Cambridge University has created a £50m technology investment company, backed by Arm Holdings and some of the city’s leading institutional investors, to help some of its most promising spinout companies.

The fund is a recognition by the university of the critical need for equity finance to help spinout companies overcome the so-called “valley of death” that projects them from start-up phase into the hands of a much larger operation.

It is also reflects concern that while Cambridge has proved adept at creating innovative start-ups, few of these have achieved the scale of their equivalents in the US.

More than 1,500 high-tech companies currently operate in the 19 science and business parks in and around Cambridge city centre, but only a dozen of these have achieved a valuation of over $1bn.

The largest of these are Arm and Autonomy, both of which achieved a valuation in excess of $10bn. There is a belief that many more Cambridge spinouts could achieve this scale, but too many are acquired by larger, mainly US-based companies before they get there.

Edward Benthall, non-executive chairman of Cambridge Innovation Capital, which will manage the £50m fund, said: “Many good companies have to spend too much time fundraising, leaving them with less time to focus on running their business.

“CIC will work with angel and other long-term investors to bring innovative technologies to market and help build world-class businesses.”

He warned that too many Cambridge start-ups end up like Solexa, the gene sequencing business, which was bought by US-based Illumina for $650m in 2007. Illumina is now valued at $9.5bn.

“The university invested £100,000 and achieved a 1.65x return,” Mr Benthall said. “As is so often the case with VC-backed companies, all the value went to those [others] who invested in the last couple of rounds.”

The companies that receive CIC investments will get advice in addition to money from its panel of senior Cambridge academics and entrepreneurs, including Acorn co-founder Hermann Hauser and Warren East, the outgoing chief executive of Arm.

Unlike conventional venture capital funds, which invest for three to five years in specific sectors, CIC will invest in a wide range of technologies with a much longer time horizon of a decade or more, according to Mr Benthall.

“Unlike a VC fund, where you have to give back the proceeds on exit to your investors, we can reinvest the proceeds of our investments,” he said.

CIC intends to invest all £50m currently in the fund over the next three years, Mr Benthall added, after which it will raise further capital, probably through a public listing.

Sir Leszek Borysiewicz, Cambridge University’s vice-chancellor, said: “The university benefits society through the pursuit, dissemination and application of knowledge.

“With the launch of CIC, the university and our co-investors are taking an important step in supporting the continued economic growth of the region and the country.”

Source: Financial Times UK: http://www.ft.com/intl/cms/s/0/7e67075c-30f6-11e3-b478-00144feab7de.html#axzz2hi8WNMaB