Uniseed Management: Investing in Australia




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Video title: Uniseed Management: Investing in Australia
Released on: February 01, 2008. © PharmaVentures Ltd
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In this exclusive interview, Fintan Walton talks to Peter Devine, CEO of Uniseed Management, about the origins of the business. He discusses how it began as a US$20 M fund, founded by the Universities of Queensland and Melbourne, to bridge the gap between the Universities’ research and the financial market. He describes how the company has evolved through investment commitment from Westscheme (Western Australia's largest non-government superannuation fund) and the University of New South Wales, along with further investment from the founding Universities. Dr Devine also talks about the criteria used by the company when considering an investment opportunity, as well as discussing a few specific examples of investments made.
Origins of Uniseed Management.
Fintan Walton:
Hello and welcome to PharmaVentures Business Review here in Brisbane, Australia. On this show I have Peter Devine the CEO of Uniseed Management, welcome to the show Peter.
Peter Devine:
Thank you.
Fintan Walton:
Peter, Uniseed Management is a firm that was founded back in 2000.
Peter Devine:
That's correct
Fintan Walton:
And it's specifically the set up to invest in the start ups coming out of the Universities particularly two universities, could you tell us first of all the origins of the business and how was set up and then later I will ask you more about how it has evolved?
Peter Devine:
Uniseed was originally established through the ideas of two universities they got together and put in $10 million each to set up a $20 million pre seed fund with the primary purpose to if you like bridge that gap between the output of university research and the more traditional financial markets.
Fintan Walton:
So the two universities are University of Melbourne?
Peter Devine:
Yeah University of Melbourne and the University of Queensland who are two of the top five recognized as two of the top five universities in Australia in terms of research output.
Fintan Walton:
Right and that original 20 million came from where?
Peter Devine:
It basically came as I said from each of the universities through you know their endowment funds that they have accumulated and they decided to make a commitment to actually put money at work to try to bring in all the money out from other investors.
Fintan Walton:
Okay. So how is that changed now because it's brought in another other players who have an interest in this and so forth, tell us a little bit about that?
Peter Devine:
Yes, since its inception Uniseed has brought in another university the University of New South Wales which is also one of the top five, so in terms of deal flow and catchment we've got three of the top five universities in Australia covered. And probably the very exciting development is we've brought in a what we call a superannuation fund or a pension fund and they've also made a large commitment 15 million, the original universities are also putting a bit more money so we've grown to a $60 million dollar fund now which is I think some validation of the model that we are now getting there superannuation pension fund involved with this.
Fintan Walton:
So how much of that money has been invested so far?
Peter Devine:
So to date we've spent about 20 million including management fees and so we still got about 40 million left. We have done about 30 investments and we've got about 17 proactive investments and we've made one exit.
Investment commitment from Westscheme (Western Australia's largest non-government superannuation fund).
Fintan Walton:
Okay. So bringing in on the superannuation fund or the pension fund into this play, what impact has that obviously there is a monitory impact but there must be more than that, it's very important for superannuation funds to get to participate one of the (indiscernable) here is that there is not enough money considering the superannuation?
Peter Devine:
Yes the benefits that I guess this benefits the both parties and but a superannuation fund I guess about step back one step for the universities the obvious benefit is that their money, we are using their money and managing their money and taking a fee, their money is being reinvested back into the university and on the way back in we are bringing in government money or other people's money. So at the moment for every dollar we put back into a company we've brought $9 of other people's money or government money so that the superannuation funds or pension funds don't get that sort of benefit but what they get is effectively it's an option play for them because they if you like get to have a first look right to follow-on investing in all of the investments we do. So if you think about it when they follow on in an invest they effectively you know are investing with a much lower risk investment there when we invest and in fact there are the superannuation fund West game which is Western's Australia's largest non-government sort of fund their follow-on portfolio is showing a very, very healthy return at the moment in terms of the value of those companies.
Fintan Walton:
So obviously you are called Uniseed and initially it was a Pre-Seed does your fund work in subsequent funding as well?
