Inside the unicorn factory
PrivateEquity Wire article | by James Williams
An in-depth look at how Cambridge Innovation Capital is leveraging its position within the University of Cambridge’s ecosystem to seek out disruptive innovators in technology and life science.
For anyone curious, the collective noun for a unicorn is a ‘Blessing’. Although I tend to prefer its alternative: a ‘Glory’. As you will know, the term unicorn is used when a private technology company reaches or exceeds a valuation of USD1 billion. For Cambridge Innovation Capital, a leading European VC manager with domain expertise in technology and life sciences, the ultimate goal is to back and nurture the best companies in these two verticals within the Cambridge ecosystem, and build a portfolio of ‘glorious’ assets.
Ambition and innovation go hand in hand. Which makes being based in Cambridge, UK, one of the world’s leading centres of excellence for science and technology, eminently logical for CIC as it looks to push forward with its investment programme over the coming years.
Andrew Williamson (pictured), Managing Partner at CIC, observes that a large number of businesses are spinning out of the University, and typically have easy access to the first round of seed funding from angel investors. “However, when they get to 18, 24 months old, they have their first product (and customers) and are looking for their first round of growth capital – or institutional capital – there is a dearth of investors in this ecosystem, and more broadly across Europe, willing to invest.”
For many investors, making a Series A round in these two verticals can be challenging.
You’ve got to assess all the usual risks a VC investment would have, such as markets, finance, team and execution but in addition, you’ve then got to diligence the science and engineering platforms on which these companies are based. CIC was set up to be a preferred Series A investor for the Cambridge ecosystem and to have the science and engineering domain expertise to do that kind of detailed diligence
continues Willamson, an alumnus of the university, where he graduated with an MA and PhD in Physics.
Bringing the ‘Bay VC mindset to Cambridge
Since its inception in 2013, CIC has invested in numerous IP-rich technology and life science companies operating in fields as diverse as surgical robotics, flexible electronics, microbiome science, genomic diagnosis and AI decision-making software.
Before joining CIC, Williamson spent ten years in venture investing in the US, at Physic Ventures in San Francisco and True North Venture Partners in Chicago. He ‘gets’ the US mindset of VC investing and his experience there has helped inform his investment philosophy at CIC.
“This is not an asset allocation business,” he says. “There is more information asymmetry in VC. It’s more about being close to opportunities, building relationships with entrepreneurs, being hands-on with the businesses you invest in and trying to add as much as value as you can…that’s very much the Silicon Valley VC culture.
“We are building something very similar to that here in Cambridge. One of the key reasons why we only invest in the Cambridge ecosystem is because we want close proximity to the firms we work with, to brainstorm with entrepreneurs and to not have to jump on a plane.”
CIC tries to encourage the same ‘chutzpah’ one would ordinarily associate with US entrepreneurs, as it seeks to build businesses of the same scale as those coming out of more traditional ecosystems like the Bay area.
A key element to achieving this is by structuring CIC’s team in such a way that scientists and engineers want to work with them.
“It’s important for us to have a conversation using the same language they use, and in particular, if you can frame the discussion with a commercial lens then that’s a very compelling offering,” says Michael Antsey, Partner at CIC, with a specific focus on life science investments.
“Cambridge has historically lacked institutional funds that really understand the business aspect of science; I think that’s where CIC shines and is able to differentiate itself.”
One might best define CIC’s investment team as one that combines deep technical and sector expertise with global investment experience. This helps determine the merits of each business innovation that comes through the pipeline, not just in terms of how well it stacks up in Cambridge, but what its true, global potential is.
Williamson confirms that the main common denominator running through the portfolio is a fundamental science or engineering innovation, backed by intellectual property and patents. CIC does not invest in businesses that are purely differentiated by their business model, or their brand.
A second commonality refers back to the earlier point; that each business has a chance to scale into a large global entity.
There are lots of cases where you might have really elegant science that creates a beautiful solution to a problem but is too niche (and never likely to achieve global scale). We look for world-class science that can disrupt big businesses in large global markets. We’re looking for management teams and business models that can take that foundational technology and scale it in a capital efficient way
Fortunately, when it comes to investing in businesses wishing to make an impact by developing cutting edge solutions in areas like medical science, Cambridge is about as fertile an environment as one could hope to find.
One of CIC’s life science portfolio companies, Congenica, has developed groundbreaking genomic analysis, while Bicycle Therapeutics, a clinical-stage biopharmaceutical company, is developing a unique class of medicines, referred to as “Bicycles®”, in the fight against cancer.
Indeed, Bicycle is illustrative of the kind of successful exit CIC looks for when backing companies with global ambitions.
“Bicycle was a company set up in Cambridge that span out from the Laboratory of Molecular Biology, which has the reputation of being an engine for creating Nobel Prize winners,” says Antsey. “It was founded by Sir Greg Winter, who won the Nobel Prize in Chemistry in 2018. This is the third company he has founded and he sits on our advisory panel. He felt we could be a valuable investor for Bicycle, and this illustrates the value of having a rich network.
“We’ve taken a company that was early stage, pre-clinical, and really still establishing a proof of concept, through multiple fund raises, each of which we have participated in. As part of the company’s longer-term growth plan, we decided to list it on the Nasdaq, which increased its profile and provided a sustainable source of financing.
“Fast forward 18 months and if you look at Bicycle today it has four clinical programmes and a very rich pipeline of assets coming through, as well as a number of partnerships with pharmaceutical companies. It has been transformed from an early stage company to an established company; one that is on the world stage and has the potential to be a very large business.
