Parkwalk Opportunities EIS Fund

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UK universities are amongst the world’s leading. Four of the world’s ten best are in the UK, unsurprisingly including Oxford and Cambridge. As well as seats of learning, many are innovation hubs. In the past, innovation tended to go uncommercialised but this is changing. The University of Cambridge, for example, has spun out 15 companies that are today valued at more than $1 billion. Two are now worth more than $10 billion. In 2014 alone the UK’s six leading research universities spun out 73 companies. 82.2% are still active today.

The Parkwalk Opportunities EIS Fund allows investors to access this exciting aspect of UK technology development. The fund is managed by Parkwalk Advisors (“Parkwalk”), which has invested in over 100 companies and has £250 million of assets under management. Parkwalk claims to be the UK's most active investor in university spinouts and has strong ties to the UK’s leading universities, managing funds in conjunction with the tech-transfer departments of the University of Cambridge, the University of Oxford and the University of Bristol. It benefits from being part of IP Group plc, a FTSE 250-listed asset manager focused on intellectual property commercialisation. In our view, Parkwalk is very well placed in this specialist area.

Important: The information on this website is for experienced investors. It is not advice nor a research or personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value, so you could get back less than you invest.

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Highlights

  • University spinout portfolio with high growth potential
  • Proven management team
  • Targets five portfolio companies spread across a range of maturities and technologies - not guaranteed
  • Co-investment opportunities with institutional investors, including parent company IP Group
  • Strong track record of realised and unrealised returns, although past performance is not a guide to the future
  • Aims to be fully invested within nine to 18 months, not guaranteed
  • Target holding period of four to eight years
  • Minimum investment £25,000

The manager

Parkwalk Advisors was founded in 2009 by Alastair Kilgour and Moray Wright, both experienced capital markets managers advising on takeovers, acquisitions and fundraising. In January 2017, Parkwalk was acquired by IP Group, a leading intellectual property commercialisation company with net assets of £1.2 billion and a market capitalisation of £790 million (June 2019). Later in 2017, IP Group acquired Touchstone Innovations, which was set up to invest in promising technology companies spawned by Imperial College and University College London.

The combined group gives Parkwalk a strong hand when accessing deal flow and negotiating terms, as well as providing a possible exit route for investors.

Watch an exclusive video interview with Enrico D’Angelo of Parkwalk:


Recorded 16 October 2018

Investment strategy

Parkwalk’s niche is UK university spinouts, it invests in technology or intellectual property developed in a university by a team or an individual professor that the university then tries to commercialise. Universities are starting to cotton on to how valuable this can be.

More notable UK university spin-outs include:

Company University Exit
ARM Cambridge Acquired by SoftBank in 2016 for $32bn
Vocal IQ Cambridge Acquired by Apple in 2015
Oxford Nanopore Oxford Raised $125m in 2016 at $1.25bn valuation
Cambridge CMOS Cambridge Acquired by ams AG in 2016

Parkwalk has  investments in 120 companies spun out of twenty universities. In addition to the Opportunities EIS fund, Parkwalk manages funds in conjunction with the technology transfer departments of the University of Cambridge, the University of Oxford and the University of Bristol. Parkwalk typically co-invests alongside large investors, including (in alphabetical order) Amadeus, Baillie Gifford, Cambridge Innovation Capital, Touchstone (Imperial) Innovations plc, Invesco Perpetual, IP Group plc and Oxford Sciences Innovation plc.

Parkwalk generally invests when the technology has been proven, but products have yet to be sold, and well before commercialisation.

A typical initial investment is £1 million to £1.5 million, which will buy a 15–20% stake in a business. Each investor is expected to have at least five companies in their portfolio, with a mix of different technology and different stages of maturity, although this is not guaranteed.

Investee companies will typically have deeply-embedded IP and are given freedom to operate. Parkwalk will usually bring in experienced, relevant management to commercialise the product.

