Commercialising Intellectual Property Opportunities: David Baynes, Fusion IP: Part 2

Our companies have kind of three steps, pretty obvious stuff really. In a first incubator step, that first triangle but arrow shape, that's kind of 12 to 18 months, 12 hopefully. And that's where we've first taken the idea, put it in a company, and we're very hands-on, very involved. We write business plans, we build websites, we recruit early management. We have this concept which is called the rower. That's actually somebody who's going to row the boat, kind of manager. He's not going to be the guy — he or she, sorry — it's not going to be the person that's going to float the company, probably not, might grow in JP, probably not. But they're the kind of rower somebody might come along and most importantly they wake up in the morning and they think company, and they work all day thinking company, and they go to bed thinking company. You need that. We found at the beginning when we started some of our companies, you had kind of part-time consultants and then you had non-exec boards. Quite frankly, nothing happened till every month and you all met again and then talked about it and then nothing much happens. You need that kind of guy in there. So they put those people in there and we do all that very early stage company. Fusion traditionally tended to fund those on its own, normally put about a couple hundred thousand in at that stage. As I'll explain in a minute, we often get people to help us now because it's a lonely place. On second, second stage, I guess this is more like 12 to 36 months. That's where beginning to turn into more like a company. Might beef up the management team, hopefully Fusion's less involved because management team takes on its own responsibility. You've always got third party investors coming in. If this is a physical sciences business, that'll be beginning to talk about making sales. In life science, particularly drug development, it'll be talking about preparing for a phase one trial, if that means anything to anyone, thinking about starting to put it into the human. And then there's what we call step three, last one. Step three, you're like a proper company. So physical sciences, that's trading, that's making sales. Probably life science is probably in therapeutic side, I mean drug development, I mean that's going into a phase one clinical trial, so first into people and seeing whether they're surviving. So that, and at that stage that's where it starts getting expensive for Fusion because we are obviously compared to normal VC pretty small players. We're an incubator really more than a VC. We haven't got loads of money, probably only through 750,000 per company. So at that stage we financially back out. Here's the master plan. The master plan is you start with 60% of the company in the early very dilutive rounds where the values are low. When you first start a company, it's not really worth half. In those early stages we try and hold our corner, what we call hold our corner, put in as much money as the others so that we don't dilute too much, if that makes any mathematical sense. If you can put in the same amount as everyone else, you should end up pretty much where you started. So those early rounds we're trying to put in to try and keep a relatively decent holding. And then only at the end, once the value's perhaps gained a bit, still not enormous values, but maybe pre-money 5 million or something. Pre-money, I mean the value of the company before you've put money into it, that's what I mean by pre-money. So worth 5 million and you put a million in, it's worth post six million. So pre-money 5 million, that's stage, but that's where we hope to be by phase or stage three of our company's developments. As I say, we back out, but hopefully even then if you raise let's say a couple of million, you still don't dilute too much. Now you'd still own your share of the five out of seven, so you've diluted some, but it's still very much in the game then.

We are joined by partners increasingly have partners. Finance Wales and Wales are absolutely brilliant. I say this every time, but genuinely they're absolutely brilliant. They're completely supportive, they understand risks, they're very diligent, they go through all our stuff very thoroughly, but they're always there and they're always very supportive of stuff we're doing in Wales. And we would have had a much, much harder job without them. They've come into about seven of our investments so far and I think it's a very, very good partnership because obviously we try and do as much of the work for them as possible. So rather than just, I think without a fusion you'd be tending to give people pretty raw sort of 'here's a chap or team in a lab with some ideas,' we try and say 'here's a company, here's a business plan, here's a website, here's a management team, here's patents,' you know, to try and give something that's much more investable for a third party investor. And there are people, team called IP Group, who are like us, not quite the same because they're not owned by the universities, but they're a publicly listed company that has about 10 university relationships and they've taken a 20% state infusion and now increasingly they're pushing money into ARS. So that's all good. So that's very much our model.

