Parkwalk Opportunities EIS

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 tended to go uncommercialised but universities are starting to wake up to the value they could potentially generate. The University of Cambridge, for example, has spun out 15 companies that are today valued at more than $1 billion. This specialist area of university spin-outs is the focus of the Parkwalk Opportunities EIS. 

Highlights

  • University spin-out portfolio with high growth potential
  • Target return of 5× at a company level (returns not guaranteed)
  • Proven management team
  • Investors will hold between five and eight portfolio companies
  • Co-investment opportunities with institutional investors, including parent company IP Group and Woodford IM
  • Minimum investment £25,000

The manager

Parkwalk was founded by Alastair Kilgour and Moray Wright, both experienced capital markets managers advising on takeovers, acquisitions and fundraising. In 2009 they discovered a compelling company in which they wished to invest. The company was Xeros and the brainchild of a Leeds University professor. It had developed a “waterless” washing machine. It had found a way of washing clothes that used about 90% less water and about 15% of the usual levels of detergent. Parkwalk invested in 2010 and Xeros listed in 2014. 

In January 2017 Parkwalk was acquired by IP Group plc, a leading intellectual property commercialisation company listed on the London Stock Exchange under the ticker symbol IPO. As at 30 April 2017 the group has net assets of £797m and and a market capitalisation in excess of £800m.  The involvement of IP Group should considerably strengthen Parkwalk’s hand in accessing dealflow and negotiating terms, as well as providing another possible exit route for investors. 

Further strength could be provided by IP Group’s offer to acquire Touchstone Innovations plc in June 2017.  Touchstone has its roots in Imperial College London. It creates, builds and invests in technology companies and licensing opportunities developed from scientific research from the 'Golden Triangle', the geographical region broadly bounded by London, Cambridge and Oxford.  

The offer

Parkwalk’s niche is UK university spin outs, especially knowledge-intensive ones. In other words, 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.  

Some notable UK university spin-outs include:

Company University Exit
ARM Cambridge Acquired by SoftBank in 2016 for $32bn
Xeros Leeds $290m stock market valuation
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 companies spun-out of twelve Universities. In additional to the Opportunities EIS fund, it manages funds in conjunction with the tech-transfer departments of the University of Cambridge, the University of Oxford and the University of Bristol.

As well as sourcing deals straight from the universities, Parkwalk generally co-invests alongside other large investors in this space, including (in alphabetical order) Amadeus,  Baillie Gifford, Cambridge Innovation Capital, Touchstone (Imperial) Innovations plc, Invesco Perpetual, IP Group plc, Oxford Sciences Innovation plc and Woodford Investment Management. 

This makes the tie in with IP Group and potentially Touchstone such a strategic one. Neil Woodford, now of Woodford Investment Management and previously Invesco Perpetual has over the years been a big investor into both IP Group and Touchstone as well as in some of their underlying deals. Indeed, Woodford IM is IP Group’s second largest shareholder.

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

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 pitches 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.

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.

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

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 – remember it’s not guaranteed. 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. 

As well as the more traditional routes for EIS investment – such as IPO or trade sale – Parkwalk’s new relationship with IP Group plc could provide additional exit opportunities and liquidity for investors, although this is not guaranteed. 

Portfolio company examples

Investors should be aware the companies described here are unlikely to form part of a new investor’s portfolio. They are outlined to give a flavour of the types of companies an investor might expect. 

Xeros – a spin out from Leeds University

Xeros is best described as an almost waterless washing machine. Polymer beads replace about 90% of the water used in conventional washing machines. Not only does it use about 10% of the usual energy required and 15% of the typical detergent needed, the machine also gives a superior clean. In 2010 it came 2nd in 100 Best Inventions by TIME magazine and was cited in the WWF’s survey of global “Green Game-Changers”.

Fuel3D – a spin out from Oxford University

Fuel3D has developed a “point-and-shoot” 3D scanning system which captures extremely high resolution 3D shapes and colour pictures. It is the first 3D scanner to marry pre-calibrated stereo cameras with photometric imaging to take and process images in a matter of seconds. The company was spun out of the renowned Department of Engineering Science at Oxford University for use in the medical imaging sector. Hardware and software engineers are working to bring the benefits of the scanner to consumers and professionals.

Arkivum – a spin out from Southampton University

Arkivum has developed a safe and straightforward process to manage data security and safety. The business provides data archiving for a number of industries. Companies in healthcare, heritage and culture, and life sciences are among its clients. Backed by indemnity insurance, Arkivum gives 100% data integrity guarantee irrespective of the length the data needs to be held.

Risks

These are very high risk early stage businesses more prone to failure and investors should anticipate 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 could still have some resale value, but there are no guarantees. 

These are investments in unquoted companies which are illiquid and capital is at risk. Investors should only invest money they are prepared to lose. 

The value of tax relief will depend on the circumstances of the individual investor and tax rules could change in future.

Fees

The initial charge is 5%. The annual management fee is 1.5% plus VAT and additionally there is a custodian fee of 0.35% plus VAT.

The first two and a half years’ management fees are taken upfront and five years of the custodian fee is charged upfront. Dealing charges will apply charged at 0.35% of the value. Parkwalk doesn’t charge deal monitoring or arrangement fees.

These fees are typically taken up front, from the subscription before investments are made. This adds transparency as it means there are no additional or hidden fees charged to the investee companies borne indirectly by the investor.

There is a performance fee is charged at 20% of all distributions once investors have received their original investment back. This is charged at fund level, not individual company level.

Summary

This  is an interesting high-growth, high-risk EIS offer investing in technology related spin-outs from the UK’s leading universities. Parkwalk has access to deals many others cannot see. Parkwalk’s links to large institutional investors that also invest in this area sets them apart – and the recent acquisition by IP Group and potentially a tie in with Touchstone could considerably strengthen Parkwalk’s hand. We think this is a quality offer for wealthy or sophisticated investors keen to have access to the exciting world of university spin outs.

Wealth Club aims to highlight investments we believe have merit, but you should form your own view. You should decide based 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. 16 August 2017.

The details

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

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