Parkwalk Opportunities

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 of these top universities are also innovation hubs. In the past, this innovation may well have gone uncommercialised; however in today's world when universities have to fight for every pound of funding, properly commercialising intellectual property is vital. The University of Cambridge, for example, has spun out 15 companies that are today valued at more than $1 billion.

Highlights

  • University spin-out portfolio with high growth potential
  • £10,000 investment in 2010 now worth £24,800
  • Target return of 5× at a company level
  • Proven management team

The offer

Parkwalk was founded by Alastair Kilgour and Moray Wright in 2009; city veterans advising on takeovers, acquisitions and fundraising. Both were experienced capital markets managers at the time. The simple reason the business was founded was because they discovered an extremely compelling company in which they wished to invest. The company was called Xeros and was the brainchild of a professor at Leeds University. He found a way of washing clothes that used about 90% less water and about 15% of the usual levels of detergent. Parkwalk invested and investors exited at 4 times the original cost in 2014 when the company listed on AIM.  Whilst the technology or intellectual property in each deal will be different, Parkwalk’s source of investment ideas will remain the same.

Parkwalk’s area of specialism is investing in university spinouts, especially knowledge-intensive ones. In other words, technology or intellectual property that has been developed in a university by a team or an individual professor that the university then tries to commercialise.

As well as sourcing deals straight from the universities, Parkwalk will often invest alongside experienced investors such as the IP Group or Imperial Innovations (‘Imperial’), specialists that invest in very early stage companies that have been spun out from the likes of Oxford, Cambridge and other leading universities. Legendry fund manager Neil Woodford, now of Woodford Asset Management and previously Invesco Perpetual has been a big investor into both IP and Imperial for many years as well as in some of their underlying deals. IP and Imperial often invest when the idea is at a very early stage, well before commercialisation of the product. When investing, IP and Imperial carry out significant due diligence on the technology. Some ideas clearly get shelved, however those that look viable receive further funding to continue the development. It is at this point that Parkwalk generally invest when the technology has been proven, but products have yet to be sold.

Parkwalk is a benign provider of assets to companies, and although board seats are taken, that is in order to see all the underlying financial data.

A typical investment is between £1 million to £1.5 million which will buy a 15%–20% stake in a business. When looking at a deal, one of Parkwalk’s team sponsors the deal and has to pitch it to Parkwalk’s investment committee, who all have to agree for it to proceed. Each investor will have between five and eight companies in their portfolio with a mix of different technology and different stages of maturity.

Companies often need multiple rounds of funding, however each time a company asks for more money, Parkwalk reassess the merits at that time.

Whilst companies invested in have to be knowledge-intensive ones, they don’t always have to be early stage and will invest in later stage companies even as late as just before an AIM listing.

Performance

The table below shows Parkwalk's previous EIS offers and the return to investors. The figures include realised (i.e. cash return) and unrealised investments.

Parkwalk opportunities EIS fund performance

Parkwalk opportunities EIS fund performance

Target return

Every company invested in has to have the potential to return five times the original investment. Clearly not all will do that, but that is the target. However, the performance fee is linked to a return of an investor’s original capital overall, not the performance of an individual deal.

Exit strategy

The backgrounds of Parkwalk’s management team are in capital markets, therefore introducing companies to later stage investors and/or helping the company float is second nature to them. This is where Parkwalk really help the investee companies and see the best opportunity for exits.

Risks

These are high risk early stage businesses more prone to failure and I would expect at least one failure (if not more) in each portfolio. The manager believes that even if a company does fail, the intellectual property that it owns will have some resale value.

Fees

The initial charge is 3%. In addition Wealth Club charges a 2.5% Introducer Fee. The annual management fee is 1.5% plus VAT and additionally there is a custodian fee of 0.35% plus VAT.  The first 2.5 years’ management fee is taken upfront and five years of the custodian fee is charged upfront. Parkwalk doesn’t charge deal monitoring or arrangement fees. Dealing charges will apply charged at 0.35% of the value. The performance fee is charged at 20% of all distributions once investors have received their original investment back. This is charged at the fund level, not individual company level.

Summary

This is an interesting high growth, high risk orientated EIS offer investing in technology related spin outs from some of the leading UK universities. As well as universities, Parkwalk’s links to other investors that also invest in these areas has also proved crucial. These links have enabled Parkwalk to access deals many others cannot see. Returns have been excellent thus far, but clearly they are not guaranteed.

This review is not intended to be advice or a personal recommendation to buy the investment mentioned, nor is it a research recommendation. Wealth Club aims to highlight investments we believe have merit, but investors should form their own view on any proposed investment. 18.02.2016

The details

Min. Investment
£25,000
Strategy
Growth
Amount Raising
uncapped
Type
early stage
Deadline
discretionary

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