Public-private funds aim to promote investment in deep tech

Here's the problem. Collectively, deep science startups operating in areas such as AI, quantum computing, and biotechnology are seen as a critical foundation for future economic prosperity, but securing early-stage investment is It's not always easy. Part of the reason is that it can take time for science-driven companies to figure out use cases for the technologies they are developing and offer prospective investors a reliable route to market. It's also true that deep science can be daunting for generalist heir VCs and angels. It's hard to appreciate the merits of something you don't fully understand, even or perhaps especially when it's been outlined by a doctoral researcher familiar with the concept.

Angel investors perhaps face the biggest challenge. Traditionally, angels come in at the seed or pre-seed stage, providing relatively small amounts of funding before VCs with larger funds arrive on the scene. Investing in franchised consumer businesses or restaurant chains is fine, but investing in things like science-driven university spinouts is more demanding. Angels may not have the expertise to weigh opportunities and risks.

This is the problem that Dr. Jonathan Matlock and Dr. Ben Miles, who have PhDs in chemistry and physics, respectively, set out to solve.

Last week, the company announced the launch of an £8m fund to support early-stage deep science businesses. Funding was provided by a combination of angel investors and the UK government-owned British Business Investments as part of the Regional Angel Programme. The purpose of this fund is to focus funds on solutions to pressing scientific problems.

So how does it work? The first thing to say is that participating in a regional angel program is part of a wider government effort to encourage investment. The initiative was launched in 2018 by British Business Investments (a subsidiary of British Business Bank) to level the investment playing field in the UK. According to the group's own research, most of the UK's business angels are based in London and the south-east of England. The plan was and is to work with partners to channel equity financing to other parts of the country.

The deal with Empirical Ventures will spread the risk between angels and British Business Investments, allowing more money to flow into science startups.

Scientific due diligence

As Dr. Matlock explains, Empirical Ventures provides the necessary scientific expertise. He is a co-founder. Dr. Ben Miles met Novo as part of a scientific team working for Zylo, a University of Bristol spin-out company that was later acquired by Nordisk. In 2021, they founded the Science Angel Syndicate, with the aim of encouraging non-expert investors to support cutting-edge science.

“We did all our due diligence,” says Dr. Matlock. “And we shared it with both the angels and the founders.”

Matlock said the concept evolved into Empirical Ventures, especially due to demand from investors. He said: “The members of the syndicate said, why don't we set up a fund?''

Fast forward to today, and more funding is available through partnerships with regional angel funds. He has raised £5m for the Regional Angel Fund, which can be withdrawn if needed. In parallel, the Empirical Ventures S/EIS fund (leveraging UK tax breaks) brings in his £3m private investment.

Although British Business Investments is 100% owned by the government, it is independently managed and its objective is to ensure a return on capital. In that respect, this variation on the public-private partnership theme operates under commercial discipline. But it also helps achieve another of the Government's key objectives: supporting British science's journey from the lab to the market. “The UK is keen to become a scientific powerhouse. This will inject patient capital into the ecosystem,” says Dr Matlock.

Intellectual property that transcends fields

Investment strategies cover a wide range of topics. “The theme is to invest in businesses where there is a lot of research going on across disciplines,” says Dr. Matlock. “This creates a protectable IP.”

Matlock also says that while it's not necessary for a company to generate revenue, founders seeking investment should move beyond the blue-chip research stage. “We need proof of concept. We are looking for companies with clear forward-looking plans.”

He points to EnsiliTech as an example of what that looks like in practice. The company, which was spun out from the University of Bath in 2022, was set up to solve the problem of transporting and storing biological materials such as vaccines, which typically require very low temperatures. The company's approach is to coat the material with silica “nanoshells.” This eliminates the need for refrigeration.

“Our company is based on 12 years of research,” says CEO and co-founder Asel Sartbaeva. “During the pandemic, it became clear that we needed to bring our technology to market.”

The technology was developed by an interdisciplinary team, but the use case was initially unclear. However, as vaccines to protect against COVID-19 are developed, it has become clear that refrigeration requirements will become restrictive in some situations. “We decided that we should focus on antibodies,” Saltbaeva says. This concept is currently being proven through animal vaccine research.

EnsilicaTech is a portfolio company of the Science Angel Syndicate and also receives support from innovation agency Innovate UK, the University of Bath and others. I was interested in getting an overview of the funding status of Saltbayeva's early-stage science business.

“When I took over as CEO, I was new. People told me I should be prepared for a lot of rejection,” she says. “But what we quickly realized was that there were a lot of investors who cared about what we were doing and wanted to support our mission. We had some investors who were private investors. We had some rejections, but the investment round was oversubscribed.”

So while some might argue that securing funding is not that difficult, Saatvay's experience seems to point to two factors that facilitate the flow of capital. The first is the existence of professional investors who can evaluate the science. The second is a company's mission that aligns with investors' concerns.

Dr. Matlock also thinks that's important. “I was interested in impact companies, people whose commercial success correlates with their impact,” he says.

Empirical Ventures is not the only fund or angel syndicate focused on investing in deep science. There are many others. Despite being generalists, some companies include science startups in their portfolios. Some companies specialize in specific areas, such as Cambridge Angels (cleantech, biotech) and Angels in Medcity (medical technology).

Given the UK Government's focus on science, efforts to increase investment should be welcomed. Empirical, on the other hand, expects to make 10 to 15 investments over the next year or so.