September 12, 2018
How UK taxes are fueling a new synthetic biology industry
This story is brought to you by our sponsor SynbiCITE, which is accelerating the commercialization of synthetic biology applications. To learn how SynbiCITE is nucleating a sustainable UK economy, visit www.synbicite.com.
There’s a reason they call it seed funding. Just like planting, you need fertile soil, good weather and, above all, an attentive caretaker. When investors are looking to plant their seed funding into a new company, they want a healthy idea with a founder who wants to see it succeed more than anything. As for the rest? Well, you can’t always predict the weather.
Synthetic biology holds a high status in the UK. It was named one of the “Eight Great Technologies” in 2013 by the UK Government and has received substantial investment of public funding over the last six years. The UK established six synthetic biology research centers (SBRCs) around the country and an Innovation and Knowledge Centre, SynbiCITE, at Imperial College, London. The research centers develop UK synthetic biology research and SynbiCITE helps translate those innovations into commercial success, building a synthetic biology network across the UK and encouraging entrepreneurship by providing advice, lab space and access to state-of-the-art facilities.
The synthetic biology network is additionally supported through funding by the UK research councils, especially the Biotechnology and Biological Sciences Research Council (BBSRC), the Engineering and Physical Sciences Research Council (EPSRC) and Innovate UK, which fund academic and industrial projects and partnerships through funding rounds. Innovate UK also provides a Knowledge Transfer Network which has dedicated staff for networking in synthetic biology.
Sowing seed funds
Advanced connectivity, support and funding, without asking for equity shares in return, has spurred on a massive surge in the number of synthetic biology companies in recent years. But all new companies need substantial seed investments to bridge the “Valley of Death” – that gap between start-up and making a profit/getting bought out.
The UK Innovation and Science Seed Fund (UKI2S), formerly the Rainbow Seed Fund, has a £10 M investment from the BBSRC to exclusively help synthetic biology companies. UKI2S, managed by investment firm Midven, has a history of bringing in substantial private investment. Recently, the fund has backed SynbiCITE spin-out Cagen, and has seen Quethera, a gene therapy company it has supported since 2015, acquired by Astellas for up to £85 M.
Oliver Sexton, one of three directors of the UKI2S fund, lays out the advantages, “Money for the synthetic biology fund is from the BBSRC and that gives us the flexibility to invest earlier than pure commercial funds. The benefits to the company being we get in really early and support development but also work with bigger funds very soon after, so a lot of the investments are syndicated very quickly.”
Unlike SynbiCITE and the research councils, UKI2S takes equity when it invests. In addition to financial support, the fund also recognizes the need that academic researchers are always the most commercially minded, even when they wish to start a business.
“We are active investors. It is important to support new companies and potentially first-time entrepreneurs. We attend board meetings, can help identify experienced industry directors, run mentoring days, training days, and are there to offer advice to founders. Some areas such as finance, IP and legal terms are less familiar to scientists and engineers and we work with teams in these new areas,” Oliver explains.
UKI2S also works with Enterprise Investment Schemes (EIS). EIS funds are a UK government tax break, allowing a person to invest in a company and offset the cost of the investment against their income tax. EIS funds also allow a lot of people to invest a little, kind of like a kickstarter with due diligence, in the growing synthetic biology industry with guidance from UKI2S, whose expertise helps both the investors and companies.
Digging for new opportunities
Earlier this year, SynbiCITE and Lord Willetts hosted an Investor Breakfast at the House of Lords.
“It’s a great format. Dick and Paul know David Willetts, who’s the ex-science minister that coined the term ‘Eight Great Technologies’, so he really drove the initial founding wave of money into this new synthetic biology technology and he’s been working with us subsequently,” Oliver says. UKI2S sourced several of its portfolio from SynbiCITE, most recently Cagen.
“SynbiCITE is wonderful from that point of view. They have a natural gravity for synthetic biology. They provide space where people can coalesce, and their Lean Launchpad is really good in getting young entrepreneurs to think about the company rather than just the science. They have in the past and I hope they continue to focus on that translation between academic outlook and commercial outlook. To really push the agenda of interesting ideas and how you commercialize them.”
Investment funds and Angel investors source the companies in their portfolio from the rich synthetic biology network around the UK, both new startup companies and spin-outs from university research. The key difference between the two is ownership of intellectual property (IP) at the outset where startups own theirs and spin-outs must negotiate with their home University’s tech transfer office (TTO) for IP use in exchange for equity.
In a recent article, former CEO of SynbiCITE Dr Stephen Chambers highlighted the huge amount of equity share UK universities take in spin-out companies compared to their US counterparts. According to a 2015 report, UK universities took equity shares varying from 20% (Cambridge) to up to 67% (University of Bath). This is compared to just 5-10% equity from universities across the pond.
He highlights the University of Cambridge in the UK as having more spin-outs than higher stake-taking universities. Perhaps it’s an unfair comparison in some respects as Cambridge is also a well-moneyed university with an established spin-out support organization in Cambridge Enterprise. The situation appears to be improving overall, as Oliver from UKI2S indicated that university equity shares are trending downwards since that report, and many university TTOs negotiate.
Reaping the rewards
Dr Chambers may have hit upon one of the few sour points in the UK synthetic biology spin-out scene. However, UK startups and spin-outs are doubling every five years, according to last year’s SynbiCITE report, cited by Dr Chambers as he leaves us with a ray of sunshine in the UK synthetic biology industry: 46% of new UK synthetic biology companies are startups rather than spin-outs, and the proportion of new startups (42%) is almost double that of new spin-outs (23%). This is largely due to SynbiCITE itself, which has grown a nationwide synthetic biology network now bearing a multitude of successful industrial fruits thanks to the stewardship of former CEO Dr Chambers, directors Prof. Richard Kitney, Prof. Paul Freemont and Dr John Collins.
In the UK, investors look to experts like UKI2S and SynbiCITE to point them to the most fertile ground to plant their seed funds. With advice and support from these expert organizations, synthetic biology companies get the best possible caretaking. But there’s no predicting the weather, right?
Well, with a support network as extensive as in the UK, you’re always carrying an umbrella.
Join SynbiCITE to learn more about the transformative role BioFoundries will play in the future of synbio, October 1 @ 3:00 pm – 4:30 pm at SynBioBeta 2018.