You'll be glad I've only got five minutes left. People often say what stage or what step I should say do your companies fall into? Well, they are not that relevant. I'll very quickly just touch on a couple. That's what I'll do. I'll do a really quick elevator pitch, which is good because then you won't realize how little I really understand them. This is a company called Dial, which is a company we own quite a lot of, about 52%. It actually started out in Sheffield, but we actually it's a spin-in, we've spun it into here and we've raised money in Wales for it. And now all the money we spend, we spend in Wales either at the university or with Welsh companies. Seems like a jolly good idea. Finance Wales are investors with us. It's actually ridiculously simple. You have what's called a circadian rhythm, that's kind of rhythm, a natural rhythm in which certain hormones are being released in your body. So when you go to sleep, particular circadian rhythm is low during the night, it picks up so when you wake up you've kind of got that boost of energy you need to get going. Certain drugs have not been administered traditionally in accordance with that rhythm. They tend to get just administered like an aspirin regime, you take one every four hours and you get spikes. So all it was was not tough, this is it, the pattern was why don't we deliver in accordance with the circadian rhythm? That's what we've done. Simple formulation, what they call a multiparticulate formulation up there, but like I think it's called Contact 2000 if you're old enough to remember the adverts, whole load of little beads in a capsule which release at different speeds and mimic this rhythm. Really simple. Just finished our phase one trial, looks pretty good. Hope to finish our phase two trial about 14 months time, third quarter of next year. And fun enough, we should have something quite valuable then because if you've got a drug, it's only a small market, well small, it's about 100 million actually, which is small obviously in therapeutic pharmaceutical markets, but big enough. So hopefully by then, by the time you get to the end of stage two, if it's working like it looks like it is, you've got something worth a little bit of money there. Probably worth quite a lot more than our market cap anyway, which you get. Missed another one.

Another one straight out of Cardiff, other laboratories in Cardiff. Very interesting company this one because it allowed us to get to market very quickly. You'll throw rotten tomatoes at me, but basically you have in telephones and in telephone base stations things called power amplifiers. They transmit using different frequencies, but they're using more than one frequency and the trick is to try and harmonize those frequencies. The more you can harmonize them, the less power you need to transmit. So you either use less power or you can get better signal. And effectively the Cardiff labs have developed a device that allows you, not just by iteration, not by trial and error, but a device actually perfect that harmony, so you get the best harmonic. So now technically, theoretically, we're not doing this, but theoretically you should be able to reduce the amount of power used by a telephone base station by about half if you could perfect the harmonic and put that in. Telephone base stations are using 1% of the whole national grid nowadays, so it's quite a significant potential. Interesting company. As I said, going about 14, 15 months, we're lined up for our first sales we hope within three or four months. We had the box, look a real product in the middle, that's our box. That actually sells about $300,000. We've got about eight or nine companies at the moment, two or three of which are fairly imminent on the sale. Let's see, you know, these companies are always difficult, they're always high risk, but if we can start making sales, be an interesting company. All based in Wales, doing manufacturing here, etc.

Probably the last one, if I got one minute, so Dominic be best to talk about that, he knows an awful lot more about that. These are some medical devices, again all come out of university, again only started about 12 months ago something like that. And these are products for use of laparoscopic surgery, keyhole surgery, about here in the midwife region. Keyhole surgery and what's about these is again speed to market. At the very beginning, I mean we've got very much of the therapeutic into drugs and that's because you have this enormous, you see companies going hundreds of millions which is great, the problem is they take a heck of a long time and the problem is an awful lot of them fail getting there. And the nice thing about having a bit of a more balanced portfolio, not just drugs but medical devices which is what this is, is they still take a while but they're comparatively quicker. These will go two years from start to being licensed and being used, and comparatively much less risky. You know, you're not actually injecting new chemical into people for example. So three different devices. You're saved by the bell, I won't go through them because it's actually half past. So there's our summary.

Completely integrated with Cardiff University. We are effectively a chunk of Cardiff University for all intents and purposes. We got about nine years left on this agreement, it's a pipeline agreement. You got lifelong time, bit overclaim there, it's more like eight, isn't it? Anyway, we have procedure in place, we have a team in place, there's nine of us all in place. 20 companies and we say at least six, I'd say there about nine or ten of them now that are looking like potentially very valuable companies. So so far so good.