Peter Devine:
Yeah one thing we've learnt the vision has changed a lot since we have set up I think the original vision in 2000 was the that Uniseed would make an investment of $250,000 and that would then get projects to a point where other people would come in. I think what we've learnt is that as well as facilitating commercialization we want to make money, this funds got to be successful so that it has a you know a long life and go out and raise more money in the future. So what we do now our investment loan is effectively $2 million and so we don't put that all in the first round but that allows us to follow on in those investments. On top of that Westscheme will bring $2 million in their own right which we will manage for Westscheme for fee as well. And the advantage of that to Uniseed is it actually well having Westscheme funds and our funds it allows us to maintain a significant role in the company going forward to maintain a board say maintaining of those and also protecting ourselves from dilution and to get a better exit in the long-term.
Fintan Walton:
Okay. So at the moment you've got 30 portfolio companies is that correct?
Peter Devine:
We've made 30 investments and we've got 17 portfolio companies. So that influence is that we've written off 12 of those we had one exit and we've got 7 in those still active.
Uniseed Management's perspective on issue of too many companies looking for early stage funding.
Fintan Walton:
Okay and one of the things that people often say particularly here in Australia is that there are two many companies coming out of universities and they probably blame Uniseed for doing that, what's your response to that not specifically to Uniseed but in the general observation that there are too many companies looking for funding at an early stage?
Peter Devine:
Yeah I think I actually don't agree with that statement but I think you know just being very pragmatic a company is a very simple vehicle for investing in it it's a nice and easy way to do an investment. But also I think it's a bit of a numbers game and particularly in biotechnology I think at an early stage we can't really pick a winner, you see an exciting technology you identify there is a market need et cetera, et cetera, but I do believe that it's I think it's a bit of crunch thing about that value that we have to make a lot of investments we have to have a lot of start ups and sure a number of those will fall over but there will be some successes out of that and eventually you know our industry will grow.
Fintan Walton:
So just to be clear I mean I know that other funds look at same thing failure is not necessarily an unnecessary part of funding activity?
Peter Devine:
Yeah I think if you playing in our space you know you obviously don't wanna have failure but I think the trick is you've got to fail fast, so If I do very simple equation if we do 10 investments of 200,000 as a seed and we got to write ahead of those which would that's not the proportion we are writing off, but those two that are left going to make you know 1X, 5X, 9X, 10X we do very well, so I think that's the nature of the game we are in, but the trick is that to fail fast if they don't made their milestones don't put pumping in the money.
Fintan Walton:
Yeah. Clearly development of technology particularly in the pharma space but have to make clear to our audience that Uniseed also invests outside the pharma and life sciences areas as well?
Peter Devine:
That's right. We have about 50% of our investments in what I call non-biotech and health areas.
How does Uniseed Management encourage serial entrepreneurship and how a suitable management is a critical success factor?
Fintan Walton:
Right. Now obviously when we go back into the life sciences and particularly the pharma space intrinsic to drug development and technological development there is risk and there is a failure way built in taking anything forward and commercializing it but there are other factors that can contribute to failure, management is particularly one and obviously the market environment is another. I suppose one of the key thing that comes up again here in Australia but I think it's not just unique to Australia is finding suitable management and so one thing is to have the money and clearly you've been successful in building up the fund, how can you get overcome the issue of management issues?
Peter Devine:
I just go out finding its one of the critical success factors that we got to identify to make those companies work and we've been really proactive in developing a pool of managers that we use in our companies and we with the start-up companies we often may use the manager part time but we will have them managing two companies and we've just had an example of that we had a company two companies Hatchtech and Cryptopharma and we had CEO involved in both, now one of those companies is really going to the next level it's just starting a Phase II so that CEO is moved to the full time CEO Hatchtech and got a new CEO in Cryptopharma, but we're continually being proactive in getting managers we do look overseas and we have a philosophy then in longer-term we are gonna raise stock of managers through those companies because managers will get to a point where they need to bring in a different type of serial so they can go back and start again with the new standard.
Fintan Walton:
So encouraging serial entrepreneurship is one of the key things here?
Peter Devine:
That's right.