Investee companies are knowledge-intensive, but don’t always have to be early stage. Parkwalk will also invest in later-stage companies, perhaps just before an AIM listing.

Investors' subscriptions will be invested over a period of nine to 18 months from the final receipt of subscriptions, although this is not guaranteed.

Target return

The fund's target return is unspecified, but every investee company has to have the potential to return five times the original investment. Clearly not all will do that. The performance fee is linked to a return of an investor’s original capital overall, not the performance of an individual deal.

Exit strategy

Regarding exits, Parkwalk’s management team all have backgrounds in capital markets or introducing companies to later-stage investors.  As well as the more traditional exit options for EIS investment – such as IPO or trade sale – Parkwalk’s relationship with parent IP Group could provide additional exit opportunities and liquidity for investors, although this is not guaranteed. 

Portfolio

The fund will aim to invest in a portfolio of at least five early-stage EIS-qualifying technology companies. 

Below are portfolio company examples from previous iterations of the EIS fund. They are outlined to give a flavour of the types of companies you might expect, but are unlikely to be part of a new investor's portfolio.  

Mogrify – Parkwalk Opportunities EISMogrify – spinout from Bristol University (recent investment)

Mogrify, which launched in February 2019, has created proprietary direct cellular conversion technology, which aims to transform the development of life-saving cell therapies by transforming (transmogrifying) any mature human cell type into any other. The company intends to deploy this platform to develop novel cell therapies for musculoskeletal, auto-immune, cancer immunotherapy, ocular and respiratory diseases, as well as generating a broad IP position relating to cell conversions.

Parkwalk participated in a $16 million investment round lead by Ahren Innovation Capital – an investment fund co-founded by leading scientific entrepreneurs. The funding round is expected to support internal cell therapy programs, and the development and out-license of novel IP relating to cell conversions of broad therapeutic interest. Mogrify will also increase headcount to 60 scientific, operational and commercial staff located at its state-of-the-art facility on Cambridge Science Park.

Oxford PV – Parkwalk Opportunities EISOxford PV – spinout from Oxford University

Oxford Photovoltaics is an example of cutting-edge technology developed at UK universities with global commercial appeal. The business, started in 2010, has created a combined silicon-perovskite solar cell, which has recently beat its own world-record for solar energy conversion efficiency. The cell has the potential to transform the economics of solar energy: it is manufactured from inexpensive, abundant, non-toxic and non-corrosive organic materials and can be scaled at volume.

The Parkwalk EIS Opportunities fund first invested in 2013 at a very early stage with a £2 million pre-money company valuation. Today, the business has attracted a total of £108 million in funding, and plans to move into volume production at the end of 2020.

Animal Dynamics – Parkwalk Opportunities EISAnimal Dynamics – spinout from Oxford University (example of previous exit)

Founded in 2015, Animal Dynamics designs systems – such as unmanned aerial vehicles (UAVs) and small-scale drones – inspired by the evolutionary biomechanics of animals.

For example, Skeeter, a micro-drone designed for covert surveillance and surveying tasks, is based on the body plan of a dragonfly. It uses flapping ‘wing’ propulsion to maximise efficiency and allows for gliding and tolerance to difficult weather conditions. Compared to other (UAVs), Skeeter can fly for longer distances on less power over a greater range of conditions.

In addition to Skeeter, the company has two other projects, Stork and Malolo. Stork, the most advanced prototype, is currently at the trial stage whereas Malolo is still under development.

Parkwalk first invested through the Oxford Innovation II Fund in 2015. It was also involved in subsequent funding rounds. The company was sold through a secondary sale in March 2019, generating a return of 6.9x for investors after three years. Past performance is not a guide to the future.

OxSyBio Limited (example of previous failure)

As can be expected, not all investments work out. One example is OxSyBio, a novel synthetic biology company, in which Parkwalk invested in February 2018. The company was developing 3D printing tools for drug discovery and diagnosis, based on research conducted by Professor Hagan Bayley at the Chemistry Department at the University of Oxford and co-founder of Oxford Nanopore, the successful UK-based DNA sequencing company.

