Technology Transfer Fund

Armilar Venture Partners is raising a seed fund, to invest in tech-based ventures spun-off from universities and research institutions. It will be one of the largest European funds of its kind, with its main focus in Portugal, but open to invest in other European ventures.

In its Q1–2015 newsletter ES Ventures announced it was raising a new Technology Transfer Fund. Due to the events described elsewhere in this number of our newsletter, those plans had to be put on hold for a while, until we were able to complete the creation of Armilar Venture Partners (AVP) which embodies the full independence of this management team. Now, with that process behind us, we believe that the relevance of such a fund is even greater than it was at the time, as the startup ecosystem has continued to evolve very favourably, the tech transfer offices of the institutions that provide a deal flow for such a fund have continued to develop, and still the investment in companies deeply rooted in technologies developed in the academia has remained underserved. The original backers of this proposed fund have corresponded to this belief and continued to support us throughout this period — we are humbled to have had that privilege -, and as such, AVP is reviving this project as the first fund to be raised under its new identity. What follows is a recovery of the article originally posted in our 2015 newsletter, with the appropriate adaptations.

Why a Technology Transfer seed fund ?

AVP is best known for its early-stage funds II and III (i.e. funds designed to invest typically in companies that are still in their infancy, but who already have a product to take to market). But historically, seed-stage opportunities (i.e. businesses at their birth, at a time that a team is being put together to prepare a product or service for market launch) have represented more than half of AVP’s Portuguese investment opportunities (or deal flow, as we call it), of which nearly 40% were sourced from university ecosystems.

Encouraged by this observation, in early 2012 AVP set up ISTART-I, a small seed fund, created with the support of Instituto Superior Técnico (a leading Portuguese engineering school, based in Lisbon), to invest in technology-based companies created by teachers, researchers or students from Portuguese universities and research institutions. With only €3M of committed capital, ISTART-I was a key experiment to test the assumption that a Technology Transfer seed fund was a viable and potentially profitable initiative.

Success will be measured in terms of the fund’s return to its investors, and it’s still too early to tell the outcome of ISTART-I in that respect. But from the point of view of deal flow size and quality, ISTART-I results are very encouraging: the fund invested in a total of eight companies that originated from several different Portuguese academic and applied research institutions, with promising technologies from disparate disciplines (computer sciences, biotech, materials, industrial processes) and with disparate industry applications (software development, healthcare, animal health, industrial textiles, Internet-of-Things, sports gear), led by brilliant entrepreneurial teams. The progress of these companies from inception until today is nothing short of amazing.

Elsewhere in Europe, we see a matured Venture Capital industry, with record levels of investment (particularly at the startup and later stages), capable of generating large successful startups and of attracting foreign investment. According to Invest Europe, out of €3.8Bn invested in European companies in 2015, €313M came from non-European investors, namely from much experienced US investors — which was a rarity only a few years ago. Europe may still be under-capitalized in VC when compared to the US, but it is not inexperienced any longer. This is playing an important role in fostering the birth of new businesses based on state-of-the-art technology, and in developing the individual companies that get created locally. We are confident that the number and quality of technology transfer opportunities will continue to increase over time. The mind-set of both young and older researchers has changed to accept entrepreneurship as a valid professional option (something that was inconceivable not too long ago). The institutions themselves have that as a goal — their curricula now incorporates entrepreneurial courses and their Technology Transfer offices are now professional structures that foster entrepreneurship, educate on what it means to be an entrepreneur, and support the entrepreneurial projects to create university spin-offs. Society at large contributes to making information about entrepreneurship abundantly available, and the whole ecosystem has bourgeoned and blossomed with professionalised incubators and accelerator programmes, many social initiatives with full media coverage, and, of course, a range of investors.

The Technology Transfer Fund

The TTF is a European technology-based seed-stage venture fund, with a strong focus in Portugal, which will leverage relationships that AVP has forged with top research institutions to invest in companies that offer the most attractive business potential, with the capacity to provide financial and management support to the best projects through their development stages.

The fund’s investments shall directly lead to the commercialisation of research output.

The fund’s geographical scope will be the European Union, with 70% of the investment to be deployed in Portuguese companies. The industry scope is aligned with AVP’s historical practice, encompassing technologies in the spaces of CleanTech, ICT, and Healthcare & Well-being.

As an important characteristic, the fund will have the ability and the capacity to do follow-on investments on the best performing seed companies of the portfolio, after they have gone through their seed-stage development. This feature not only provides entrepreneurs with the comfort that — provided performance is solid — its investors can continue to support their venture, but is also an important means to protect the investors’ interests, preventing unwanted dilution and providing additional exposure in the best-performing assets.

The fund will have a minimum size of €30M of committed capital for its first closing, to occur in the first half of 2017, and will target some larger amount for its final closing, one year later. It has a strong backing of the European Investment Fund, who, after a thorough due diligence not only of AVP but also of the Portuguese ecosystem, was invaluable in lending its expertise, specifically in Technology Transfer funds, to help design this unique fund. The fund will also have a symbolic participation from AVP, and from partner institutions such as the main Portuguese universities, signalling the importance of the fund and their strong commitment to its success. The remaining capital will be raised from market-oriented investors.

We believe that the fund will play an important role in fostering technology transfer from academia to the economy, through creating and supporting companies promoted by the institutions’ students, teachers and researchers. It will create a strong symbiotic relationship with the partner institutions:

(1) they are a key source of qualified deal flow for the fund, with the responsibility to promote entrepreneurial initiatives, identify potential projects and help them prepare for investment, and they can also contribute with their ability to provide deep technical expertise;

(2) for them, the fund will help with the promotion of entrepreneurship within the institutions, will provide guidance to all of the candidate projects that it analyses, and, most importantly, will be a key source of funding, guidance and management expertise to fully develop the best projects, ultimately leading to the valorisation of the Universities’ IP assets (hence, potentially, providing a source of revenue).

We are very confident that this unique fund will find excellent business projects among the best research being conducted in the best research institutions — in fact, we are already working with them, building a very promising pipeline of candidate projects. We feel privileged to count with the support of our investors and our partners in this new venture — particularly the partner institutions that are at the origin of these promising opportunities — and we’re looking forward to start investing!