Here’s a question that worries every technology transfer department and any innovative company that partners with a large multinational company – what if they mess it up or even try to kill it?

The Wall Street Journal reports on a High Court action tomorrow where Ploughshare Innovations, who licence the intellectual property for the Ministry of Defence’s Porton Down Laboratory, and its financial partner, private equity firm Porton Capital, are claiming up to £41m from 3M for failing to ‘actively and diligently’ market their MRSA test. The gist of the case is that Ploughshare think the technology was wonderful and should have made them millions while 3M claim that the technology wasn’t good enough and both sides have been fighting it out this year via press releases. Ploughshare also claim that “the reason 3M sabotaged the trial was because it was developing a more expensive molecular test to detect MRSA internally called the Simplexa and wanted it to be the first to reach the market.”

The case has been rumbling on since 2008, but it does have worrying implications for anyone involved in commercialising technologies. Normally this is done on a best effort basis, despite the attempts of licensing departments to tie companies down to a detailed schedule of sales and royalty payments, as getting a technology to market is not a linear process. The technology might be overtaken by other technologies, may face regulatory hurdles, may prove too expensive or fail to be commercially viable at any stage. In any case, in the current climate it is hard enough to predict the next few months, let alone sales figures for the next ten years.

Ploughshare must either be so hopping mad that they will go to any lengths for retribution or think they have a very good case which proves that the technology was deliberately killed. Either way the outcome will be interesting for anyone involved in innovation, and could open the floodgates for a legion of disgruntled inventors to sue their commercial partners.

The “Ten Years of Nanotechnologies” report with the best the worst and the funniest bits of the last decade is progressing, throwing up a number of gems as we trawl the archives. Here’s what we said in January 2001:

We’re going to make just one prediction, which is that the use of the word nanotechnology will see explosive growth in the coming year. Unfortunately, most of this growth is likely to represent bandwagon-jumping. Lets just hope that investors have learned the lesson of the dotcoms and that the flow of capital into nanotechnology-related ventures is more of a sober reflection of the true potential in the field, which, though vast, is not about to all come to fruition this year.

Proof of the old adage that you can lead a horse to water, but you can’t make it drink!

After a few years of being on the ‘funder’ side of the desk, I’ve vaulted across to start a new technology venture, and to begin the least pleasant part of entrepreneurship – fund raising! (Feel free to contact me once you have read what follows).

There are plenty of people out there who will tell you how to make the perfect pitch, how to write the perfect business plan, or how to pull together the perfect deal, which validates the old adage, those who can’t do teach (with my apologies to any academics who usually manage to ‘do’ and ‘teach’ very well).

The process isn’t horrible because of the amount of time and effort you have to put into financial forecasts, marketing plans or even explaining the technology, that’s all part of the fun, but what I won’t put up with is time wasters.

Time wasters are all too prevalent in the investment community and fall into two broad categories, those who don’t actually have any money, and those who do but aren’t allowed to spend it. As if we didn’t have enough to put up with counterfeit goods and drugs, we now have counterfeit investors. Just like a counterfeit watch, some of them can be very convincing.

Let me explain.

Back in the days when investors were nuts for nanotech, I received numerous offers to join investment companies, none of whom actually had any money but who thought that adding me to the executive team or advisory board would help them get some. It’s a chicken and egg problem for most new funds – investors want to know what deals are on the table and what the team looks like before they will consider investing, and the deal targets want to know how much cash a fund has before they will do much talking.  It’s quite a conundrum, and a tough one to solve which is why you don’t see too many brand new venture capital funds popping up. Quite often this type of fund is happy to waste everybody’s time by negotiating terms that they don’t have the financial capability to follow up on. It’s unfortunately very common and incredibly frustrating for all involved.

Those who have the cash but can’t spend it are almost as bad. They often work for a large established fund and show lots of interest, demanding rewrites of business plans and getting picky about IP portfolios and financial forecasts. As an entrepreneur you are happy that a sovereign wealth fund with billions of dollars to invest is interested in you, but only after multiple meetings does your new best friend realise that your business is actually too early stage, or that they actually only invest in property.

