Seed fund will capture interest in NZ research

By Yoke Har Lee

Capturing investors' interest in commercialising research by top university brains was uphill work for the chief executive of Auckland UniServices, Dr John Kernohan.

So he set out to organise a dedicated fund to invest in biotech and high-tech projects.

The New Zealand Seed Fund has attracted about half its targeted amount from New Zealand. Dr Kernohan is optimistic two or three United States investors will make up the other $15 million required.

If he cannot reach $15 million, all money raised will be returned to shareholders, said Dr Kernohan.

The fund will be managed by Ulysses Group, a US investment bank advising and managing the fund for UniServices.

Ulysses' partner and founder Jerry Balter said that, based on the US example, of the 15 projects the fund plans to invest in, two or three would be highly successful and half a dozen would be moderately successful.

"If we can hit the success rate, the returns would be between 50 and 100 per cent above the S&P 500's return over the same period, although I can't guarantee that," said Mr Balter.

Again, based on the US model, three to four projects would make it to Nasdaq, the American stockmarket's high-tech index. Another three or four might be liquidated and the rest sold off.

Seed funding is high-risk. But its returns can also exceed expectations beyond investors' wildest dreams.

Professor Garth Cooper, from the University of Auckland, was probably one of the earliest New Zealanders to succeed in attracting seed investment. Amylin, a company he founded but later sold, is now listed on the Nasdaq board along with Genentech, another venture with New Zealand connections.

With the seed fund, New Zealand universities and crown research institutes will for the first time have an avenue to pitch their best research projects to willing funders with a commercial bent.

UniServices has been involved in the licensing of technology from Auckland University and other institutes for 11 years and has a turnover of $20 million a year.

It was involved in setting up a research company, Physiome Sciences, in New Jersey. Physiome is marketing the technology to build and predict the behaviour of cells, tissues and human organs. The research is based on work done at Auckland University and led by Professor Peter Hunter.

That same software has been licensed to Hollywood company Pacific Title Mirage.

EPTTCO is a joint venture between UniServices and three British research teams working on cancer cures.

Dr Kernohan said: "More recently we planned to start EPTTCO in Auckland and the team from the UK came here and we reviewed the position and decided EPTTCO had to be done in the UK.

"There was no venture capital, the right management wasn't here, but the technology was great.

"We realised that with the right ingredients, there was no reason our world-class technology could not be developed as a business right here in Auckland."

With NeuronZ, UniServices faced the same sort of problem, said Dr Kernohan. It had great technology and great potential but no backers. NeuronZ is a company doing research into the central nervous system.

"UniServices had set out to develop the NeuronZ opportunity and packaged it as best we could. We presented to many venture capitalists in the UK and US. It has great technology. We had half a dozen offers to fund it in San Francisco, Oxford or Cambridge and even Munich.

"But not New Zealand. Again the problems they saw were no entre-preneurial management and a lack of New Zealand investment and venture capital expertise ... Biotech start-ups require a lot of hands-on assistance from the venture capital institution.

"We tried to interest local investment institutions in NeuronZ and it was simply too hard for them. The culture is not here. So the chairman of UniServices [Peter Menzies] and I - supported strongly by the UniServices board - decided we would have to develop local infrastructure.

"The technology represents such an investment opportunity, and if developed here would mean so much to the university, to the Auckland area and to New Zealand investors, we thought we had to give it a go."

New Zealand has definite advantages as a research base. Mr Balter of Ulysses said the costs here were at least a third or half of those in Britain or the US. At some point, however, once the seed company started developing, it might need second or third-stage financing and a move to the US where global financiers were more easily tapped.

But for a start, the NZ Seed Fund's activities should in five years have created between 100 and 150 highly paid jobs at each of the biotech companies it funds.

Mr Balter said that what impressed him was that New Zealanders who had made their money on the local market were looking to invest in New Zealand to help preserve intellectual capital here.

Institutional investors were less available, although some had made commitments to the fund.

Among the leading-edge research at the University of Auckland looking for funding is HormonZ - the proposed name for a company based on the work of Professor Ross Clark and Professor Peter Gluckman in Auckland and Professor Iain Robinson in Britain.

HormonZ is dedicated to discovering a new way to treat hormone deficiencies, such as those leading to dwarfism or weight problems.

Another Auckland University team whose research work holds world commercial potential is headed by Professor Garth Cooper. It seeks a cure for non-insulin dependent diabetics based on his earlier work which isolated a protein found in the pancreas of diabetes sufferers.

Other opportunities are expected to arise from research using conventional radiation methods to produce toxins for cancer treatment. The research is being done by Professor Bill Wilson and Bill Denny of the Auckland Cancer Society Research Centre at the university.