert Young at Neul, Bromium's Ian Pratt and Simon Crosby or Eben Upton and Robert Mullins at Raspberry Pi.

The strength of the link needed between the company and the university is still a subject for discussion, however: "Clearly we don't want it to be so weak that it is open to all comers with tenuous links to the university but we would want to be able to support companies like Abcam and Autonomy which clearly had their roots in the University but struggled when they first started to find investment. Where the right balance is though is still be be determined."

As well as a connection to the university, the businesses or ideas will have to be good enough says Raven: "Early stage investment is difficult to get and some companies will not get investment because not all ideas are up to scratch."

The hope is to have a decision on the most appropriate model for the fund by the middle of this year. For now he is certain it will need to have at least £20m to £30m behind it so the costs of management are not out of proportion to the investments made, and that it needs to be long term: "10 years is not enough."

The final amount will also take into account historical modelling that looks at the amount of money that would have been needed to back its companies right through to the later VC rounds.

While Raven believes there's no real escaping the dilution angels and early investors face as companies raise VC money, he says there is still an important role to play in supporting these early investors for the long term health of the investment community.

"On the angel's dilemma of preference stacks and cram down rounds, having a seat at the table does allow you to influence the funding negotiations, but to have that seat you need to have the ability to invest," said Raven. "Dilution itself is not the issue – that's just a fact of life. The issue is one of ensuring there is a fair and reasonable return for early stage investors in successful companies that will encourage them to continue investing in the early stages where the funding gap is biggest."

The aim is to have the fund up and running in 2013 and though Raven said it was too early for any concrete proposals from parties interested in backing the fund, he added that there are people "interested in engaging in conversation" with them.

"It will be a uniquely Cambridge solution to fundraising," said Raven. It may need to be – Imperial Innovations, the stock market listed tech investor that began as Imperial College's technology transfer company and has a £140m UK-wide investment fund, has the advantage of getting the first option on all Imperial College spin outs, not so Cambridge Enterprise.

"Cambridge has a lot of attributes to it that give it great strength and can look at doing things differently to how you would do it elsewhere. IP policy would not ever be done as it is at Imperial Innovations where everything has to go through them."

The move seems to have the support of Cambridge University vice chancellor, Sir Leszek Borysiewicz, who indicated at a recent Cambridge Network lecture that the university wanted to support the local SME community: "The university is looking at ways whereby we begin to raise our own funds to help try to support [SME] activity. That's ongoing work with Cambridge Enterprise to see how we can actually do that."

Raven will also hope to have put to bed any arguments about a change to IP policy as suggested by local entrepreneurs, Hermann Hauser and David Cleevely, who said if a philanthropic approach was adopted where the IP was given away only for companies associated with the university to donate one per cent of their equity further down the line, then more companies would be formed and the university would make more money.

"We have had people donate shares," said Raven. "The Hauser building is a good example of philanthropy and if you look at Stanford University, it made nothing out of Yahoo or Cisco."