Over the past few years, the credit crunch has thrown up a whole new class of investors whose motives defy description.  This breed, mainly high net worth individuals outside Europe and the US is quite happy to sign term sheets and contracts, and then simply disappear for a few months. When and if you finally track them down, it turns out that some other business or investment vehicle hasn’t been doing too well and they don’t actually want to go ahead. Thanks for letting us know.

So the strategy is always to pick your investors carefully. There are good funds and sane individuals out there, but if you meet your ‘investor’ at the local Travelodge, or he expects you to pay for lunch, be very very wary!

The world of nanotechnology is a little poorer today with the passing of Charlie Harris, founder and chairman of the publicly traded VC fund, Harris & Harris.

Out of all the people buzzing around in the early days of nanotech, Charlie was one of the few people who got it, who understood that technology takes time to mature and that to make money you need to play a long game.

Charlie’s legacy of course includes Harris & Harris, (NASDAQ: TINY) but also some great memories.

I spent many pleasant evenings in a variety of wine bars around New York’s Rockefeller Plaza with Charlie and his long time partner Mel Melsheimer discussing where nanotechnology would take us and how to exploit it. I have to admit that I’m not a huge fan of VCs, there are plenty of arrogant know it alls in the business especially ten years ago, but Charlie was different, very different.

Out of all the investors I have worked with over the last decade, Charlie was one of the best, perhaps because he came from the old school of investing, or maybe because he had a deep passion for science and served as a trustee of Cold Spring Harbour Laboratory, or perhaps because he was a genuinely rounded individual, and conversations would range from nanotechnology to his passion for thoroughbred horses. Perhaps at the core it was just because Charlie was a decent person, who’d made some money, had nothing to prove, and while every other investor circling nanotechnology was out to prove how much (and in fact how little) they knew, Charlie had the sense and the patience to sit and listen to experts before he made his decisions.

Charlie’s family are planning a memorial service which will be announced at some point in the future.  In lieu of flowers, Charlie suggested contributions to Cold Spring Harbor Laboratory or the Center for Nanotechnology Science at the Koch Institute at MIT.

Rest in Peace Charlie.  I never thought I’d say this about a VC, but you were a decent honourable man, and a true friend to science.

Good to see a new report from the Judge Business School in Cambridge highlighting some of the myths about how high tech firms are created. Much of Europe tends to focus on large multi partner research schemes such as Framework 7 whereas much of business wold prefer something like the SBIR and DARPA contracts common in the US.

The report found little enthusiasm amongst successful, fast growing high-tech firms for the kinds of multi-partner research grants involving university-industry collaboration that are favoured by UK policy makers and, in contrast to the US, a dearth of R&D contracts with public sector customers. It argues that for decades UK Government policy has been based on three fundamental myths about how new hi-tech firms are created:

-       that university research is the key source of technology and innovation for new hi-tech firms

-       that venture capital is the primary source of finance

-       and that the best way for Government to support technology development in companies is by funding multi-partner research collaborations between universities and private sector firms

While the first two points may be true (to some extent) in Silicon Valley (at certain times),  countless billions have been frittered away trying to create new Silicon Valleys in various parts of the world.

The report also calls “for the establishment of “Intermediate R&D Institutes”, similar in some respects to the Fraunhofer Institutes in Germany, to provide a more mission orientated environment than is possible in universities to develop and commercialise technologies with long lead times.”