OxSyBio raised substantial funding from a group of institutional investors including Parkwalk, which was a minority investor. The funding round had several ‘hard’ targets to achieve to enable the next tranche to be funded. Unfortunately, the targets were not met and investors did not continue to support the company.

Performance

To date, the Parkwalk EIS funds have achieved 24 exits, 11 of which have been profitable and 13 have been lower than the amount invested. The positive exits have helped drive a strong track record of returning cash to investors, although past performance is not a guide to the future. 

The table below shows historic performance to 6 January 2019 across all investments made across all Parkwalk EIS funds per tax year. Please note, “Realised Return” figures include loss relief at 45% so cannot be directly compared to other EIS offers on this website: remember tax rules can change and benefits depend on circumstances.  

Source: Parkwalk, valuations as at 6 January 2020, based on Parkwalk’s valuation methodology. Past performance is not a guide to future performance. Performance figures show the average returns for investors investing in each tax year. Realised Return refers to cash returned to investors per £ invested (including loss relief where applicable for a 45% income taxpayer) before fees. Unrealised Return is the value of the balance of the portfolio including potential earn-outs on exits. Total Return is the sum of realised and unrealised returns excluding fees and initial income tax relief. Please note, the performance figures also exclude any performance fees (20% above £1 returned to investors). Performance data for 2019/20 is not yet available.

Risks – important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.

EIS investments are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

Tax rules can change and benefits depend on circumstances.

This EIS fund invests in early-stage businesses which are more likely to fail than larger ones. So you should expect a number of failures in the portfolio.

The manager believes that if a company fails, the intellectual property it owns could still have some resale value, but there are no guarantees. 

Charges

A summary of the main charges and savings is shown below. Some of these will be payable by the investor, whilst others by the investee companies. The investment may have additional charges and expenses: please see the provider documents, including the Key Information Document, for more details.

Investor charges
Full initial charge 5%
Wealth Club initial saving
Net initial charge through Wealth Club 5%
Annual management charge 1.5%
Administration charge 0.25%
Dealing charge 0.2%
Performance fee 20%
Investee company charges
Initial charge
Annual charge
All fees and charges are stated exclusive of VAT, which may be applicable in some cases. Any fees and charges payable by the investee companies or the underlying businesses do not directly come out of your investment. However, they will effectively reduce the returns generated by investee companies and therefore impact your investment.

More detail on the charges

Timing of the offer

Parkwalk aims to deploy the money within nine to 18 months from investment. Historically, the average has been within 12 months, but there are no guarantees this will continue to be the case. As is typical with EIS and SEIS investments, it may not be possible to have all funds deployed before a deadline such as the end of the tax year.

Our view

This is an EIS fund with a clear investment strategy in a defined area: university spinouts. The Parkwalk investment team has plenty of experience in this field, and Parkwalk’s standing in the industry could allow access to opportunities other managers would be hard pressed to offer. Previous Parkwalk Opportunity funds have included some interesting high risk, early investments in cutting-edge technology businesses, and investors have historically been well rewarded, although past performance is not a guide to the future.

Parkwalk is also set apart by its links to both the UK’s leading universities and large institutional investors, such as parent company IP Group Plc. These could provide investee companies with access to the pools of liquidity needed to commercialise their intellectual property, and potentially provide EIS investors with an additional route to exit, although this is not guaranteed. Please note, due to the focus on intellectual property, these investments are very early stage, and this is a high-risk EIS fund offering.

In our view, this is a high-quality EIS fund offering within an exciting and hard to reach sector. The prospect of investing in five early-stage, cutting-edge technology businesses might appeal to those investors looking to complement a wider investment portfolio, where gaining exposure to university spinouts might be more challenging. 

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.

The details

Type
Fund
Sector
University spinouts
Target return
Not specified
Funds raised / sought
-
Minimum investment
£25,000
Deadline
Discretionary
Last updated: 22 January 2020

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