Fintan Walton:
And so looking at again from a Australian perspective one of the key things is the ASX and again a lot of comments are made about funding companies get into the ASX too soon are we ever going to get over that problem here?
Peter Devine:
It's a tricky question that one and I think they do get on to soon I think one of the keys here is that unless a company gets through a market capital of at least 50 million they tend to then be face a liquidity problem and they tend to be at the whim of market a bit. I think what we are seeing now in Australia there is lot of M&A activity and certainly some of this three of four of our companies we are looking at M&A activity with the view to the ASX as well but we are trying to build companies with sufficient size when they get there they can get the support of the institutions as well as have the portfolio risk rather than just have a single product company. I think we're always gonna see it but I think the market hopefully is getting smarter and I think can pick the winners and pick the right companies with the strength.
Role of business angels in Uniseed Management's investments.
Fintan Walton:
And with the companies that you have invested and clearly there are other sources of funds like GBS Ventures that is active in Australia, what about business angels how much the role have they played or can they play in the Uniseed type of investment?
Peter Devine:
We've done a couple of investments through business angels. I think that the big problem we have I mean we've done you know four or five or six investments with GBS Ventures and the other VC's the problem that can occur with angels is alignment and we've had cases where the angels had a lot of money very wealthy individuals but they viewed the investment in philanthropic way and for example if you have a biotech company where you at times you can end up with a drug that might have model applications and you know an angel and this is real example an angel wanted to do everything because they want to cure cancer and Alzheimer disease and some other disease, so for an investor that's not necessarily the best strategy going forward, so we you know we tend to sort of focus on the VC community we have done deals with angels but I think we really with angels in the future we are gonna focus lot more on the alignment issue that we really are doing this as an investment and not just for a common group ultimately we have to make the return out of the funds.
The changing trend of venture capital investments in biotech companies.
Fintan Walton:
Right. I think one of the comments that people make about some of the biotech companies that are listed on ASX they are normal investments I suppose this is the gap between I suppose professional investor and lets say the non-professional investor and then setting expectations, are we seeing more sort of professional investors coming in and playing and get into a particularly follow-on investments?
Peter Devine:
Yes definitely is changing. I think and the whole market is changing, we are getting better analyst now in our industry, we've got some very good analyst. We are getting and I think the key is we are getting much larger companies, the companies we are getting some successes and companies are growing and with that we are seeing not only institutional placement but we've recently seen a trend for venture capital investments into biotech companies, so we had MPM Capital investing into company called Peplin and that company has just flipped up to the [PharmaDeals ID = 33817]US now to gain access to the greater range of funds. We've also had GBS Ventures we've had CM Capital investing in the company called Sunshine Heart. And there a number of other examples of that where you know the VC's if you like are actually looking at the public market because there is value there I think and they can see the value in that.
Fintan Walton:
And in terms of the origins of the technologies do they have to originate from the universities that are participating with Uniseed or can the technology come from outside of that?
Peter Devine:
For us to invest?
Fintan Walton:
Yes.
Peter Devine:
I think that originally it was a bit loosened around that but now that have got three universities that are three of the top five and that there certainly our shareholders sort of mandated that pretty well we have to only invest in those three universities. With that said we don't have a problem with deal flowing in fact you know we've got a our deal flow is great, you know we have plenty of deals to look at and plenty of things coming through the pipeline which is good.
Fintan Walton:
Right. There is enough innovation going on in those universities?
Peter Devine:
That's right.
Fintan Walton:
But presumably when the companies are formed they in order to develop itself they need to in license technologies and they can come from elsewhere is that correct?
Peter Devine:
That's right and for example we've also invested in mergers of obviously the company out of the university and the company that is now at the university so that sort of investments can go made but once a company is formed it does tend to has a lot of its own and then it has to look at how it can grow.
Investments by Uniseed Management.
Fintan Walton:
So you've mentioned some of the companies you've invested already which companies are the darlings of the Uniseed Management?
