Episode Transcript
Charlie: Hello everyone and welcome to the London Stock Exchange's Be Inspired series. My name is Charlie Walker, I'm the Deputy CEO of the London Stock Exchange. I'm absolutely delighted today to be joined by Greg Smith who's the CEO of IP Group, a listed company on the London Stock Exchange, with a long and rich history which we'll get a chance to talk through. Greg, can we start a little bit with IP Group? It would be great just to understand a little bit more about the company, sort of the history. How did it come to be and what is it you really, really specialise in?
Greg: So IP Group, as you say, we're a very proud constituent of the FTSE 250 and we are an investor that's been backing science and technology businesses for over 20 years. We're actually one of the most active deep tech and science investors in the UK and the most active backer of university spin out. The common thread amongst those companies is they have some sort of deep tech or hard tech, some sort of intellectual property that underlies their competitive advantage, hence the IP in the name. As a business, we focus on sort of three main areas underneath that deep tech window. So things that we call the digital transformation, and that's everything from applied AI to all the back end stuff behind that. So future methods of computing, memory or comms, things that will hopefully be less energy intensive than current methods of compute. Secondly, then life sciences. So that's sort of health tech, so next generation sequencing, genetic analysis, AI enabled diagnostics, that sort of thing, and a little bit of therapeutics. And then the third area is clean tech. That's quite broad, ranges from nuclear fusion right the way through to hydrogen fuel cells. And I'm pretty sure that IP Group is probably one of the only listed companies in the world where you can get sort of exposure to breakthrough fusion technology. So you asked a little bit about the history. We sort of pioneered the idea of systematically investing into university spin outs about 20, 25 years ago. And that was through a groundbreaking partnership with Oxford University's chemistry department. And then over the last 20 years, we've really helped to build out quite a vibrant ecosystem here in the UK. We've been founding investors in those now dedicated vehicles that invest in Oxford, in Cambridge, around UCL in London. And as the ecosystem has evolved, we strengthened those ties with universities by buying an EIS fund manager called Park Walk. And through that, we have an award winning opportunities fund, an award winning EIS fund. And we also manage alumni funds each year for Oxford, Cambridge, Imperial, Bristol, and I'm sure we'll do more. So we've helped build out the ecosystem around this sort of science based investing in the UK. We see immense potential in these innovative companies and their ability to drive the economy and drive financial returns.
Charlie: And when I was looking through your materials, there's sort of a phrase in there which struck me, which is 'focusing on companies that are working to make a better world for the future through scientific discoveries', which is something that I'm sure resonates with a lot of people. Can you just talk a little bit about supporting innovation such as this and sort of where you see the UK on that landscape?
Greg: Yeah, I mean, we're very proud to be backers of scientific innovation that's been derived from universities. A lot of that comes from world class government funded research. We're one of the top places in the world to do this. Something like 10% of the world's leading IP comes from UK universities. I think in terms of scale, we've invested about two billion pounds into those sorts of companies. And that's fueled the creation of about four unicorns now. So companies worth a billion dollars or more. And those companies that we've backed have created more than 10,000 jobs. Many of those have been very highly paying skilled jobs, so it has a big wide impact for the economy. We've backed more than 500 science-based companies and they've been across a whole range of scientific innovation. I would say there's been some sort of towards maybe the stranger end of the spectrum. So we've had things like a nearly waterless washing machine. We had some inflatable furniture that was based on some IP from NASA, amazingly, some non-stick removable chewing gum. So not all of these things work. Not necessarily because the tech doesn't work. Sometimes it's product market fit. Sometimes the tech doesn't work as well as it should. Sometimes customer needs change. But there are plenty that have worked really, really well and I'll pick on a couple to illustrate that. So one, just recently in the last few weeks, we announced our largest cash exit to date. And we've sold a business called Feature Space, which is originally a spin out from Cambridge University to Visa. A fantastic business financially that made a great return for our shareholders. It was six times our money, 30 percent IRR, that sort of thing. And we were the first institution to invest in that company back in 2012. And we were the largest shareholder at exit. And our team was on the board of the company through that that journey. But what does Feature Space do? What's the sort of, you know, the impact behind it? Well it it protects payments and billions of them per annum from fraud. And it applies machine learning to better detect actual instances of fraud and stop them from happening. And fraud is a is a massive issue. So to have a business that both delivers a great financial return for our shareholders, but also, for example, can help NatWest customers to improve their detection of fraud by 135% when they put the Feature Space products in place is what we're sort of all about at IP Group.
Charlie: And you mentioned about some of the successes, I guess Oxford Nanopore would be, would be another one. For people who aren't familiar with them, they've got the world's first and only Nanopore DNA sequencing platform. And quite complimentary of IP, the CEO Gordon has said that the company wouldn't have gotten to where it's gotten to without the support of IP Group. Can you just talk a little bit about that gap that you fill in terms of how you're able to not only invest in companies, but also help them along that along that journey?