UK Announces £1Bn Innovation Fund and Outstanding Achievements at No.3 Tractor Factory in Hartlepool

The UK Government’s £1Bn Innovation Fund was announced for the fourth time this week (although I’m still waiting for the promised explanation from Lord Drayson). I wasn’t too impressed last time it was announced, or this time, and Mark Littlewood at Business Leaders Network is also sceptical

It may well be that the money will be raised and will be used to do something imaginative like backing successful angels and entrepreneurs through side-car funds or some similar mechanism. There are some interesting possibilities here that could make sure that the money is spent to ‘kick start British Technology investment’. But putting it into established funds, particularly ones without decent track records, will just create fund managers who are doing it for the management fees, won’t take the kind of risks that are needed and don’t have the experience to make success happen. Oh and it could create a false market.

It might be better if the government could wean itself off the addiction to announcing half baked ideas involving big numbers and actually implement something. It is hard to see the value in constantly re announcing something and the latest news about the fund rings as hollow as a set of Soviet era tractor production statistics.

The Wall Street Journal points to further evidence of the collapse of Venture Capital.  Typical of the doom laden quotes is this:

“Dallas is an entrepreneurial city, but it won’t be driven by venture capital going forward,” said Daniel T. Owen, a venture capitalist at the 16th-floor firm H02 Partners, which plans to wind down its venture business over the next few years. “The pure venture-capital model is really thriving in just Silicon Valley and Boston.”

The bottom line is, in this case the bottom line, as VCs who haven’t managed to make any money for their investors are left bemused by the unwillingness of anyone else to hand over cash. I’m bemused as to whether that’s an arrogant or stupid view of the world.

Toto, This isn’t 1997 any more!

I spent a chunk of last week on one of my committee chairing jobs wrestling with both sides of a rather tricky issue. On the first day I was chairing a committee attempting to make sense of the recommendations of independent experts on what projects should be funded and in what priority. In six years and €70 million I don’t think we have had a single meeting where the initial and final rankings have been the same. Given the length of the proposal writing process, the farming out to expert reviewers and the collation of the results, I’m always amazed that in one day we can extract enough detail from the screeds of information to be able to apportion our budget in the most effective manner.

But every year we manage it, and after all these years I’m happy to say that we have a committee with enough experience and sharp enough minds to be able to cut through the usual claims and distinguish between good science and mediocre.

The second day involved a trickier problem, and one that we will be seeing a lot more of in the coming years. After seven years of nanotechnology programs, should we continue to fund nanotechnology as a separate entity, or should we try to fold it into a more applied area? In this case the proposed future home was ‘production methods.’

It’s a hard one to resolve. On on hand nanoscience needs to be continued, and will be continued. Chemists didn’t just decide to give up chemistry once they had discovered the Haber-Bosch process and decide to become psychologists instead, and physics didn’t come to a halt with the discovery of nuclear fission. But there is a growing feeling in governments around the world that with limited resources, perhaps there needs to be a bit less science and a bit more technology.

I instinctively like the idea of ‘production methods’ as it does find a nice home for a number of emerging technologies, nanotechnology, synthetic biology, industrial biology and probably a few more niche -ologies. However I am always keen to make the distinction between old and new production methods. There seems to be growing evidence that we are approaching a point where we can change the way we produce things, whether materials, drugs or food, and the key difference is between top down (old) and bottom up (new). What makes me even more comfortable with this approach is that it nudges nanotechnologies a little closer to the life sciences, which, as we make a transition from cold hard crystalline top down technologies to warm wet flexible bottom up production methods is exactly where nanotechnology needs to be.

So really we need more nano, and to look beyond nano to its interface with other technologies and their applications.

That’s easy for me to say, but much harder to wrestle into the strictures of a government funding program cutting across several ministries, and totally impossible for a venture capitalist to understand. We made some progress, but I suspect there will be many more meetings along similar lines before a workable solution is found.

The UK government is giving everyone a chance to influence and inform the UK strategy (what do you mean, what strategy? eh?)

While there is no new information, it’s good to see everything brought together in one place. Each section allows users to give their opinion, and also has a high level SWOT analysis, although some of it is a little weird, such as this from the “Innovation and Business Climate” section.

