Allied Minds Aims to Forge Early Alliances with University Researchers
Anybody who reads this blog is familiar with the large number of venture capital companies ready to fund developing businesses, and there always seem to be more climbing aboard in Series B and C rounds as a particular business starts to look more likely to succeed. But one local company, Allied Minds, hopes to make its fortune by focusing on the very earliest stage, when a technology looks interesting but isn’t quite ready for prime time.
Allied Minds, based in Quincy, has identified a gap in technology development, says chief operating officer Marc Eichenberger. “Other people will call it ‘The Valley of Death,’” he jokes. It’s the point at which federal funding for university research stops, but where a technology hasn’t been developed to the point of commercialization. Allied Minds’ strategy is to team up with universities and national laboratories to identify the intellectual property that might make a promising product and provide what the company likes to call “pre-seed” funding. Someone may have a proof-of-concept, for instance, but no money to build a prototype.
There are angel investors, of course, that provide seed money to support promising university spinoff technologies, and we can point to a small set of Boston area venture firms with a focus on early-stage deals with academic researchers—Third Rock Ventures and PureTech Ventures to name two we have written about. And just about every VC firm has some university dealings. But Eichenberger says, “We don’t see a lot of people coming at it in the kind of structured and national way we do.”
First of all, the company forms formal, contractual relationships with technology transfer people at universities. At the moment, they’re tied in with 26 universities and two national laboratories. That makes it easier for universities to find funding for potential spinoffs so they can reap the income from licensing their IP.
Another difference: “We are not a fund. We are a company,” Eichenberger says. Allied Minds is funded and owned by a group of international investors. Funds tend to be life-limited, with investment money to be expended in a set amount of time and with an expected exit date for any companies started. Allied Minds is on no timetable, and its exit strategy is open-ended. Its companies, which it considers subsidiaries, could be sold, go public, or offer licensing deals to other businesses.
The company was founded in 2006 by a British entrepreneur, Mark Pritchard, owner of a private investment firm in London. He’d worked with university patents in that capacity, but thought the U.S. would be a much richer environment in terms of research. Eichenberger estimates that $45 billion of federal funds run through university laboratories. So Pritchard set up Allied Minds, with an office in London (where he lives) and another in Quincy, to tap into the U.S. university research stream.
“When Allied Minds was born, the hypothesis was that the market was in the middle of the country,” between the Rockies and the Appalachians, Eichenberger says. The thought was that universities on the coasts, the MITs and the UC Berkeleys, had plenty of experience with tech transfer and access to established VC firms. In fact, the first company Allied funded, LifeScreen, which is working on a non-invasive breast cancer screening technology, was out of the University of Missouri, Columbia.
But then Allied started to hear from people in universities along the coasts, saying they were struggling with the same gap. A lot of VCs, he says, have gotten so big that it’s not worth it to them to spend the time required to make small investments. “If you’re looking for an investment and you’re $100 million or $1 billion in size, coming down and doing a seed round is hard,” he says. If such companies do want to invest at an early stage, they’re likely to go with a known quantity, like MIT’s Robert Langer (an Xconomist), who has started more than a dozen companies based on research in his lab.
Allied Minds tends to make investments of a few hundred thousand dollars to around a million dollars. A couple of its more recent investments have been in Massachusetts. Last October it spent $500,000 to establish SiEnergy Systems LLC, a company developing a new type of solid oxide fuel cell, based on research at Harvard. Last June, it founded BA Logix for an undisclosed amount. That company, based on research at Tufts, is developing algorithms to perform digital imaging and compression faster and more efficiently.
Allied Minds maintains it is not focused to any one technology, and is trying to build a diverse portfolio of businesses. That said, the first eight of the 11 companies it has funded were all in the life sciences. But Eichenberger calls the company simply “opportunity-driven,” going where it sees developments with a lot of potential, For instance, he says, a revolution in bringing engineering into the life sciences, coupled with plenty of funding from the National Institutes of Health, has produced a lot of interesting technologies in that area. Still, Eichenberger says that the firm is making more of an effort to diversify. For instance, its most recent company, founded in December and based on research at New York University, focuses on creating non-volatile computer memory.
One area where the firm is reluctant to get involved is in therapeutics and vaccines, just because the Food and Drug Administration’s approval process for such products is so long and expensive. And there are other areas Allied Minds may stay away from. “Some spaces are just so crowded that we just haven’t found anything disruptive enough,” Eichenberger says, citing a glut of developments in biosensors as one area where the opportunities aren’t obvious.
As for the current economic turmoil, he’s not too worried about it. “We had a major financing round last year that will carry us through for some time,” he says. And in some cases, a slow economy can be beneficial, if the value you’re offering is to be able to do something cheaply. “If you have a great diagnostic that can supplant a more costly procedure today, that’s just going to be very welcome in a tight money environment,” he says. “If the science proves out, they’re going to be successful in our mind, regardless of the economic environment.”