BioWorld International Correspondent
LONDON - The technology management company Biofusion plc is to set up a "side fund" worth £10 million (US$17.5 million) with NPI Ventures Ltd., the technology investment arm of Japan’s third largest bank, for investing in Biofusion start-ups.
To seal the partnership, NPI will make an equity investment of £2 million in new Biofusion shares, giving it 7.4 percent of the enlarged share capital.
While the £10 million fund will be dedicated to investments in Biofusion companies, NPI will not be obliged to invest in any particular one.
"It’s not our money," David Baynes, CEO of Biofusion, told BioWorld International. "Basically, NPI is saying, We think you are a good bet, and we want to be in a special position to invest in your companies.’ The £2 million equity investment is to show they are making a commitment to us, marking that they are committed to our strategy."
Baynes expects that it will take significantly less time - around 1 to 2 months - to raise funding from NPI. In addition, having a linked fund will make it easier to attract other venture capitalists to early funding rounds. "VCs like to hunt in packs; they prefer to know that other people are in there," he said.
At present, Biofusion has a single exclusive deal with Sheffield University to commercialize its life sciences research. Baynes said the NPI partnership will raise Biofusion’s profile and enhance its prospects of signing agreements with other UK universities and research establishments.
The agreement allows for the size of the fund to increase if new agreements are reached.
Biofusion will invest an initial £200,000 in seed funding in the companies it sets up. Then, and for the next round only, NPI will have first rights to co-invest on a 50:50 basis with Biofusion.
Baynes is clear that NPI is unlikely to want to invest in all its portfolio companies. "That won’t be a problem. I don’t expect them to invest in everything."
In effect, that establishes a new model for the early stage funding of biotech start-ups where there is a significant funding gap. Following the dotcom bust, VCs have been concentrating on nurturing existing investee companies, and there has been a general shift to larger, later-stage investments.
"It is slightly unusual. We are doing part of the job of filling the funding gap with our seed investments, but we can’t do it all alone. Not that many players participate at such an early stage, and NPI is the only fund of its size getting involved with commercializing university research," Baynes said.
In addition to the Biofusion deal, NPI has an agreement to invest in technology from Imperial College London, and has put money into 12 of the college’s start-ups to date.