The development of specific financial risk analysis tools would provide UK entrepreneurs with an ability to manage risk exposure in concert with CSR. The UK could become the centre of excellence for business and investment advice on nanotechnologies.

@Lord Drayson had a quick look at my take on the new innovation fund and tweeted

This article misunderstands how this fund will work. I will blog on the BIS site to spell it out.

I’m looking forward to it.

There is no doubt about the commitment of the Lords Mandelson and Drayson to stimulating the UK economy though science and technology, they have been banging on about it for years. It’s rare to see one person in government who ‘gets it’ let alone two, but the devil is always in the details (cue another rerun of Yes Minister)

In fairness, I haven’t heard a squeak about science and innovation from the opposition Conservative party recently apart from a few general remarks to the Royal Society.

Perhaps a half baked plan is better than none at all?

I’m probably nor the only one to be underwhelmed by the UK governments new £1Bn “Innovation Fund” – it’s actually £150m but there are hopes that with private sector leverage it could swell to £1Bn by, erm, 2019!

The main worry is that the UK government has made a habit in recent years of announcing things and then forgetting about them. There was a a £750 million fund for innovation to “stimulate growth in the UK’s industries of the future” announced in April, and according to the Telegraph

This new ‘UK Innovation Investment Fund’ is not the first initiative launched this year. The much heralded £75m Capital for Enterprise fund, set up in January to take stakes in over-indebted companies, has still to announce its first investment. A women’s enterprise venture capital fund, launched almost a year ago, has also so far resisted the temptation to profile its progress.

One has to wonder whether the true purpose of these initiatives is simply to produce sound bites such as

“This fund will help build Britain’s future by investing in key sectors. It will provide crucial support for our most promising start-ups and existing small companies just when they need it most. Venture capital finance is the lifeblood of innovation and crucial to ensuring the commercialisation of the discoveries coming out of our research base. The fund will boost future UK competitiveness,” the Prime Minister said..

or headlines like this

Government Launches £1 Billion VC Fund!!!!

The fund hopes to make investments by the end of the year, but the maths does look a bit dodgy, even for the VC industry as discussed here

We’re obviously not in receipt of the facts (and this sort of addition might be responsible for MP allowances scandals). £150 million of public money plus equal participation from the private sector equals £300 million and not £1 billion. Now – we can make allowances that this is over 10 years so the revenue gained from licensing and exits of companies funded might contribute sufficient back to increase the value of the fund. Might.

Either way, the £150 million will barely cover the administration fees of the various private VC funds that will be needed to make up the other £850 million to make this into a £1 billion fund.

Given that the Lords Mandelsonand Drayson are passionate about the need for technology investment, I’d love to think that we are missing something and that there is a solid and well thought out initiative behind this announcement, but for the moment it does look somewhat half baked, especially in light of the fact the government doesn’t appear to have any money to pay for any of this!

The chart below shows the recent decline in valuations of late stage venture backed companies as reported by the Wall Street Journal.

It’s a decline that hurts everybody, with cash starved companies taking whatever they can get, which is often a far cry from what was promised and according to the WSJ, existing investors are increasingly resorting to propping up valuations, something that is clearly only sustainable in the short term.

In the first quarter, 57% of all venture rounds in the U.S. were done by insiders only, according to VentureSource. The prevalence of such financings has raised concerns that venture firms are propping up valuations to avoid write downs that would affect fund performance. A new investor is more likely to question whether a company is over-valued.

No doubt everyone is hoping that a recovery will take place ans valuations will soar once again, but if we are in for a longer slump it;s a dangerous game to play and we will see more VCs becoming over exposed and undercapitalised.