Peter Devine:
They're all darlings but I think in terms of our biotech portfolio it sits almost like probably our non-biotech portfolios are little more advanced because of the time to market issue. But in terms of out biotech portfolio our lead company is QRXPharma and QRXPharma is a company developing combination therapy for pain. And it listed in May this year on the ASX, it was actually the largest IPO in Australian ASX history it was a $50 million raise at a $100 million pre money valuation and that company is going to Phase III trials. It's got a very experienced board including Peter Farrell as Chairman who is the Resmed founder and also John Holaday who was with EntreMed in the US and John's coming to Australia, so that's our most significant company but behind that we've got a number of companies in the clinical just about to go in and it's interesting you know if we went back a few years we couldn't say that so we've had a lot of have companies come right through from that very early start up stage and you know I can talk to them if you like me to, we've got a couple them just in Phase, just completing in Phase I we've got Velacor which is a prostate cancer therapy and Hatchtech which is human headlice both completing Phase I, we've got three other companies coming through into Phase I.
What is the criteria used by Uniseed Management when considering an investment opportunity?
Fintan Walton:
And from going back when you are looking at the innovations coming out of the universities in what criteria are you looking for that triggers an investment decision to go in and form the company and invest?
Peter Devine:
Yeah it's probably most of the standard stuff but there is one extra one it's often said but in our cases it's particularly important but obviously things like you know the market is there the market need what's out there not only on the market but what's in development you know what are the development regulatory risk lot of the you know the technology itself although I would say that most of the time you know the scientists in Australia are pretty good and most of the technologies are pretty good but whether there is a market is another question and just the business model how to execute on that and who are potential partners, but the one extra one in our case because we are taking companies out of the university Australian university is they invented themselves in their alignment with our objectives and we found you know the hard way that often inventors will see venture fund money is all the way just the way to get bit more money and to do more research. So we actually take a lot more time with the inventor now we sit down and we really work through with them and make sure that they are aligned and they know particularly know their role you know they are not going to be the CEO, they are not going to be on the board, they going to be at the CSO and most of them are okay when it get aligned inventor that's the key to the success of the company.
Fintan Walton:
Right. So lot of it is setting expectations?
Peter Devine:
That's right.yes.
Fintan Walton:
Expectation comes the initiative the innovators expectations with the people who are putting money into the funds and so forth so it's key part. Peter it is excellent to have you on the show and to learn more about Uniseed Management. I like to thank you for coming along. Thank you.
Peter Devine:
Thank you. Thanks a lot.
Fintan Walton
Dr Fintan Walton is the Founder and CEO of PharmaVentures. After completing his doctoral research on the genetics of cell proliferation at the University of Michigan(US)and Trinity College (Dublin, Ireland), Dr Walton gained broad commercial experience in biotechnology in management positions at Bass and Celltech plc (1982-1992).
Peter Devine
CEO
Dr Peter Devine joined Uniseed in January 2003 and worked as Regional Director, then as Investment Director, before he was appointed CEO in November 2006. Peter has extensive experience in the biotechnology industry, having held senior R&D, business development and commercialization positions in four Australian biotechnology companies, as well as in Australian universities. Before joining Uniseed, Peter was Vice President of Business Development at Progen Industries. He was Research, Development and Commercialization Manager at Brisbane-based PanBio from 1996 to 2000, and also spent 7 months in Business Development at UniQuest, the commercialization arm of University of Queensland.
PharmaVentures
PharmaVentures is a corporate finance and transactions advisory firm that has served hundreds of clients worldwide in relation to their strategic deal making in the pharmaceutical, life science and healthcare sectors. Our key offerings include: Transactions / deal negotiations; Product / technology valuations; Deal term advice; Due diligence & expert reports; Strategy formulation; Alliance management; and Expert opinion for litigation/arbitration cases. PharmaVentures provides the global expertise to ensure our clients generate the highest possible return on investment from all their deal making activities. We have experience of all therapeutic areas and can offer advice on both product and technology commercialisation.
Uniseed Management
Uniseed Management was established as a joint venture pre-seed and seed fund between UQ Holdings/UniQuest and Melbourne Ventures (formerly Melbourne University Private), the commercial arms of the University of Queensland and the University of Melbourne, respectively. The company began operations in September 2000 as a US$20 M early-stage venture fund, and has since grown to over US$60 M.