Greg: If you hear Gordon speaking, he will he will demonstrate the sort of, you know, the portability of these Nanopore sequencing devices. It's incredible. You just take this device, which is the size of a Mars bar, and you plug it into a laptop or you can integrate it in an iPad and you can do sequencing in the field anywhere. And so it enables end users all across the world and in space and down at the bottom of the ocean to be able to read the source code of life. So it's come an awful long way since we were the founder investor back in 2005. I think Gordon's spoken about the fact that when he first got involved with the business back in 2005, we spoke to a lot of the traditional VCs about the opportunity. And I think partly because of the way that VC is traditionally done through sort of fixed life funds where you've got five years to invest and five years to realise, it was it was difficult for a technology was going to take a number of years to develop commercially to be funded through those those vehicles. And so all of them turned it down. But our permanent capital model at IP Group meant that we could be the founding investor in that business. We were on the board as major shareholder up until the point of IPO. And we were the largest shareholder at the point of IPO. And personally, I'm incredibly proud of the scientific discoveries that are being powered by the Nanopore sequencing devices. So over the years, we've also helped Nanopore to raise quite a lot of capital through our networks and through funds that we manage. And I think on that that sort of point of being able to access expansion capital and get companies in the UK to really reach their potential, that's something where I see you know, a real opportunity. And hopefully companies will follow in Nanopore's footsteps and will float on the London Stock Exchange. They will stay here. They will scale here and they will deliver their products and services globally. And so IP Group gives people a way to access a diversified portfolio of these private businesses, which is not always easy to access. And if you're a pension fund or a long-term pool of capital, you could buy shares in IP Group is one way to get exposure. You could be an investor in our private funds or commonly co-invest into our growing businesses as they scale. Well, there's a there's a there's a huge opportunity here.
Charlie: I guess not just specific to IP Group for a moment, but the UK has got a huge growth ambition. I think there's a big sort of growing recognition of the need to grow the economy. And we've seen that sort of rise up the political agenda, both of the previous government, but also the current one. You're very close to the coal face in terms of companies that you see spinning out of universities that could really be the engine of that growth in the UK. And one of the questions that we sometimes get asked is, are there enough investable opportunities in the UK? I'm just keen for your sense as how do you see us doing as a country in terms of being able to create spin outs, create growth businesses in a lot of these frontier technology areas?
Greg: So one of the trends over the last 20, 30 years is that we've become very good at creating businesses, young businesses, SMEs in the UK, and it's talked about quite a lot. It's one of the one of the success stories, I think, in the UK. And at that start of the journey, one of the things that I think we've done particularly well is to have some some quite compelling tax reliefs for particularly private investors and individuals to invest into early stage companies. We have what's called the Enterprise Investment Scheme, the EIS scheme here. And that that relief really sort of encourages individuals to take equity risk to back businesses, early businesses. And we through our award-winning manager Park Walk, we manage funds on some on an annual basis, some on a permanent basis on behalf of about 7000 such investors. And we have about half a billion pounds worth of that capital. And that scheme is often a vital source of capital for the youngest and sometimes the riskiest early stage businesses. But they can also offer really compelling upside returns. And so through that EIS scheme, investors get some initial income tax relief. And then so long as they hold the shares for a period of time, more than three years, they are capital gains tax free. So it's a very, it's really sort of a world leading scheme. It's actually 30 years old this year. But over those 30 years, more than 30 billion pounds has been invested into more than 50,000 companies. And interestingly, almost half of all unicorns in the UK have had EIS funding at some point along their journey. So I think there's about 400, 500 so called 'knowledge intensive' companies, companies that are very IP rich, that are funded each year under the EIS scheme. If we can't find a few decent companies to scale from that sort of 400 or so a year, then I think we're definitely missing the opportunity.
Charlie: It's a great example of a scheme that has had quite the longevity has helped it. That sort of consistent source of capital, because by the very nature of the investments they're making, you need the assets to match the length of the duration the companies are likely to want or need to mature over. So a scheme you know, having a scheme that's been in place for 30 years, noting your point that it's gone through various iterations, but also has been recommitted to by the Labour government is it's a sort of I think it's a testament to long term thinking, and the power that it can have in terms of funding these businesses. And so I think from the London Stock Exchange's perspective, it's been wonderful to see schemes like EIS, VCT, and now the focus on pensions capital to really make sure that the capital is there. It's available for companies to drive this huge growth that we've seen in sort of really, really interesting and innovative companies in the UK. Greg, just a change tack for the last part of this. It's obviously been quite remarkable what IP has achieved over a fairly long period of time now. What drives you? And I guess what do you see the future of IP being from here?
Greg: Yeah, I mean, I guess what drives me and what drives my colleagues is quite consistent actually. We're lucky that we've got a really strong purpose of IP Group. What drives all of us is fundamentally finding and backing ideas that we believe are going to have a positive, lasting impact on people and planet. Whether that's a cure for cancer or rheumatoid arthritis or a technology that can help reduce emissions or extract lithium in a more energy efficient and water safe way. Then that is something which is really worth getting out of bed for in the morning. You can see the impact of those in companies like Nanopore, like Feature Space, and there are many others. IP Group is one of those unusual places where you've got both really compelling, interesting, impactful subject matter, and also the opportunity to deliver financial returns.
Charlie: I must say it's one of the privileges of this role is meeting so many of these private companies from around the world, but particularly from the UK, and hearing their stories and hearing about, as you say, the products and services that they're offering, some of the technologies are just mind boggling. Hearing those stories and then obviously the London Stock Exchange being at the more developed end of that spectrum, when they're now talking about potentially accessing public markets is something that never ceases to amaze us. It gives us a lot of optimism for the future. Greg, can I just say thank you very much for joining. Absolutely fascinating. I'm sure everyone listening feels the same. It's a real pleasure to spend the time with you.
Greg: Thanks for having us. Here's to doing more private companies through the journey to public and meaningful businesses listed on the London Stock Exchange.
Charlie: We look forward to that as well. Thank you, Greg.