In my predictions over the last year I mentioned that Clean Tech would have a rocky time in 2009 for four reasons

1. Renewable energy interest tends to lag oil prices by 6-12 months and with oil almost back to 2006 levels a lot of transient interest will evaporate
2. Lot’s of clean tech companies based their business models on sustained high oil and commodity prices – so a recalculation will reveal that they don’t stand a cats chance in hell of being profitable
3. The stampede by Venture Capital into every clean tech deal going for the last two years has inflated valuations to levels that will never return any cash to investors – and that was before anyone took into account  recessions & pestilence
4. As a result, VCs would find themselves locked into very expensive deals and have trouble shaking down their limited partners for the funds necessary to keep in the hunt

Don’t say you weren’t warned. It must be getting serious when even VCs are getting contrite – according to the New York Times:

David J. Prend, managing general partner at RockPort Capital in Boston and Menlo Park, Calif., said that the promise of big returns prompted too much “me-too investing,” when venture capitalists put money into start-ups that do the same work as other companies.

“There was probably some stuff that shouldn’t have been funded,” he said. “It’s kind of good for some of that to get washed out.” For clean tech to be a viable industry, investment should not return to recent highs, he said.

Mr. Vassallo blamed the credit crunch for the decline in clean-tech investing. More than half of clean-tech investments have been in alternative energy like solar and biofuels, which typically require building big factories. These projects depend on capital like project finance loans as well as tax equity investments, whereby corporations back green energy projects and reap the tax credits. These have been “frozen or completely disintegrated,” he said.

This is weird & spooky. Didn’t the same folks say the same thing about dot com investing, about nanotech and now clean tech? Are these the people we see rooted to spot, continually banging their heads against a wall crying “I know there was an exit here somewhere!”

Mark G. Heesen, president of the National Venture Capital Association, prefers to call the clean-tech investment cycle “an education curve.”
Still, he said, “if the industry has gotten one criticism year after year, it’s that we have a lemming mentality, and solar probably represents that in the clean-tech space.”

Stephen Fleming at Academic VC has an interesting article about the diverging interests of angel investors & VCs. The basic premise is that the high returns required by venture funds drive them to take decisions which are neither in the interest of the founders nor the early stage (Angel) investors.

I’ve seen this happen in a number of companies, and it’s not pretty. As a result, the founders often end up with next to nothing, even if there is an exit.

British scientists are hopping mad about comments from Bank of England Governor, Mervyn King, who recently argued against increased science funding, presumably on the grounds that all the money had already been spent on health and safety agencies, totally ineffective government agencies and bailing out Scottish Banks.  I would expect the Governor of the Bank of England to understand a little bit of basic economics and that economic growth has always come from technology (think of the Industrial Revolution which created the British Empire) rather than bulldozing money into a pit and setting fire to it. I think I’m hopping mad too.

With lunatics like this running the asylum its hardly surprising the UK economy is in its present state.

Sir Roy Anderson, rector of Imperial College is being firmly diplomatic rather than hopping mad, and calling for a £1bn venture capital fund to support small high technology companies, an ideas as insane as Mervyn Kings. For all the whinging about the UK venture capital industry, it’s not too bad. It’s not Silicon Valley but it’s much better than most of the rest of the world. However, like their UK counterparts it doesn’t work too well, and shovelling yet more public money into another lame duck industry won’t do any good either.

It’s hard to believe that the finest minds in the country can’t come up with a better idea for an economic stimulus package than chucking loads of public money at things that don’t work. Putting their underpants on their heads and shouting at the traffic would   have as much effect and be a lot better value for taxpayers.

Despite its recent woes, there is enough liquidity in the VC industry to continue doing what it does, but what it doesn’t do is invest in early stage technology companies. In fact not many people do and that’s where the money really needs to go, to support early stage companies and get them to the stage where they can attract further capital from customers, banks or even VCs.

As I wrote in February, Let a Million Flowers Bloom!

Given that the returns on most asset classes are now negative, entrepreneurs are one of the few places where some wisely invested cash will give a decent return. Imagine what would have happened if governments had refused to bail out the banks and put the cash into technology, entrepreneurs and small businesses instead? We’d still be a few hundred billion in the hole, but at least there would be some chance of getting some of it back and stimulating the overdue reinvention of the economy.