“We are trying to build companies with a heritage in Cambridge but have a global vision.”
CIC still remains a shareholder in the business.
Go with the DeltaFlow
On the deep tech side of the portfolio, one of CIC’s companies – River Lane – was also founded by a university academic, Steve Brierley; someone whom Williamson first met while Brierley was working in the Department of Applied Mathematics and Theoretical Physics at Cambridge. His research involved developing algorithms to run on quantum computers; something that Williamson worked on for his PhD.
At its core, River Lane is developing software to enable quantum computers to address applications such as quantum simulation and optimisation.
As Williamson explains: “River Lane’s algorithms are designed to do what is called quantum simulations: this is simulating the properties of materials (anything from a semi-conductor material or a new small molecule for a drug) by using algorithms, and using a quantum computer to predict what those properties might be. We invested at an early stage when they had a proof of concept and the algorithms were already running. We backed them to build out the team and to start to scale this technology.
“In the last couple of years, River Lane has rapidly grown to become perhaps the leading quantum computing software company in Europe. River Lane has developed both an operating system called DeltaFlow, which is the Windows OS of quantum computers, and the applications that run on it.”
Deltaflow is now running on the majority of quantum computers in the UK, and have already demonstrated their applications on those computers. The firm has just raised a USD20 million Series A funding round to expand into the US and Europe. The lead investor was Draper Esprit, a European technology VC investor, and supported by existing investors, Amadeus Capital Partners, and the University of Cambridge, as well as CIC.
Robert Tansley is a Partner at CIC, who says that one of the differentiators for CIC is the fact that it has both a deep tech and life science interest.
“What that allows us to do is explore the intersection between the two, and where they overlap,” comments Tansley. “That might include aspects of quantum computing that Andrew discussed above, as it relates to the drug discovery process, and the applications of AI to drug development.
“I think moving forward we will see that intersection grow.
“We are seeing more and more AI-driven drug discovery companies both in the US and the UK. I think we will see an increased amount of AI deployment in small pockets, where it will make a big difference, and evolve into more pockets. Genomics, which Cambridge is particularly strong at, relies on huge amounts of data, which could benefit from quantum computing applications and advances.”
As a preferred investor for the University of Cambridge, CIC is able to constantly meet with entrepreneurs within the ecosystem. To date, this has enabled CIC to invest over GBP300 million in more than 30 companies.
Proximity is a big enabler too. CIC’s offices sit within one of the numerous science parks and innovation campuses scattered across Cambridge.
Williamson and the team can look out of their window and see the Departments of Physics, Computer Science and Medical Physics. The team also spends a lot of its time at the Cambridge Biomedical Campus, which is where AstraZeneka is headquartered.
This helps CIC to be front of mind, and the first investor of choice, for a lot of entrepreneurs and innovators spinning out of the university.
One of its key relationships is with Cambridge Enterprise; the University of Cambridge’s commercialization team.
Williamson provides the following insight: “The university is one of the stakeholders that was instrumental in creating CIC. Our founding chairman, Edward Benthall was Chairman of Cambridge Enterprise, the University of Cambridge’s commercialisation arm, between 2010 and 2014, and when I talked earlier about the need for an investor like CIC in the Cambridge ecosystem, he was the one who saw the need to create CIC.
“So the university has been there since CIC’s inception and was the largest investor in our first fund; both from the university’s balance sheet, and through the Cambridge University Endowment Fund.”
This relationship with the university is memorialised in a series of collaboration agreements.
“These agreements give us the right to invest in all of the University’s spin-outs, and provide us with a lot of information,” explains Tansley.
“Each week, we meet to discuss deal flow, and early stage ideas coming out of the academic community which might result in a spin-out company. These agreements allow us to act as the follow-on investor, from the university. Approximately 30 to 40 per cent of our deal flow comes from the university. Such is the quality of that deal flow that it currently represents 50 per cent of our portfolio.”
To bridge the gap between translational research and commercialisation, CIC has set up two accelerator programmes – one for life sciences, one for technology – to further ensure it remains front and centre, and the partner of choice, for Cambridge’s myriad entrepreneurs.
“One is called Start Codon for life sciences, which sits in Cambridge Biomedical Campus. And the other is Deep Tech Labs,” says Antsey. “By accelerator, what I mean is a resource providing three things: 1) seed capital, 2) dedicated expertise and mentorship, and 3) a physical home. These early stage companies need desk and lab space.”
Two cohorts have gone through the Start Codon accelerator programme, to date, each of which typically comprises four to five companies, and CIC is currently preparing to do its third cohort.
Williamson confirms that “Deep Tech Labs launched at the start of 2021 and we have five AI companies in our first cohort, which have come to Cambridge from across the UK to be part of the accelerator and tap into all of the resources and expertise we provide. This is further enhancing the pool of investment opportunities for CIC.”
With its deep domain expertise in technology and life sciences, and its commitment to identifying and scaling up the most exciting innovative companies within the Cambridge ecosystem, CIC appears as well placed as one could be to seek out tomorrow’s potential unicorns.
“We think we have the right model based on the types of companies we are investing in, at the stage we are investing in. Deal flow matches well to our capabilities but we are always looking to do more of it, and the two accelerators are a good illustration of this.
“Some of the companies we first invested in are now quite large with global operations – so we want to expand our capabilities, not only to identify these early-stage opportunities but also how we support them through their growth lifecycle,” concludes Williamson.